CP10/26 – Ring-fenced bodies: Changes to the continuity of provision of services rules

Privacy statement

By responding to this consultation, you provide personal data to the Bank of England (the Bank, which includes the Prudential Regulation Authority (PRA)). This may include your name, contact details (including, if provided, details of the organisation you work for), and opinions or details offered in the response itself.

The response will be assessed to inform our work as a regulator and central bank, both in the public interest and in the exercise of our official authority. We may use your details to contact you to clarify any aspects of your response.

The consultation paper will explain if responses will be shared with other organisations (for example, the Financial Conduct Authority). If this is the case, the other organisation will also review the responses and may also contact you to clarify aspects of your response. We will retain all responses for the period that is relevant to supporting ongoing regulatory policy developments and reviews. However, all personal data will be redacted from the responses within five years of receipt. To find out more about how we deal with your personal data, your rights, or to get in touch please visit Privacy and the Bank of England.

Information provided in response to this consultation, including personal information, may be subject to publication or disclosure to other parties in accordance with access to information regimes including under the Freedom of Information Act 2000 or data protection legislation, or as otherwise required by law or in discharge of the Bank’s functions.

Please indicate if you regard all, or some of, the information you provide as confidential. If the Bank receives a request for disclosure of this information, we will take your indication(s) into account but cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system on emails will not, of itself, be regarded as binding on the Bank.

Responses are requested by Wednesday 14 October 2026.

Consent to publication

In the policy statement for this consultation, the PRA will publish an account, in general terms, of the representations made as part of this consultation and its response to them.  In the policy statement, the PRA is also required to publish a list of respondents to its consultations, where respondents have consented to such publication.

When you respond to this consultation paper, please tell us in your response if you agree to the publication of your name, or the name of the organisation you are responding on behalf of, in the PRA’s feedback response to this consultation.

Please make it clear if you are responding as an individual or on behalf of an organisation.

Where your name comprises ‘personal data’ within the meaning of data protection law, please see the Bank’s Privacy Notice above, about how your personal data will be processed.

Please note that you do not have to give your consent to the publication of your name. If you do not give consent to your name being published in the PRA’s feedback response to this consultation, please make this clear with your response.

If you do not give consent, the PRA may still collect, record and store it in accordance with the information provided above.

You have the right to withdraw, amend or revoke your consent at any time. If you would like to do this, please contact the PRA using the contact details set out below.

Responses can be sent by email to: CP10_26@bankofengland.co.uk.

Alternatively, please address any comments or enquiries to:
Banking Groups and Structural Reform Policy Team
Prudential Regulation Authority
20 Moorgate
London
EC2R 6DA

1: Overview

1.1 This consultation paper (CP) sets out the Prudential Regulation Authority’s (PRA) proposal to delete the Continuity of Provision of Services Chapter in the Ring-fenced Bodies Part of the PRA Rulebook, make certain consequential changes to that Part, and amend associated material in supervisory statement (SS) 8/16 – Ring-fenced bodies.

1.2 The policy proposals included in this CP would:

• delete rules 9.1, 9.2 and 9.3 of the Ring-fenced Bodies Part (‘the shared services rules’);
• delete the following defined terms from rule 1.2 of the Ring-fenced Bodies Part:
  • ‘permitted supplier’;
  • ‘group services entity’;
  • ‘FMI’; and
  • ‘interbank payment system’;
• delete rule 2.1(2) of the Ring-fenced Bodies Part; and
• revise the associated guidance in Chapter 8 of SS8/16.

1.3 The ring-fencing regime was introduced after the financial crisis of 2008–09 to ensure that retail banking activities in large universal banks are insulated from risks elsewhere in the financial system. The purpose of the shared services rules is to require that, in addition to financial independence, a ring-fenced bank (RFB) has operational independence to ensure that the vital business of the RFB can continue regardless of the financial position of other group members. Some of the rules extend to the provision of services to the RFB by third parties, requiring that the contractual and organisational arrangements for the provision of services to an RFB are insulated from the acts or omissions of other group members. However, since these rules were implemented, other regimes (notably Operational Continuity in Resolution (OCIR))^{footnote [1]} have matured, which cover a similar policy intent in a more flexible manner. This means that the shared services rules add additional cost into the ring-fencing regime without the associated additional prudential benefits.

1.4 As detailed in Chapter 2, the PRA considers that the shared services rules can therefore be deleted without undermining its safety and soundness objective. The PRA also considers that their removal would not undermine the intent of the ring-fencing regime to insulate the core business of the RFB from potential failures elsewhere in the group.

1.5 Deleting the shared services rules would therefore align RFB arrangements for operational continuity with other PRA-authorised firms outside the ring-fencing regime, allowing additional flexibility for RFBs in respect of their group service models. This offers scope for operational savings, which may support economic growth, including via savings being passed on to their customers through lower rates.

1.6 Alongside this CP, HM Treasury (HMT) is issuing a consultation on the reform package, which includes:

• the introduction of a Growth Allowance, which would enable RFBs to undertake business not currently permitted, up to a quantitative limit;
• allowing RFBs to offer a wider range of derivative products;
• permitting RFB exposures to Undertakings for Collective Investment in Transferable Securities (UCITS); and
• permitting exposures to certain types of financing vehicles that are supported by UK Public Financial Institutions.

Procedural requirements

1.7 The proposals in this CP would result in changes to the Ring-fenced Bodies Part and Chapter 8 of SS8/16.

1.8 This CP is relevant to PRA firms and their wider banking groups that are subject to the ring-fencing regime. It is also relevant to banking groups that could potentially come in scope of the regime in future (by growing above the £35 billion core deposit threshold and conducting material trading activity).^{footnote [2]} It is not relevant to other PRA-authorised firms such as credit unions, insurers, building societies or banks that will remain outside of the ring-fencing regime.

1.9 The PRA has considered the costs and benefits of these proposals and consulted the Cost Benefit Analysis Panel. The cost benefit analysis (CBA) is set out in Appendix 3.

1.10 The PRA has a statutory duty to consult when making rules (FSMA s138J), or new standards instruments (FSMA s138S). When not making rules, the PRA has a public law duty to consult widely where it would be fair to do so.

1.11 In carrying out its policymaking functions, the PRA is required to comply with several legal obligations. The analysis in this CP explains how the proposals have had regard to the most significant matters, including an explanation of the ways in which having regard to these matters has affected the proposals.

Background

1.12 In response to the financial crisis of 2008–09, a number of domestic and international reforms to banking regulation have been introduced, which seek to improve the resilience and resolvability of banks. In the UK, the Independent Commission on Banking (ICB), chaired by Sir John Vickers, made recommendations on how the UK banking system could be reformed. In September 2011, the ICB issued its final report and recommended, among other things, the ‘ring-fencing’ of certain core banking activities from risks elsewhere in the financial system that are unrelated to the provision of retail banking services.

1.13 The government implemented many of the ICB’s recommendations through the Financial Services (Banking Reform) Act 2013 (the Act). The Act defines core activities as the regulated activity of accepting deposits and requires banking groups that undertake core activities to place these activities into RFBs. To supplement the definition of core activities, the Act also defined three core services:

• ‘facilities for the accepting of deposits or other payments into an account which is provided in the course of carrying on the core activity of accepting deposits’;
• ‘facilities for withdrawing money or making payments from such an account’; and
• ‘overdraft facilities in connection with such an account’.^{footnote [3]}

1.14 The Act also prohibits RFBs from undertaking ‘excluded’ activities and specifies that this includes dealing in investments as principal. More detail on the definition of core activities and RFBs, and the activities that RFBs can and cannot undertake, is set out in two pieces of secondary legislation made by HMT in 2014. The Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014 specifies that institutions that have more than £35 billion of core deposits from individuals and small businesses will be subject to ring-fencing requirements, unless they undertake minimal trading activity. The Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014 specifies the extent to which an RFB can carry on the activity of dealing in investments as principal, and the exposures an RFB is prohibited from incurring.

1.15 The ring-fencing regime came into force on 1 January 2019. Ring-fencing legislation currently requires the PRA to make rules:

• requiring a ring-fenced body to make arrangements to ensure the effective provision to the ring-fenced body of services and facilities that it requires in relation to the carrying on of a core activity; and
• making provision for the group ring-fencing purposes applying to ring-fenced bodies and to authorised persons who are members of a ring-fenced body's group.^{footnote [4]}

These ring-fencing rules are predominantly contained in the Ring-fenced Bodies Part.

1.16 To discharge its statutory requirement to make such ring-fencing rules, among other things, the PRA introduced rules restricting an RFB’s ability to receive services from the rest of its group. These are referred to here as the ‘shared services rules’. The policy objective behind these rules is to ensure that, in addition to legal and financial independence, an RFB has an appropriate degree of operational independence to avoid service disruption due to the potential failure of other group members.

1.17 At Mansion House in July 2025, as part of the Government’s Financial Services Growth and Competitiveness Strategy, the Chancellor announced an intention to uphold the ring-fencing regime for financial stability while pursuing meaningful reform to support the government’s growth agenda. In response, HMT, in close collaboration with the Bank of England (the Bank) and the PRA, undertook a review of the regime, considering options to:

• allow ring-fenced banks to provide more products and services to UK businesses;
• address inefficiencies in how ring-fencing is applied to banking groups; and
• examine the case for allowing banks to share resources and services more flexibly across the ring-fence.

1.18 The PRA has analysed the case for maintaining the shared services rules in light of developments elsewhere in the prudential framework and the resolution regime. The PRA considers that the objectives of the shared services rules can be satisfied by other existing rules without introducing new material risks. The PRA’s policy proposal is set out in the following chapter.

Implementation

1.19 The PRA intends to finalise these policies in 2027. At the time of publication, however, the Financial Services and Markets Bill 2026, which includes changes to provisions related to ring-fencing, is still before Parliament.

Responses and next steps

1.20 This consultation closes on Wednesday 14 October 2026. The PRA invites feedback on the proposals set out in this consultation. Please address any comments or enquiries to CP10_26@bankofengland.co.uk.

1.21 When providing your response, please tell us whether or not you consent to the PRA publishing your name, and/or the name of your organisation, as a respondent to this CP. We may share responses to this CP with the FCA or HMT. Please indicate if you do not wish for your response to be shared.

1.22 Please also indicate in your response if you believe any of the proposals in this consultation paper are likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.

2: The PRA’s proposals

2.1 The PRA proposes the deletion of the shared services rules for ring-fenced banks, found in Chapter 9 of the Ring-fenced Bodies Part, and amendments to Chapter 8 of SS8/16.

2.2 The rules in question are:

• rule 9.1, which prevents the RFB from receiving operational services and facilities (where required on a regular basis) from outside the ring-fence, unless it is from a dedicated service company;
• rule 9.2, which requires that the RFB, where it receives services and facilities in connection with accepting core deposits, must ensure that those services cannot be disrupted as a result of the acts, omissions, or financial deterioration of other group members; and
• rule 9.3, a carveout from rule 9.2, which allows for chains of permitted suppliers.

2.3 The main purpose of this proposal is to introduce flexibility and proportionality in respect of how ring-fenced groups manage their operational affairs, without incurring reduced safety and soundness for firms. These changes are possible because of the protections elsewhere in the prudential and resolution frameworks, notably OCIR. The PRA, working in tandem with the Bank as the resolution authority in the UK, has assessed whether these and other elements of the prudential and resolution frameworks offer sufficient protections to allow the shared services rules to be removed. The PRA considers that these proposals would not adversely impact its primary objective to promote the safety and soundness of PRA-authorised firms nor its ring-fencing specific objectives. In addition, the PRA considers that the changes would advance the secondary competition objective and the secondary competitiveness and growth objective, as outlined in paragraphs 3.4–3.5.

2.4 This chapter is structured as follows:

• the general case for introducing flexibility and proportionality into the RFB shared services rules;
• the proposed deletion of rule 9.1;
• the proposed deletion of rules 9.2 and 9.3 (these are considered together, as 9.3 is a carveout from 9.2);
• the proposed changes to SS8/16; and
• the proposed consequential changes to the Ring-fenced Bodies Part (rules 1.2 and 2.1).

The shared services rules and other frameworks

2.5 The ring-fencing regime seeks to protect retail banking activities from risks originating elsewhere in a firm’s group or in global financial markets more widely. It requires the RFB to be financially and legally separate to the non-ring-fenced bank (NRFB) in order to insulate it from risks that might arise as a result of riskier investment banking activities. In addition, the shared services rules require RFBs to be operationally independent. If an NRFB were to fail for financial reasons and the RFB relied on it for operational services and facilities, the RFB’s business could be disrupted, particularly in relation to the core activity of accepting deposits.

2.6 Firms have noted frictions created by these rules, particularly rule 9.1, which prevents a wide range of services (with no materiality threshold) being provided to an RFB from group entities other than dedicated service companies. Examples of these frictions include sharing property management services, junior lawyers unable to work across the ring-fence, and corporate sales support or market risk expertise not being shared (which the RFB may require for hedging or vanilla derivatives). These frictions sacrifice economies of scale.

2.7 The PRA previously signalled its intention to consider adopting a more flexible approach to rule 9.1 in its review of ring-fencing rules. It concluded there was a case for introducing more flexibility in the rule – this could be done through:

• integrating with other regimes;
• making further use of modifications to introduce greater flexibility;
• providing amended guidance through supervisory statements on the types of services that are within and outside the scope of rule 9.1; or
• reconsidering the rule itself.

2.8 Since the July 2025 Mansion House announcement, the PRA has been working with HMT to consider areas of reforms in the ring-fencing regime and still maintain safety and resilience. With advances in the PRA’s and Bank’s toolkit since the ring-fencing regime was introduced, particularly the development of the UK’s bank resolution regime, the PRA considers that the benefit of retaining the shared services rules has diminished. Their deletion would allow firms more flexibility as to how they share operational resources across the ring-fence. Reform in this area could streamline requirements and unlock new flexibilities and cost savings for firms.

2.9 Other regulatory frameworks in the PRA’s toolkit manage a similar policy intent of the shared services rules of protecting essential functions of large PRA-authorised firms, including RFBs, from disruption elsewhere in the group. These have matured in the years since ring-fencing was introduced, and provide protections that are robust, but more flexible than the RFB shared services rules.

2.10 The most relevant framework is the OCIR regime, which requires firms to ensure that any critical services^{footnote [5]} they receive are managed robustly and can continue throughout resolution. Unlike the shared services rules, which include an almost-complete ban on receiving services, OCIR allows resource sharing with a system of controls and contractual arrangements that aim to ensure continuity throughout resolution. The framework requires firms to ensure their operational structure facilitates effective planning for, and taking action during, recovery, resolution and related restructuring. The PRA expects firms, irrespective of their service provision model, to be able to demonstrate how their operational arrangements supporting critical services facilitate recovery and resolution. In particular, firms in scope are required to:

• have operational arrangements that ensure that the critical services they receive will continue in the event of the failure or likely failure of part of the business of another group company (Operational Continuity Part of the Rulebook, rule 2.3);
• ensure that if they receive critical services from a group service provider, those services must continue if the financial circumstances of another group company deteriorate (Operational Continuity 4.3); and
• identify these critical services and be able to demonstrate that during resolution or restructuring, they can enact transitional arrangements for the continuity of these services (Operational Continuity 3.1).

2.11 The main requirements in OCIR used to achieve this policy intent are:

• ‘resolution resilient contracts’ with clauses that allow for the continued use of services during resolution;
• transitional service agreements, which ensure continuity of critical services through resolution, for instance by transitioning them to another provider or allowing for the separation of the group’s activities;
• a requirement that firms map and identify their critical services; and
• a requirement that intra-group critical service providers have access to, at a minimum, liquidity equal to at least 1/6 of their annual overheads.

Therefore, firms’ implementation of OCIR should ensure that core activities will not be disrupted through a resolution event.

2.12 The Bank, through its ongoing bilateral resolution planning programme and testing under the Resolvability Assessment Framework, gains assurance that the critical intragroup dependencies of major UK firms (which includes all RFBs) are robustly managed. The Bank also has powers to require sufficient loss absorption resources and to direct firms to remove barriers to resolution in a Business as Usual (BAU) scenario.

2.13 Other regimes have also matured to direct firms to manage their business continuity plans, offering further safeguards around the deletion of the shared services rules. The Operational Resilience framework addresses risks to operational resilience from the interconnectedness of the financial system and the complex and dynamic environment in which firms operate. It requires firms to map out the important business services they provide (including intragroup dependencies), set impact tolerances and test that they can remain within these during operational disruptions.

2.14 The framework is further complemented by the Outsourcing and Third Party Risk regime, which sets expectations for firms to develop and test stressed exit plans for material intragroup outsourcing arrangements. This helps to ensure continuity in the event of disruption to, or sudden failure of, an intragroup provider. Furthermore, firms are required to take reasonable steps to ensure continuity and regularity in the performance of its regulated activities, including employing appropriate and proportionate systems, resources and procedures.^{footnote [6]} All firms must also comply with Fundamental Rule 8, which requires them to be capable of being resolved in an orderly manner with minimum disruption to critical services.

2.15 The deletion of the shared services rules would provide more flexibility for RFBs and would increase the competitiveness of the UK banking sector by making it easier to transition to become a ring-fenced group after growing above the core deposit threshold.^{footnote [7]} The PRA has assessed the potential risk to the ring-fencing objectives as well as the PRA’s primary objective on safety and soundness. The mitigants in place elsewhere in the Rulebook are a relevant consideration, as detailed above.

Rule 9.1 of the Ring-fenced Bodies Part

2.16 Rule 9.1 is the central component of the shared services rules. It prevents the RFB from receiving operational services and facilities (where required on a regular basis) from group entities outside the ring-fence, unless provided by a dedicated service company. It therefore defines the scope of permitted intragroup service models.

2.17 The PRA considers that deleting rule 9.1 would provide additional flexibility for firms, while maintaining safety and soundness through the safeguards outlined above. By relying on these safeguards, the PRA’s proposals will expand the options for RFBs’ operating models and enable greater resource sharing within a banking group, without introducing material operational risk.

2.18 Service provision across the ring-fence would still be conducted between the legally distinct entities and subject to rule 3.5 (requiring that intragroup transactions and exposures have the same degree of management transactions and exposures to third parties) and the Arm’s Length Transactions (Chapter 12) of the Ring-fenced Bodies Part. These rules are designed so that RFBs’ core activities are not adversely affected by the acts, omissions or failure of group members in line with ring-fencing objectives. The rules support this by ensuring:

• appropriate pricing of intragroup transactions, to mitigate the risk that resources or value could be inappropriately transferred from an RFB to another group member;
• that an RFB’s intragroup flows and transactions are on terms that could be more readily substituted with a third party, if required; and
• that the financial position and performance of an RFB is more transparent.

Rules 9.2 and 9.3 of the Ring-fenced Bodies Part

2.19 Rules 9.2 and 9.3 are considered together, as the latter is simply a carveout of rule 9.2.

2.20 Rule 9.2 operates differently to rule 9.1 and concerns both intragroup and third-party arrangements. The rule aims to ensure that an RFB continues to receive the services it needs for core deposit taking in the event of a failure of a group member. Compliance with this requirement ensures that the contractual and organisational arrangements for the provision of services to an RFB is insulated from the acts or omissions of other group members. It is not an outright ban on receiving services, but instead it works in a similar manner to the approach taken by OCIR. Where RFBs receive services and facilities in relation to core activities (accepting core deposits), they must ensure that the agreement and any related arrangement in respect of those services cannot be terminated, suspended, or materially altered due to any act, omission, or deterioration in the financial circumstances of another entity within the same group.

2.21 Therefore, rule 9.2 is substantially similar to rules in the Operational Continuity Part, notably rule 3.2, which covers instances where a firm receives critical services from another party. It requires the firm to ensure that the agreement governing those services must not permit the other party to terminate, suspend or materially alter the agreement as a result of the deterioration in the financial circumstances or the resolution of the firm or any of its group members. The agreement must also entitle the firm to continue to receive those services during its resolution or restructuring as long as it fulfils its payment obligations under the agreement.

2.22 The PRA considers that deleting rule 9.2 would leave in place substantially similar protections and therefore raise no significant prudential concerns. In light of the decision to remove rule 9.1, deletion of rule 9.2 would enhance the coherence of the Rulebook.

2.23 Rule 9.3 provides a limited exception to rule 9.2 for situations where an RFB receives services from a group service company that in turn depends on a second group service company. In such a situation, where there is dependency between more than one permitted supplier, an RFB can still agree to receive services from its primary group service company. This applies even if those services could be suspended or materially altered as a result of the financial deterioration of the secondary group service company. The deletion of rule 9.3 is a consequential change following the deletion of rule 9.2.

Rule 1.2 of the Ring-fenced Bodies Part

2.24 Chapter 1 of the Ring-fenced Bodies Part, Application and Definitions, sets out the scope of application of the Part and includes a list of words and terms that are defined for the purposes of the Ring-fenced Bodies Part only.

2.25 The following terms are defined in rule 1.2 but only used in the context of Chapter 9 of the Ring-fenced Bodies Part: ‘permitted supplier’; ‘group services entity’; and ‘FMI’. The term ‘interbank payment system’ is defined in rule 1.2 but only as an element of the definition of the term ‘FMI’.

2.26 Following the deletion of Chapter 9 of the Ring-fenced Bodies Part, these defined terms will not appear in any other provisions in the Ring-fenced Bodies Part. Accordingly, the PRA considers that it is appropriate to delete these terms as consequential amendments to the deletion of Chapter 9.

Rule 2.1(2) of the Ring-fenced Bodies Part

2.27 Chapter 2 of the Ring-fenced Bodies Part, Application of Rules Within a Sub-Consolidation Group, extends the application of certain rules that apply on an individual basis to the RFB and to all members of an RFB’s sub-consolidation group, so called ‘ring-fenced affiliates’. In extending certain rules to apply to all members of the sub-consolidation group, the PRA imposes an obligation on the RFB to ensure that the rules are followed by members of the RFB sub-consolidation group that are not themselves PRA-authorised firms. This approach ensures that the objectives of the ring-fencing regime are not undermined by the ring-fenced affiliates who are not themselves directly subject to ring-fencing legislation or subject to PRA authorisation and supervision. PRA rules that are applied to the RFB sub-consolidation group in this matter are referred to as ‘relevant rules’.

2.28 Rule 2.1(2) extends the application of rule 9.1 to all RFB sub-consolidation group members, thereby preventing ring-fenced affiliates from receiving services or accessing facilities from group entities unless the service provider is a permitted supplier. As the PRA proposes to delete rule 9.1, rule 2.1(2) would serve no purpose. Accordingly, the PRA considers that it is appropriate to delete this rule as a consequential amendment to the deletion of Chapter 9.

Proposed amendments to SS8/16

2.29 SS8/16 contains guidance about the scope and application of the shared services rules in Chapter 8. In light of the proposed deletion of the shared services rules, the PRA considers that this guidance should also be deleted.

2.30 In its place, the PRA proposes to note the other regimes that support safety and soundness in relation to the operational services that banks depend on: OCIR, Operational Resilience, and Outsourcing and Third Party Risk. This is to emphasise that firms must adhere to these other frameworks and, in doing so, protect the essential business of the RFB from risks arising elsewhere in the group. The updated SS also notes that RFBs must comply with the arm’s length rules set out in rule 3.5 and Chapter 12 of the Ring-fenced Bodies Part. This also mentions the distinction between ‘services and facilities’ (currently covered by the shared services rules) and financial transactions, for which there is no proposed change in the PRA’s approach.

3: PRA objectives analysis and cost benefit analysis

PRA objectives analysis

3.1 The paragraphs below analyse the impact of deleting the shared services rules against the PRA’s objectives.

The PRA’s primary objective

3.2 These proposals represent a change of approach offering greater flexibility. Therefore, the PRA has carefully assessed whether there is any material increase in the risk to safety and soundness of firms. This assessment has taken into account the extent to which the risks that the shared services rules seek to manage – ensuring the continuity of vitally important business conducted by the RFB – are now addressed by other regimes.

3.3 These regimes, in combination with the Bank’s resolution powers, provide robust mitigants to the risks around these proposals. The PRA is content that firms’ safety and soundness would continue to be ensured.

The PRA’s secondary objectives

Competition

3.4 The proposal would bring the regulatory regime for operational services for RFBs in closer alignment with that for other PRA regulated firms and therefore enhance the PRA’s secondary objective on competition. Reducing existing RFBs’ costs and removing restrictions on them would also facilitate competition by allowing them to cut prices or improve or increase product offerings. Furthermore, for competitor banks below the ring-fencing threshold, a material operational barrier to grow into a ring-fenced group would be removed, offering further benefits in this space.

Competitiveness and growth

3.5 The proposal may allow ring-fenced banking groups to reduce their cost base. This would therefore make them more competitive by allowing them to cut lending costs or increase product offerings. It would also allow firms to grow above the threshold without having to transform their service models. This should enhance the growth prospects of firms operating in the UK.

Cost benefit analysis

3.6 A full CBA has been provided alongside this CP and is set out in Appendix 3.

4: Other legal requirements

‘Have regards’ analysis

4.1 In developing this proposal, the PRA has had regard to the FSMA regulatory principles and the aspects of the Government’s economic policy as set out in the HMT letter from November 2024 with general recommendations for the Prudential Regulation Committee. The following factors, to which the PRA is required to have regard, were significant in the PRA’s analysis of the proposal:

1. The principle that a burden or restriction that is imposed on a person should be proportionate to the benefits which are expected to result from the imposition of that burden: The PRA considers that, given that other regulatory regimes now provide the mechanisms to ensure continuity of the core business that an RFB does, the deletion of the shared services rules will lead to more proportionate regulation around the operational arrangements of financial firms.
2. Efficient and economic use of PRA resources. The PRA has processed four rule modifications in relation to the shared services rules in the past three years. These have imposed resource costs on both the PRA and firms, supporting the case for a regime-wide solution such as that proposed. Against this, the PRA is aware that with greater provision of services within banking groups that are ring-fenced, there exists the potential for a higher number of questions concerning compliance with other regimes, notably OCIR. The PRA has balanced these considerations and is content with the potential impacts on its resource, which will be manageable within BAU budgets.
3. The contribution of financial services and its regulatory environment to overall economic growth, including in the medium or long term. By offering greater flexibility over the operational arrangements of the largest banking groups in the UK and thereby freeing up financial capacity, the PRA considers that these proposals could make some contribution to sustainable growth.
4. Regulatory activities should be carried out in a way which is transparent, accountable, proportionate and consistent. The PRA considers that these proposals will further the goals of proportionate and consistent regulation by offering a change of approach around shared services and relying on other regimes that have developed independently of ring-fencing to manage a similar policy intent. This achieves consistency with how other firms (also subject to regimes such as OCIR and Operational Resilience) are treated and ensures that regulation is more proportionate to the risks.

4.2 The PRA has had regard to other factors as required. Where analysis has not been provided against a ‘have regard’ for these proposals, it is because the PRA considers that ‘have regard’ to not be a significant factor for these proposals.

Consultation

4.3 As outlined above, the Cost Benefit Analysis Panel was consulted on this CP. None of the statutory practitioner panels were consulted about the proposals in this CP.

Impact on mutuals

4.4 The PRA considers that there will be no impact on mutuals. This is due to Part 9B of FSMA specifying that the ring-fencing regime only applies to UK deposit taking institutions authorised under Part 4A FSMA. Building societies and credit unions are established under separate legislation.

Equality and diversity

4.5 In developing its proposals, the PRA has had due regard to the equality objectives under s.149 of the Equality Act 2010. The PRA considers that the proposals do not give rise to equality and diversity implications because they relate to the treatment of RFBs and their intragroup arrangements. Therefore, they are not expected to affect individuals differently by reference to protected characteristics.