Ring-fencing

Ring-fencing came into force on 1 January 2019. It requires the largest banking groups’ to separate core retail banking services from activities such as investment and international banking.

This page was produced before the UK’s withdrawal from the EU. The UK has now entered into a transition period, due to end on 31 December 2020, during which EU law will continue to apply. We will update this page at a later date, as appropriate, to reflect the legal and regulatory framework applicable at the end of the transition period.

Overview

As of 1 January 2019 the largest UK banks are required by UK law to separate core retail banking services from their investment and international banking activities. This is known as ring-fencing. This page outlines the ring-fencing regime and our approach to it.

Latest ring-fencing updates, news and publications

21 September 2020: We published the Proprietary Trading Review, as required by FSMA (2013). The report reviews the extent of proprietary trading engaged in by PRA-authorised deposit takers and investment firms incorporated in the UK.

Background to ring-fencing

The global financial crisis revealed the need for fundamental changes to how banks are run. As part of its response to the crisis, the Government developed legislation to require UK banks to separate the provision of core retail services from other activities within their groups. These requirements are known as structural reform or ring-fencing. Ring-fencing is a key part of the Government’s package of banking reforms designed to increase the stability of the UK financial system and prevent the costs of failing banks falling on taxpayers.

The aim of ring-fencing is to protect UK retail banking from shocks originating elsewhere in the group and in global financial markets. It covers banks with more than £25 billion of core (retail and SME) deposits. Under the new regime, core banking services – taking deposits, making payments and providing overdrafts for UK retail customers and small businesses – become financially, operationally and organisationally separate from investment banking and international banking activities. Banks that have been separated (or 'ring-fenced') from the rest of their groups in this way are known as ring-fenced bodies. 

The Implementation of ring-fencing

Ring-fencing regime came into effect on 1 January 2019. All banks in scope of ring-fencing completed the necessary implementation activities, and £1.2 trillion of core deposits were placed in ring-fenced banks. To ensure the structure of their business is compliant with structural reform requirements, over 2017-2018, the banking groups in scope adopted new legal structures and ways of operating through large and complex restructuring programmes. Many banks restructured their business using the 'ring-fencing transfer scheme' (RFTS) process. 

The final policies that firms were required to implement can be found under ‘Latest structural reform news and publications’. This includes final policies on governance, legal entity structures, operational continuity arrangements, prudential requirements, intra-group arrangements, financial market infrastructures and reporting and residual matters. 

In future, more banks may be required to ring-fence if they pass the threshold of £25 billion core deposits (measured on a three-year rolling average basis) either through organic growth or via acquiring another bank. Any firms that are expected to meet this threshold should discuss their plans to become compliant with ring-fencing with their supervisors as early as possible. 

The list of ring-fenced bodies are available on our 'Which firms does the PRA regulate?' page.

The supervision of groups in scope of ring-fencing

Ring-fencing does not change the fundamental principles of our supervisory approach. However, it could require more intensive supervisory engagement for groups in scope of the new regime because of the new legislative and regulatory requirements and the new entities we need to supervise.

Our focus in the early post-implementation period has been on ensuring the ring-fencing arrangements that have been established by firms are effective in practice, and remain so. In addition to checking the compliance with the new legislative and regulatory requirements, we will continue to test the effectiveness of the firms' ring-fencing control environment, the robustness of the financial position of ring-fenced subgroups, and their ability to make decisions independently.

More information on the way we carry out our role in respect of deposit-takers and designated investment firms, including ring-fenced banks, can be found in the PRA's approach to banking supervision.

Regulatory reporting related to ring-fencing

Banking groups with a ring-fenced entity are required to submit additional regulatory returns. These include the addition of RFB sub-group reporting for existing in-scope returns, and the addition of new RFB00x returns. Information on the ring-fencing regulatory reporting requirements can be found on the Regulatory reporting – banking sector webpage.

Further information on ring-fencing

For an overview of ring-fencing and its impact on banks and their customers, see 'Ring-fencing: what is it and how will it affect banks and their customers?' Quarterly Bulletin 2016 Q4 and 'Why are retail banks being 'ring-fenced' and how will this affect me?'

For more information on RFTS, see the PRA’s approach to RFTS.

We are required by the Financial Services (Banking Reform) Act 2013 to report annually on certain aspects of ring-fencing compliance. The Prudential Regulation Authority Annual Report 2019 for the first time included a section on ring-fencing. You could also read about ring-fencing in the Prudential Regulation Authority Business Plan 2019.

Also see the Financial Conduct Authority (FCA) and HM Treasury information on ring-fencing.

Please see The National Archive for historic structural reform information, including detailed policy development news from 2014-2017. 

Ring-fencing news and publications

This page was last updated 10 November 2020

Give your feedback

Was this page useful?
Yes
No
Add your details...