The Prudential Regulation Authority in the UK has disclosed plans to consult this summer on changes to rules governing shared operational services for ring-fenced banks, as part of a wider package of reforms to the UK ring-fencing regime released by HM Treasury.
The ring-fencing framework, brought in during 2019 after the financial crisis, applies to banks with more than £35bn ($46.bn) in core deposits and investment banking operations.
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Under the regime, large groups must separate retail banking activities from investment banking in distinct entities.
The PRA wants to give firms more discretion over the way operational services are used across the ring fence. This would cover functions including data processing, IT systems and back-office operations within banking groups.
The planned changes are intended to simplify existing requirements and give firms greater room to organise shared services. It added that safety and resilience can still be preserved because of developments in its regulatory framework since ring-fencing was introduced, including progress in the UK bank resolution regime.
The consultation forms part of a wider set of ring-fencing changes published on the same day by HM Treasury in “Safeguarding Stability, Enabling Growth: The Ring-Fencing Review”.
The PRA and the Bank of England worked closely with the Treasury on that review.
The government will move ahead with reforms across five main areas.
In the forthcoming Financial Services and Markets Bill, it plans to introduce primary legislation aimed at removing duplication where ring-fencing aims are already achieved through other prudential or resolution rules.
It also intends to strip out provisions in legislation it sees as too prescriptive and to align the PRA’s rule-making approach with developments in the bank resolution framework.
Separately, the government will consult this summer on a New Growth Allowance. Under that proposal, ring-fenced bodies would be allowed to carry out some activities currently barred by the regime.
The consultation will consider an allowance of up to 10% of Pillar 1 risk-weighted assets for credit risk, which the government said could support up to £80bn of financing for UK businesses and infrastructure.
Further measures outlined by the government include allowing ring-fenced bodies to provide a wider set of risk management products to businesses, take part in funding schemes guaranteed or offered by UK public financial institutions, and take exposures to a broader group of financial institutions where those activities would be permitted under the regime.
The government also said the £35bn threshold will be reviewed every three years. The PRA is due to examine ring-fencing-specific reporting rules in 2028 as part of its regular review process.
