HM Treasury has published a consultation on secondary legislation changes to the U.K. ring-fencing regime, taking forward elements of the government’s May 2026 review. The package would keep ring-fencing in place while making it more flexible for ring-fenced bodies by creating a New Growth Allowance, broadening the products and counterparties they can support, and easing some constraints around pension scheme surplus transfers. The central proposal is a New Growth Allowance that would let ring-fenced bodies undertake otherwise prohibited activities up to 10% of Pillar 1 risk-weighted assets for credit risk, with the allowance measured using quarterly data averaged over 36 months and applied at the sub-consolidated group level. HM Treasury also proposes to fold existing SME equity investment exemptions and the Relevant Financial Institution de minimis into that allowance, and to require banks using it to disclose how it supports the U.K. economy. Beyond the allowance, the consultation would align permitted derivatives with the Basel 3.1 market risk framework by allowing a wider range of products outside the residual risk add-on, while retaining existing safeguards on customer use, mark-to-market treatment and cryptoasset underlyings. It would also expand permitted exposures to UCITS funds, SME loan securitisation vehicles, a wider set of infrastructure special purpose vehicles, and certain vehicles linked to U.K. public financial institutions including the National Wealth Fund, British Business Bank and UK Export Finance. In addition, defined benefit pension schemes in ring-fenced bodies would be allowed to transfer surplus to other schemes in the wider banking group, subject to conditions. HM Treasury said it will consider feedback before publishing a draft Statutory Instrument. The final Statutory Instrument is due to be laid in 2027 following parliamentary approval of the Financial Services and Markets Bill and subject to parliamentary time.
HM Treasury2026-07-14
HM Treasury launches consultation on ring-fencing reforms, including a 10% growth allowance and wider permissions for ring-fenced banks
HM Treasury has launched a consultation on secondary legislation to reform the U.K. ring-fencing regime. The proposals include a New Growth Allowance worth 10% of Pillar 1 credit risk RWAs, broader permissions for derivatives and certain counterparties, and targeted flexibility for pension surplus transfers. A draft Statutory Instrument will follow consultation, with the final measure planned for 2027 after approval of the Financial Services and Markets Bill.