Bank of England ..19 May 2025 13:19
...explores ways to loosen ringfencing rules for UK banks
Regulations intended to prevent a repeat of bailouts after 2008 crisis.
The Bank of England is exploring ways to relax ringfencing rules that force UK lenders to separate their retail operations from other activities, as it aims to head off calls to scrap the regime entirely. Sam Woods, head of the BoE’s Prudential Regulation Authority, has told staff supervising the banking sector to draw up options for diluting the ringfencing rules without losing the core protection they provide for retail deposits, according to people briefed on the work. Regulators are examining two main areas for potential changes: the rules preventing banks from doing riskier activities inside the ringfence, and the limitations on how they structure back-office services such as IT support, human resources and regulatory compliance. The regulations, which came into force in 2019, were introduced to avoid a repeat of the taxpayer bailouts of failing lenders that followed the 2008 financial crisis. Bank bosses have stepped up pressure on the government to wind back the more onerous parts of the scheme. The ringfencing regime aims to structurally protect deposits from retail consumers and small businesses by requiring big British banks to separate them inside legal entities with higher levels of capital and restricted activities. The rules prevent banks using money from British retail depositors to fund complex and risky activities, such as financing hedge funds, trading in complex derivatives or lending to companies in riskier countries such as China.
Currently, UK deposit-taking entities are prevented from relying on the rest of the group for essential services — unless these come from a standalone entity — in order to allow a ringfenced bank to continue operating smoothly if another part of the group is engulfed in a crisis. Officials at the PRA are considering whether to change the rules to allow more services to be provided from outside the ringfence, which applies to any UK bank with at least £35bn of retail deposits. This could ease concerns of some UK digital banks, such as those set up by US lenders JPMorgan Chase and Goldman Sachs, which worry they are growing so quickly they will soon have to undergo a costly ringfencing of their British retail deposits. However, it would do little to help banks such as Barclays and HSBC, which have already set up standalone companies known as “servcos” to provide back-office services to their businesses on either side of the ringfence. Ringfenced banks are also prevented from offering their customers certain riskier types of derivatives, as well as from trading commodities, investing in financial markets using their own funds, or taking on exposure to many other financial institutions.
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