Ring-fence rules reform to cut bank compliance costs

The Prudential Regulation Authority (PRA) has announced plans to consult on reforming rules around shared operational services for ring-fenced banks.

The ring-fencing regime, introduced in 2019 after the financial crisis, applies to banks with over £35 billion in core deposits and significant investment banking activity.

Its purpose is to separate core retail banking from investment banking to protect customer deposits and maintain financial stability.

The forthcoming consultation, expected this summer, will propose greater flexibility for firms in how they share operational resources across the ring fence.

This includes services such as data-processing, information technology, and back-office functions, aiming to streamline requirements and unlock cost savings for banking groups with ring-fenced entities.

The PRA believes these reforms are feasible without compromising safety, citing significant advancements in its regulatory toolkit since the ring-fencing regime's 2019 introduction.

The UK's comprehensive bank resolution regime has been particularly instrumental.

David Bailey, Executive Director for Prudential Regulation, stated the consultation aims for "more proportionate" rules, reducing compliance costs for major banks while retaining consumer deposit protections.

This initiative also supports the PRA's secondary objective of promoting competitiveness and growth, aligning with HM Treasury's broader review of the UK ring-fencing regime.