Treasury consults on ring-fencing reform

Separate to the PRA’s consultation, HM Treasury is consulting on proposed changes to the ring-fencing regime.

The changes it proposes concern:

• a New Growth Allowance, which will be 10% of the Pillar 1 RWA of a RFB, measured using quarterly data averaged over 36 months. It will incorporate existing exemptions and RFBs using it will be required to disclose how they are using it to support the UK economy;
• expanding permitted products to allow RFBs to offer a wider suite of derivative products in line with Basel 3.1;
• changes to prohibited counterparties, to allow RFBs to hold exposures for UCITS, certain structured finance vehicles and SPVs and vehicles relating to UK Public Financial Institutions; and
• allowing RFB defined benefit pension schemes to transfer a surplus to other schemes within the wider banking group.

Consultation closes on 8 September. The Government plans to publish a draft Statutory Instrument setting out the changes after considering responses, and then lay the final version in 2027 following enactment of the FSMB.