1
Background to ring-fencing
1.1
In response to the financial crisis, a number of domestic and international reforms to bank regulation have been introduced or are currently being implemented. Many of these reforms seek to improve the resilience and resolvability of banks, including through making changes to their structure.
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1.2
The Financial Services (Banking Reform) Act 2013 (the Act) contains provisions that ‘ring-fence’ core activities to ensure that ‘as far as reasonably practicable that the carrying on of core activities by a ring-fenced body is not adversely affected by the acts or omissions of other members of its group’.1 The Act defines ‘core activities’ as the regulated activity of accepting deposits and requires that banking groups which undertake core activities do so in ring-fenced bodies (RFBs). Institutions that have more than £25 billion of ‘core deposits’ – broadly those from individuals and small businesses – on average, over a period of three years, will be subject to ring-fencing requirements.2 The Government has stated that the ring-fencing regime comes into effect on 1 January 2019.
Footnotes
- 1. Section 142H(4a), FSMA
- 2. As set out in the secondary legislation made by HM Treasury ‘The Ring-fenced Bodies and Core Activities Order 2014’: www.legislation.gov.uk/uksi/2014/1960/contents/made
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1.3
The Act also prohibits RFBs from undertaking ‘excluded’ activities and specifies that this includes dealing in investments as principal.
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1.4
This is intended to protect retail banking from risks unrelated to the provision of that service and help ensure that banking groups can be resolved in an orderly manner, thereby avoiding taxpayer liability and thereby maintaining cash flows and the continuous provision of necessary retail banking services.
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