PRA announces ring-fence change to reduce costs

News release

The Prudential Regulation Authority (PRA) has today announced plans to consult on reforming rules around shared operational services for ring-fenced banks.

Any bank that has over £35 billion of core deposits and undertakes material investment banking activity is subject to the ring-fencing regime, which was introduced in 2019 as a post-financial crisis reform. These large banking groups are split into ring-fenced and non-ring-fenced entities, so core retail banking activities are kept separate from investment banking activities, in order to protect customer deposits and maintain financial stability.

The PRA will publish a consultation this summer that will propose allowing firms more flexibility as to how they share operational resources across the ring fence. Reform in this area will seek to streamline requirements and unlock new flexibilities and cost savings for firms, for example in how groups with ring-fenced entities utilise operational services, such as data-processing services, information technology and back office functions, across the group. 

It is possible to reform this area and still maintain safety and resilience because of other advances in the PRA’s toolkit since the ring-fencing regime was introduced. In particular, the development of the UK’s comprehensive bank resolution regime has facilitated making these changes to the ring-fence regime. The move supports the implementation of the PRA’s secondary competitiveness and growth objective.

David Bailey, Executive Director for Prudential Regulation at the PRA, said: 

“The PRA’s forthcoming consultation on shared services is designed to make the ring-fencing rules more proportionate, reducing the compliance costs for Britain’s biggest banks. It will allow banks more flexibility in the way they support their customers whilst retaining important protections for consumers’ deposits.”

The PRA’s plan to consult on changes to the shared services rules for ring-fenced banks form part of the package of reforms to the UK ring-fencing regime also released today by HM Treasury - Safeguarding Stability, Enabling Growth: The Ring-Fencing Review - GOV.UK. The Bank and the PRA have collaborated closely with HMT on the review of the regime.

Today’s announcement builds upon several recent changes announced or implemented by the PRA and the Bank of England to promote growth, competitiveness and competition in the banking sector, including:

Notes to editors

1. Read the full review document.
2. Read the list of ring-fenced bodies.