Proposals for a revised UK ring-fencing regime

On 28 September 2023, the Government published its long-trailed consultation paper outlining proposals for material near-term reforms to the scope and extent of the UK ring-fencing regime (the “HMT CP”). The PRA has published an accompanying consultation (CP 20/23) (the “PRA CP”) on changes to its rules that will integrate with the changes proposed in the HMT CP. The consultations close on 26 and 27 November 2023, respectively, with a view to implementing the reforms in the first half of 2024.

In addition to these near-term measures, the Government has confirmed – in its separate response to the call for evidence on aligning the ring-fencing and resolution regimes – that it will continue to undertake a wider consideration of the benefits of ring-fencing and to outline any proposals for further reform in the first half of 2024 (the response can be found here). This initiative will run in parallel with the PRA’s review of the ring-fencing regime which must be completed by the end of 2023.

We generally expect the proposals in the HMT CP and the PRA CP to be welcomed by the market. Key benefits – as previously trailed by the Government in announcing its Edinburgh Reforms agenda include: 

• increasing the threshold for application of the regime from £25 billion core deposits to £35 billion core deposits; 
• exempting non-G-SIB groups with small trading arms from the regime entirely; and 
• removing the barrier on EEA branches and subsidiaries within the ring-fence.

There are also welcome reforms that include expanding or clarifying the product set that ring-fenced banks can offer (for example, to offer inflation swaps) and enabling de minimis RFI exposures.

Read our summary note to find out more.