Skip to content

UK banking reform: ring-fencing – next steps?

Since the Banking Reform Act was given Royal Assent on 18 December 2013, the Government has focused on the policy detail of the ring-fencing reforms, as set out in secondary legislation.

Following HM Treasury's consultation in 2013, the Government has now published two orders governing the scope of the ring-fence1 and the range of activities that will not be permitted inside the ring-fence plus certain exemptions from the excluded activities and prohibitions.2 A large number of changes were made to the draft regulations that were consulted upon following industry feedback. These were required in order to ensure that the regulations would give rise to a viable ring-fenced bank. Whether this has been achieved will become apparent during implementation.

In July 2014, HM Treasury published a consultation paper inviting comments on the draft regulations, which ensure that ring-fenced banks are not and cannot become liable for the pension liabilities of other entities (except other ring-fenced banks in their group, or wholly owned subsidiaries of ring-fenced banks). The draft regulations being consulted upon are less prescriptive than they could have been and this is seen as the right approach by the industry.

In order to comply with the ICB recommendations, the Government is committed to ensuring that the ring-fencing reforms are completed and effective from the start of 2019. To that end, it has made clear that all primary and secondary legislation will be completed by the end of the current Parliament, namely May 2015. It is currently envisaged that it will actually be completed by the end of this year. This is good news. What is less positive is the current timetable for the PRA's rules as to the legal, economic and operational independence required from ring-fenced banks – the rules governing the "height" of the ring-fence.

In June 2014, the PRA stated that it would publish a consultation paper on the structural reforms required by banks between September and November of this year. Given a good chunk of the "meat" of these reforms will be contained within the PRA's rules, it was disappointing to learn in July (during a House of Lords debate on the secondary legislation), that the PRA may not finalise those rules before 2016 or even 2017. This leaves the industry implementing large scale change without the benefit of a fundamental piece of the puzzle.


  1. Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2010 (SI 2014/1960).
  2. Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014 (SI 2014/2080).
Legal and Regulatory Risk Note
United Kingdom