Why are retail banks being ‘ring-fenced’ and how will this affect me?

Large UK banks will legally separate or ‘ring-fence’ some of their banking services from other parts of the bank.
This page was last updated on 10 January 2019
Large UK banks will legally separate or ‘ring-fence’ some of their banking services from other parts of the bank. Doing this helps to protect your access to the banking services we all depend on every day. Our interactive feature below explains how ring-fencing makes the financial system safer – and how this affects you.

What is ring-fencing?

Your bank looks after your money and helps you make payments. It may also provide you with loans and overdrafts. These are consumer or ‘retail’ banking services, and it’s crucial that you can access them when you need them – in both good times and bad.

Many large banks also undertake other, more complex, activities. Trading in financial markets is one example. Such activities come with their own risks. This was clear during the global financial crisis that began in 2007.

How does ring-fencing make the banking sector safer?

Imagine something shocks the banking sector. What happens next?

As the example shows, ring-fencing the retail bank helps to make sure it can continue offering consumer banking services. It will still be able to lend, and your money is safe. In other words, the ring-fence protects consumer banking services from shocks to the wider financial system.

How does this make the financial system safer?

Ring-fencing is a really important change because the financial system – which is very large in the UK – affects everyone. This became clear in the wake of the global financial crisis: as a result, the UK economy suffered the deepest recession since the Second World War.

That led to a severe impact on wages, jobs and access to credit for people across the country.

Increase in the number of people without jobs

Fall in wages below 2007 levels

Bank lending ground to a complete halt

Separating retail banking services is just one aspect of reforms to make the system safer.

Looking ahead, banks may still get into financial difficulties – it is impossible to eliminate all risks entirely – but it is now easier to sort out banks that get into trouble. And, crucially, the costs of dealing with a bank that goes bust will not fall on taxpayers.

What happens next, and how will ring-fencing affect me?

Throughout 2017 and 2018, the UK banks that need to separate retail banking services from the rest of their business (explained in one of our Quarterly Bulletin articles) will be making the necessary changes. Ring-fencing must be in place by 1 January 2019.

To comply with these rules, banks will need to move some customers into a new part of the bank. Different customers will be affected in different ways. Some customers will experience changes to their account details. For example, they may be issued with a new sort code and/or their bank account number may change. Payments sent using old account details will be rerouted to their intended destination, using automatic redirection facilities. Each bank will be communicating with its own customers about ring-fencing and how it will affect them.

Where can I find out more information?

Each bank will be communicating with its own customers about ring-fencing and how it will affect them. If you have any further questions, please contact your bank.

It is important that people take all the usual precautions when dealing with requests from businesses and banks to provide personal or financial information. These precautions include never disclosing security details such as PINs or full banking passwords, not automatically clicking on links contained in unsolicited emails, and not assuming an email or phone call is authentic. For more information about protecting yourself from fraud, you can visit the Take Five website.

Meanwhile, more information is provided in the links below – including a link to the Financial Conduct Authority, which regulates financial services firms in the UK to ensure that consumers get a fair deal.

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