Global Regulation Tomorrow

On 14 July 2026, HM Treasury (HMT) published a consultation paper in relation to ring-fencing reform.

Background

At Mansion House 2025, as part of the Financial Services Growth and Competitiveness Strategy, the Chancellor confirmed her intention to uphold the ring-fencing regime to protect depositors and financial stability while taking forward meaningful reform to support the government’s growth agenda.

HMT, working with the Bank of England and Prudential Regulation Authority (PRA), subsequently undertook a Review of the regime. The outcomes of the Review were published in Safeguarding Stability, Enabling Growth in May 2026.

In parallel, the PRA published a related consultation paper confirming its intention to consult on deleting rules 9.1, 9.2 and 9.3 of the Ring-fenced Bodies Part of the PRA Rulebook.

Summary

HMT sets out the following proposals in relation to the reform of the ring-fencing regime:

• The New Growth Allowance: the government committed to introducing a New Growth Allowance (the allowance), and sets out the following proposals in relation this:
  • The allowance will be 10% of a Ring-Fenced Bank’s (RFB’s) Pillar 1 risk weighted assets (RWAs) for credit risk (including counterparty credit risk). RWAs generated by credit risk, market risk, settlement risk and credit valuation adjustment risk exposures will count towards the allowance.
  • The allowance will be measured using quarterly data averaged over a 36-month period, calculated on the same basis as the bank’s capital requirements. The allowance will be applied at the RFB sub-consolidated group level.
  • The allowance will incorporate existing Small Medium-Sized Enterprise exemptions and the Relevant Financial Institution de minimis.
  • RFBs using the allowance will be required to disclose how it is being used to support the UK economy.

• Permitted products: Bring the ring-fencing legislation into line with the Basel 3.1 and permit RFBs to offer customers a wider suite of derivative products which are not in scope of the market risk residual risk add-on as defined in the PRA Rulebook.

• Permitted exposures: proposed changes to the exposures RFBs are permitted to have include exposures to:
  • Undertakings for Collective Investment in Transferable Securities.
  • Structured Finance Vehicles set up for the purpose of securitising SME loans.
  • Special Purpose Vehicles investing in a wider range of infrastructure projects.
  • Special Purpose Vehicles investing in a wider range of infrastructure projects.
  • Financing vehicles which are i) managed/Advised by UK Public Financial Institutions (PuFins), ii) debt funds with UK PuFin Equity Stakes, iii) Community Development Finance Institutions (CDFIs), iv) guaranteed by a PuFin.

• Pensions: RFB defined benefit pension schemes will be able to transfer a surplus to other schemes within the wider banking group, subject to conditions, which would include:
  • Both schemes party to a transfer must be part of the same trust;
  • The transfer must be one-off, must not give rise to any ongoing obligations from the RFB or ceding scheme, and must ensure that no rights or liabilities in relation to the transferred assets remain with the RFB or ceding scheme after completion;
  • The receiving scheme must be a Defined Contribution (DC) scheme and must not be one in which the RFB becomes an employer;
  • The ceding scheme must be a Defined Benefit (DB) scheme; and
  • Trustees must notify the PRA following a transfer of surplus from an RFB DB scheme to a DC scheme in an NRFB.

Next steps

HMT has asked for responses to the consultation by 8 September 2026.

HMT set out that it intends that the final Statutory Instrument will be laid in 2027 following approval by Parliament of the Financial Services and Markets Bill, and subject to parliamentary time.