Source: Sharecast
Any lender that has over £35bn of core deposits and undertakes material investment banking activity is currently subject to ring-fencing. The rule took effect in 2019 and is designed to protect depositors and their funds by keeping core retail banking separate from more complex, high-risk investment banking activities. Barclays, HSBC, Lloyds Banking Group, NatWest and Santander UK are all subject to ring-fencing.
However, some banks now believe that new consumer protection laws make it redundant. They also argue that the system as it currently stands stymies growth and adds to costs.
Following a review first announced by chancellor Rachel Reeves last year, the Bank of England’s Prudential Regulation Authority confirmed on Monday that it plans to overhaul the rules, and would publish a consultation in the summer. In particular, it wants to allow essential back office functions to be shared, something currently prohibited under the current regime.
The Treasury will also look to widen the type of activities allowed within ring-fenced entities, with lenders given an allowance worth up to 10% of ring-fenced assets to carry out currently prohibited activities.
David Bailey, executive director for prudential regulation at the PRA, said: "The forthcoming consultation…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 while retaining important protections for consumers’ deposits."
Lucy Rigby, chief secretary to the Treasury, said the planned changes would "unlock finance for growth" by freeing up £80bn of extra lending, while keeping the UK banking system "resilient, competitive and fit for the future".
Most banks have long lobbied for changes to the regime, which is widely regarded as one of the world’s most stringent. However, Barclays last year backed it, arguing that it protected depositors.