Policy

HMT and PRA launch parallel consultations on ring-fencing reform

Two consultations published on 14 July 2026 propose a growth allowance, shared back-office functions, and a wider product range for ring-fenced banks. Directly affects the five largest retail banks; for everyone else, this is low-priority background.

Eleanor Vance
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HMT and PRA launch parallel consultations on ring-fencing reform
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Worth reviewing if you are at a large retail bank. Routine for everyone else.

On 14 July 2026, HM Treasury published a consultation on secondary legislation to reform the ring-fencing regime, with responses closing at 11:59pm on 8 September 2026. The PRA published a companion paper, CP10/26, on the same date, with its own deadline of 14 October 2026.

Ring-fencing applies to any lender with more than £35bn of core deposits that also undertakes material investment banking activity. The five banks currently in scope are Barclays, HSBC, Lloyds Banking Group, NatWest, and Santander UK. The PRA is explicit that CP10/26 is not relevant to credit unions, insurers, building societies, or banks that will remain outside the regime.

The HMT consultation follows a review published on 18 May 2026, carried out in close collaboration with the Bank of England. On structure and scope, the key proposals are a 'growth allowance' permitting ring-fenced banks to undertake currently prohibited activities up to 10% of ring-fenced assets, and the ability to share back-office functions — IT infrastructure, data processing, and compliance teams — across the ring-fence, which is currently prohibited.

On permitted products, the proposals would allow a wider range of derivative products, exposures to UCITS funds (pooled investment funds regulated under a common EU-derived framework), and exposures to certain financing vehicles supported by UK Public Financial Institutions. The £35bn deposit threshold would also be subject to review every three years. The Treasury claims the package would help unlock up to £80bn of additional financing for UK businesses.

The PRA's separate proposal in CP10/26 is narrower: delete the shared services rules (rules 9.1, 9.2 and 9.3 of the Ring-fenced Bodies Part of the PRA Rulebook) and amend supervisory statement SS8/16 – Ring-fenced Bodies. The rationale is that Operational Continuity in Resolution (OCIR), a regime requiring firms to ensure critical services can keep running if the firm enters resolution, now covers the same policy ground more flexibly. That makes the shared services rules a compliance cost without additional prudential benefit.

Secondary legislation to implement the reforms depends on enactment of the Financial Services and Markets Bill (introduced to Parliament on 19 May 2026), which is currently making its way through the House of Lords. Royal Assent is the trigger for secondary legislation to be laid; track the Bill's Lords passage if you need to plan ahead.

For smaller firms on a growth trajectory toward the £35bn level, the triennial review of the threshold means the boundary of the regime is no longer fixed. Worth noting, not acting on yet.

Sources

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