PRA proposes easing ring-fencing rules for shared services
The Prudential Regulation Authority (PRA) has published a consultation paper proposing to delete rules on the continuity of provision of services for ring-fenced bodies. This aims to introduce greater flexibility and reduce costs for banks without undermining financial stability.
Streamlining operational independence
The Prudential Regulation Authority (PRA) proposes deleting Chapter 9 of the Ring-fenced Bodies Part of its Rulebook, which governs the continuity of provision of services.
This includes rules 9.1, 9.2, and 9.3, along with several defined terms like 'permitted supplier' and 'group services entity'.
The PRA's rationale is that these 'shared services rules' impose additional costs on ring-fenced banks (RFBs) without providing commensurate prudential benefits, as other regulatory regimes, particularly Operational Continuity in Resolution (OCIR), now address similar policy objectives in a more flexible manner.
The deletion would align RFB operational continuity arrangements with other PRA-authorised firms, offering scope for operational savings and potentially supporting economic growth.
Ring-fencing's evolving landscape
The ring-fencing regime was established after the 2008–09 financial crisis to shield retail banking activities in large universal banks from wider financial system risks.
The shared services rules were designed to ensure RFBs maintain operational independence, guaranteeing vital business continuity irrespective of other group members' financial health.
However, a review by HM Treasury, in collaboration with the Bank of England and PRA, identified inefficiencies and explored options to allow RFBs more flexibility in sharing resources and services.
This consultation is part of that broader government strategy to uphold financial stability while pursuing meaningful reform to support economic growth.
Pragmatic adjustment, not overhaul
This proposal represents a pragmatic adjustment to the ring-fencing regime, acknowledging the evolution of other prudential frameworks.
While not a fundamental overhaul, it offers tangible efficiency gains for ring-fenced banks by reducing redundant compliance burdens.
The move reflects a broader regulatory trend towards streamlining post-crisis reforms where overlapping protections exist, potentially fostering a more agile banking sector.