Ring-fencing—one minute guide
Ring-fencing—one minute guide

The following Banking & Finance guidance note provides comprehensive and up to date legal information covering:

  • Ring-fencing—one minute guide
  • What is ring-fencing and why has it been introduced?
  • Summary of requirements under ring-fencing legislation
  • What is the legal framework?
  • Ring-fencing jargon-buster
  • How are banks implementing ring-fencing legislation in practice?
  • How can I find out more about ring-fencing?

BREXIT: The UK is leaving the EU on Exit Day (as defined in the European Union (Withdrawal) Act 2018). This has an impact on this Practice Note as it will necessitate some changes to ring-fencing legislation. For guidance, see Ring-fencing — explanatory memorandum.

This Practice Note gives a quick overview of the ring-fencing reforms. It covers:

  1. what ring-fencing is and why it has been introduced

  2. a summary of requirements under ring-fencing legislation

  3. an overview of the legal framework and a ring-fencing jargon-buster to explain the terms used in relation to ring-fencing

  4. what banks are doing in practice to implement the regime, and

  5. links to further information on ring-fencing

What is ring-fencing and why has it been introduced?

In brief, the term ring-fencing means the separation by banks of their core retail banking activities from their investment banking activities.

The financial crisis demonstrated how exposure to the global market means that any global financial shock can impact on the solvency of banks that engage in investment activities. Many banks offer both investment and retail services and when a bank gets into financial difficulties this can result in amounts in savings and current accounts held by ordinary depositors being put at risk.

The Independent Commission on Banking chaired by Sir John Vickers recommended ring-fencing as a way of protecting ordinary retail customers (see the