PRA to consult on easing ring-fencing rules for shared operational services

The Prudential Regulation Authority will publish a consultation this summer on loosening rules around shared operational services for ring-fenced banks, in a move designed to cut compliance costs without unwinding the core post-crisis separation of retail and investment banking.

Under the current regime, introduced in 2019, any UK bank with more than £35 billion in core deposits and material investment banking activity must split its retail entities from its investment banking activities. The reform now under consultation would allow groups more flexibility to share data processing, IT and back-office functions across the ring fence, areas where duplication has driven significant cost.

The PRA's argument is that other elements of its toolkit have matured enough to absorb the change. In particular, the development of the UK's comprehensive bank resolution regime since 2019 means a failing ring-fenced entity can be resolved without the same reliance on rigid operational separation. "It is possible to reform this area and still maintain safety and resilience," the regulator said in its announcement.

The consultation is part of a broader package launched alongside HM Treasury, which has signalled wider plans to ease the ring-fencing regime as part of its financial services growth agenda. For the affected UK banking groups, NatWest, Lloyds, HSBC, Barclays and Santander UK among them, the practical upside is unwinding duplicated technology and back-office estates that have been a persistent drag on cost-to-income ratios. The political question of how far the Treasury and the PRA are willing to go before the ring fence becomes more notional than real is now firmly back on the table.