On 18 May 2026, HM Treasury issued a policy paper, ‘Safeguarding Stability, Enabling Growth: The Ring-Fencing Review’.
Background
At last year’s Mansion House the Chancellor confirmed the government would uphold ring-fencing and undertake a review (the Review) to identify meaningful reform to support growth.
Proposed reforms
Following the Review, the government has announced in the policy paper that it will take forward a package of meaningful reform spanning five key issues:
- Creating a more agile and proportionate ring-fencing framework: As part of the upcoming Financial Services and Markets Bill announced in the King’s Speech, the government will take forward primary legislation to:
- Address unnecessary duplication by enabling the Prudential Regulation Authority (PRA) to remove ring-fencing rules where the objectives of ring-fencing are already met by other prudential or resolution requirements.
- Enhance regulatory flexibility through removing elements of primary legislation that are overly prescriptive.
- Deliver better regulatory alignment by ensuring the PRA’s approach to making ring-fencing rules reflects developments in the resolution regime for banks
- Enable HM Treasury to move aspects of the regime out of legislation and into PRA rules, so they can be updated in a more agile and proportionate way and creating greater scope for the PRA to use modifications and waivers
- Allowing ring-fenced banks to provide more products and services to support the UK economy: Subject to consultation on the detail this summer, the government will:
- Introduce a New Growth Allowance, supporting the financing needs of the real economy by permitting ring-fenced bodies (RFBs) to undertake activities otherwise prohibited by the regime. The government will consult on an allowance worth up to 10% of their Pillar 1 risk-weighted assets for credit risk, which could be used to unlock up to £80 billion of financing for UK businesses and infrastructure.
- Allow RFBs to offer a more comprehensive range of risk management products to businesses, supporting investment by ensuring they can more effectively manage their risks as they grow.
- Ensure RFBs can fully support government priorities through the British Business Bank and National Wealth Fund by enabling participation in funding schemes that are guaranteed or offered by UK Public Financial Institutions.
- Permit exposures to a wider range of financial institutions where those firms undertake activities which the ring-fencing regime would permit the RFB to undertake directly.
- Addressing inefficiencies in how ring-fencing is applied to banking groups: The government confirms that:
- The PRA and Financial Policy Committee (FPC) will review how ring-fencing interacts with certain capital requirements, including how the Basel 3.1 output floor and the leverage ratio are applied to banks in the regime.
- The Bank of England will review its calibration of the internal-MREL scalar to ensure the appropriate amount of loss-absorbing capacity is pre-positioned at the RFB.
- Sharing resources and services more flexibly across the ring-fence:
- The PRA has announced (see further below) that it will consult on allowing firms more flexibility as to how they share operational resources across the ring-fence.
- The government will consult on legislation to enable surpluses in closed RFB pension schemes to be shared with other schemes in a wider banking group, subject to certain conditions, enabling flexibility in how surplus funds are used.
- Maintaining proportionality: The government has identified additional areas to ensure the regime remains proportionate:
- The £35 billion primary threshold will be subject to review every three years, with a view to uprating it in line with the evolution of banking practices and growth in the deposit base.
- The PRA will review ring-fencing specific reporting requirements as part of its regular review of its ring-fencing rules, reporting in 2028, to ensure they are proportionate once the revised regime is in place.
PRA announcement
On 18 May 2026, the PRA announced plans to consult on reforming rules around shared operational services for ring-fenced banks.
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.
Next steps
Changes to ring-fencing primary legislation: The upcoming Financial Services and Markets Bill, through which the government will bring forward primary legislation to create a more agile and proportionate ring‑fencing framework.
Changes to secondary legislation: During the summer of 2026, the government will publish a consultation on the operation, level, and scope of the New Growth Allowance and other reforms to allow ring-fenced banks to provide more products and services to businesses. These changes will be delivered via secondary legislation once the Financial Services and Markets Bill has been enacted and as soon as Parliamentary time allows. During 2028, the government will undertake its first review of the primary core deposit threshold.
Changes to the PRA rulebook: During the summer of 2026, the PRA will publish a consultation on giving firms flexibility to share operational services across the ring-fence. In 2028, the PRA will review ring-fencing specific reporting requirements as part of its regular review of its ring-fencing rules.