UK HMT report on ring-fencing review

HM Treasury (HMT) has published a report with findings from its review on the ring-fencing regime for banks. The review found that while the regime remains an important component of UK financial stability, it should be updated to be more flexible, proportionate and responsive to developments. The government intends to introduce certain changes through the Financial Services and Markets Bill (referred to as the Enhancing Financial Services Bill in the recent King's speech) including:

• Enabling the UK Prudential Regulation Authority (PRA) to remove ring-fencing rules where objectives are met by other prudential or resolution requirements to reduce duplication.
• Removing overly prescriptive elements in primary legislation.
• Improving regulatory alignment as between the ring-fencing rules and the resolution regime.
• Enabling HMT to move aspects of the regime into PRA rules so they can be updated more easily and to increase scope for modifications and waivers.

The government has also made the following commitments which are subject to consultation this summer:

• Introduction of a New Growth Allowance (with an allowance of up to 10% of Pillar 1 risk-weighted assets for credit risk to be consulted on) to unlock up to GBP80 billion of financing.
• Allow ring-fenced banks to offer more risk management products to businesses.
• Enable the participation of ring-fenced banks in certain funding schemes.
• Permit exposures to a wider range of financial institutions.

The government further confirms actions that will be taken forward in relation to addressing inefficiencies in the application of ring-fencing to banking groups, and sharing resources and services more flexibly across the ring-fence. Additionally, the government confirms that, to ensure the regime remains proportionate, the GBP35bn primary threshold will be reviewed every three years and the PRA will review the relevant reporting requirements alongside its broader review of the ring-fencing rules, with a report due in 2028.

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