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* Changes ​could provide ⁠up to 80 billion pounds more in business lending

* British ​rules are among the world's most stringent

* Bank of England's prudential arm will consult over coming months on further changes

LONDON, ‌May 18 (Reuters) - Britain on Monday set out changes to rules that require banks to ring-fence their retail arms that it said would create ⁠a "more agile and proportionate regime," though it stopped short of a ⁠major overhaul.

A major piece of post-financial crisis ​regulation, ring-fencing requires the largest lenders to separate their retail businesses from other activities such as investment banking and is designed to shield depositors and taxpayers. It took effect in 2019.

The finance ministry said changes would let banks provide up to 80 billion ​pounds ($107 billion) ‌in additional lending to businesses and give the Bank of England's prudential arm more powers to amend the regime in future. However, the regime's core protections are left unchanged.

The rules, among the world's most stringent, apply to banks with 35 billion pounds in retail deposits. There are currently five: Barclays, HSBC, Lloyds, NatWest and Santander UK.

BARCLAYS ALONE IN OPPOSING REFORMS

Some ​banks have argued in recent years that changes to rules around bank resolution and the introduction of consumer protection schemes have ‌made ring-fencing rules redundant. Critics add that they stymie economic growth by preventing banks from lending to businesses as effectively as they would like.

Barclays is alone among ring-fenced ‌banks in opposing significant reforms. Finance minister Rachel Reeves launched the review of the ring-fencing rules last year, promising meaningful reform, in a speech in which she also described regulation as a "boot on the neck" of businesses.

Commenting on the outcome of ​that review on Monday, John Cronin, financials industry research analyst at SeaPoint Insights, said she should have been bolder.

"Reeves had the opportunity to show ‌courage and press forward with an outright abolition of these idiosyncratic rules, which are unique to the UK," he said. "But timidity prevailed and it appears that international financial services competitiveness is more slogan than substance."

As part of the changes outlined on Monday, ⁠the Bank ⁠of England's prudential arm will consult over the coming months on allowing essential back-office ‌functions to be shared between the ring-fenced and investment entities. Currently the regime prohibits what are known as "shared services".

Santander UK's CEO Mahesh Aditya described ​the changes as a "positive step ​in the right direction" while NatWest CEO Paul Thwaite said they "have the potential ‌to increase lending and investment". PRA CEO Sam Woods, who designed the regime, will step down at the end of next month. His successor, Katharine Braddick, told lawmakers in April she was not planning further reforms.