At Mansion House 2025, as part of the financial services growth and competitiveness strategy, my right hon. Friend the Chancellor of the Exchequer confirmed her intention to uphold the ringfencing regime to safeguard financial stability and depositors while taking forward meaningful reform to update the regime and support the Government’s growth agenda. In response, His Majesty’s Treasury has, in close collaboration with the Bank of England, undertaken a review of the regime.
The review has now concluded, and its findings can be found in the review report “Safeguarding Stability, Enabling Growth”, published on gov.uk. The Government will take forward reforms to the regime to enable the ringfenced banks to provide more productive funding to UK business and the real economy, supporting the Government mission to deliver sustainable economic growth.
The ringfencing regime will continue to uphold the financial independence of ringfenced banks and protect retail depositors from volatility in global financial markets.
The Government will take forward reforms in five key areas:
Creating a more agile and proportionate ringfencing framework
As part of the upcoming financial services and markets Bill announced in the King’s Speech, the Government will take forward primary legislation to:
Address unnecessary duplication, by enabling the Prudential Regulation Authority to remove ringfencing rules where the objectives of ringfencing are already met by other prudential requirements or the resolution regime.
Enhance regulatory flexibility, through removing elements of primary legislation that are overly prescriptive.
Deliver better regulatory alignment by ensuring the PRA’s approach to making ringfencing rules reflects developments in the resolution regime for banks.
Enable HM Treasury to move aspects of the regime out of legislation and into PRA rules, so they can be updated in a more agile and proportionate way, and creating greater scope for the PRA to use modifications and waivers.
Allowing ringfenced banks to provide more products and services to support the UK economy
Subject to consultation on the detail this summer, the Government will:
Introduce a new growth allowance, supporting the financing needs of the real economy by permitting ringfenced banks to undertake activities otherwise prohibited by the regime. The Government will consult on an allowance worth up to 10% of their pillar 1 risk-weighted assets for credit risk, which could be used to unlock up to £80 billion of financing for UK businesses.
Allow ringfenced bodies to offer a more comprehensive range of hedging products to businesses, supporting investment by ensuring they can more effectively manage their risks as they grow.
Ensure RFBs can fully support Government priorities through the British Business Bank and National Wealth Fund by enabling participation in funding schemes that are guaranteed or offered by UK public financial institutions.
Permit exposures to a wider range of financial institutions where those firms undertake activities that the ringfencing regime would permit the RFB to undertake directly.
Addressing inefficiencies in how ringfencing is applied to banking groups
The PRA and Financial Policy Committee will review how ringfencing interacts with certain capital requirements, including how the Basel 3.1 output floor and the leverage ratio is applied to banks in the regime.
The Bank of England will review its calibration of the internal minimum requirement for own funds and eligible liabilities scalar to ensure the appropriate amount of loss-absorbing capacity is pre-positioned at the RFB.
Sharing resources and services more flexibly across the ringfence to reduce or remove operational burdens
The PRA has today announced that it will consult on allowing firms more flexibility as to how they share operational resources across the ringfence.
The Government will consult on legislation to enable surpluses in closed RFB pension schemes to be shared with other schemes in a wider banking group, subject to certain conditions, enabling flexibility in how surplus funds are used.
Maintaining proportionality
The £35 billion primary threshold will be subject to review every three years, with a view to uprating it in line with changes to the market and deposit base.
The PRA will review ringfencing-specific reporting requirements as part of its regular review of its ringfencing rules, reporting in 2028, to ensure they are proportionate once the revised regime is in place.
[HCWS27]