Bank of England’s Stance on Ring-Fencing Reforms
LONDON, Nov 18 – The Bank of England is looking to soften certain aspects of the UK’s banking ring-fence regulations, although it’s pushing back against major reforms proposed by banks, sources indicate. This cautious approach aims to maintain essential safeguards during an ongoing government review.
The ring-fencing rules require banks to separate their retail operations from investment banking and other activities. Implemented after the financial crisis, this regulation is intended to protect depositors and taxpayers from financial turmoil.
Back in July, Rachel Reeves, the Chancellor of the Exchequer, committed to “meaningful” reforms aimed at reducing bureaucratic hurdles to foster economic growth.
These rules specifically impact banks with retail deposits exceeding £35 billion, including major players like Lloyds, NatWest, HSBC, and Barclays. Critics of the ring-fence assert that it limits Britain’s competitiveness on the global stage, arguing that its removal could unlock capital for lending.
The banks have been advocating for the Treasury, which holds the final decision-making power regarding significant reforms, to permit unring-fenced banks to use part of the £35 billion to fund activities such as investment banking, according to sources from two financial institutions.
However, officials from the Prudential Regulation Authority (PRA), the Bank of England’s regulatory body, are against this suggestion, arguing it would effectively dismantle the ring-fencing protections.
Instead, the central bank is willing to consider smaller adjustments, allowing shared back-office functions and activities like vanilla derivatives trading to occur within ring-fenced divisions.
These potential changes would become part of the PRA’s rulebook, simplifying the process for future modifications.
The PRA did not offer any comments, and the Treasury did not respond to inquiries.
The “Next Best Thing” After Ring-Fencing
In her July speech, which focused on the need for ring-fencing reforms, Reeves mentioned that existing regulations were “choking businesses down.”
Just a week later, BoE Governor Andrew Bailey defended the current ring-fencing rules, asserting that maintaining fundamental financial stability cannot be compromised.
One executive from a commercial bank noted that these rules were created before the rise of international banks, like JPMorgan, expanding their UK retail operations. Notably, lenders below the £35 billion threshold can utilize their deposits for investment banking.
Another bank representative stated that accessing the £35 billion would be the “next best thing” to completely discarding the ring-fence.
In early 2026, the PRA is expected to collaborate with the Treasury to present a reform proposal.
PRA CEO Sam Woods was instrumental in designing the ring fence, which has been in place since 2019, and his current term will conclude in June.
Interestingly, Barclays is the sole major UK bank supporting the existing rules, having established separate service arms for retail and investment divisions.
