Fence and Sensibility: Deregulation and the Ring-Fence
This article first appeared in Financial World in their January 2026 Edition. It was made free to read in March.
Why the UK’s deregulation debate is a dangerous game of Jenga when no one knows which pieces are load-bearing
Since the global financial crisis, the UK has spent a decade and a half building an elaborate tower of bank safeguards: higher capital and liquidity standards, stress tests, resolution regimes and, uniquely, the legal ring-fencing of large retail banks. Now we have entered what one might call the Jenga phase of reform. Ministers and industry lobbyists want to start pulling pieces out of the structure, hoping that this ‘tower of resilience’ still stands.
In Jenga, players have some sense of which bricks are carrying weight and which are decorative. In banking regulation, no one can really say with confidence which rules are truly load-bearing. Banks argue for removing the constraints that make them feel most uncompetitive. Regulators, scarred by 2008–09, defend almost every brick as if it were the crucial one. Ring-fencing now sits in the middle of this regulatory Jenga debate. Much of this will be a non-discussion. Banks fixate on specific rules that, in their view, raise costs or slow down decisions compared to competitors just outside the perimeter. Supervisors talk almost exclusively at the level of the whole regime: the overall strength of capital and liquidity, the credibility of resolution, the integrity of the ring-fence. One side struggles with the nuts and bolts of day-to-day business; the other worries about the architecture of the entire safety net. When the industry asks for a few bricks to be removed, regulators hear an attack on the tower itself, while firms feel their pain points are dismissed as mere grumbling.
How the fence went up
The UK’s ring-fencing regime stems from the Independent Commission on Banking, chaired by Sir John Vickers, created after the crisis to tackle the “too big to fail” problem. Its central recommendation was that core retail banking – deposits, payments and lending to households and SMEs – should be legally separated from riskier trading and investment banking within large groups and insulated by their own capital and governance. That structure, implemented through the Financial Services (Banking Reform) Act 2013 and associated secondary legislation, has applied since 2019 to groups with more than £25 billion of core deposits.[1]
The aims were straightforward, even if the engineering was not: protect everyday banking services from shocks elsewhere in the group and make large banks easier to resolve without taxpayer bailouts, alongside the post-crisis resolution regime and “bail-inable” debt.[2] Bank of England analysis suggests that groups containing a ring-fenced bank benefit from cheaper funding and that UK households have enjoyed slightly lower mortgage rates as a result – a reminder that stability tools can support, not just restrain, the real economy.[3]
Smarter fences or open gates?
Into this uneasy dialogue stepped the Independent Review on Ring-fencing and Proprietary Trading, led by Sir Keith Skeoch. They concluded that ring-fencing had contributed to a more resilient retail banking system. However, the regime had become complex, rigid and, in places, misaligned with the evolving resolution framework. It recommended reforms to update thresholds, simplify rules and explore how, over time, ring-fencing might be better integrated with – or partially substituted by – robust resolution arrangements.[4] HM Treasury’s subsequent “smarter ring-fencing regime” essentially took forward those recommendations: a raised core deposit threshold from £25 billion to £35 billion, new exemptions and the loosening of some constraints on overseas operations and intra-group services, while insisting that the core purpose of the regime remains intact.[5]
Alongside this technocratic work, a sharper political turn has come. Chancellor Rachel Reeves has described aspects of the UK’s regulatory environment as a “boot on the neck of business”, signalling an ambition to reduce what she sees as unnecessary burdens on banks as part of a wider growth strategy.[6] Major bank chief executives have gone further, urging that ring-fencing be abolished altogether because it is outdated, constrains their ability to allocate capital and liquidity efficiently, and leaves them at a disadvantage compared with international rivals who do not face similar structural splits.[7]
Boots on necks, brakes on risk
Industry advocates also note that neither the United States nor the euro area adopted an equivalent structural separation regime, relying instead on activity restrictions, enhanced supervision and resolution planning.[8] Both contemplated similar reforms and backed away. In that light, some see the UK as over-engineered – an outlier whose well-intended architecture may now be blunting its competitiveness. But given the relative size of the UK's financial sector and its economic openness, being an outlier may be appropriate.
On the other side of the ledger, few of the regime’s architects and guardians believe the time has come for radical dismantling. The Skeoch Review itself posed an existential question – whether ring-fencing was still necessary given other post-crisis tools – but ultimately concluded that it remained a valuable part of the UK’s financial stability toolkit.[9] The Bank of England has stressed that ring-fencing improves resolvability and underpins lower optimal capital levels than would otherwise be needed. Andrew Bailey has called it “not sensible” to tear up the regime and has pushed back on the “boot on the neck” characterisation, arguing that financial stability and growth are not opposing goals.[10]Some industry voices, including the chief executive of at least one major UK group and arguably the most impacted by ring-fencing, have even broken ranks to warn against scrapping ring-fencing outright.[11] That could lead some to highlight an inconvenient truth about the ring-fence: it is a very effective barrier for some banks below the threshold from growing. Indeed, for many of the architects of the regime, this is a feature, not a bug.
The global context hardly encourages complacency. The failures of several US regional banks and the forced rescue of Credit Suisse in 2023 underlined how quickly confidence can evaporate when large, complex institutions wobble. Dismantling structural safeguards just as memories of the last crisis fade is a bold bet that all the other post-crisis tools will work flawlessly under stress.
Mind the gaps
The more interesting question is not whether to keep or scrap ring-fencing, but how to adapt it in a financial system where risks increasingly sit outside large banks. Since the crisis, a growing share of credit and market intermediation has migrated into non-bank finance – private credit funds, money market funds, hedge funds and fintech platforms. Many of these entities sit under lighter regulatory and resolution regimes than banks, yet they can transmit stress back into the core system through funding markets and derivative exposures. Tweaking structural rules for a handful of UK banking groups will not change that reality.
That strengthens the case for a more explicit, system-wide framing of the deregulation debate. If the aim is to support productive investment and lending, policymakers need to ask where incremental risk will ultimately fall if bank rules are relaxed, and whether supervision of non-banks and market-based finance is keeping pace. That suggests a different conversation between regulators and industry – one in which supervisors are clearer about which parts of the ring-fence they regard as genuinely load-bearing, and banks are more honest about which complaints are truly competitiveness-critical rather than simply inconvenient.
One promising avenue, already floated in official papers, is a more conditional approach to deregulation. In principle, if a bank can demonstrate – through credible, independently assessed resolution plans and loss-absorbing capacity – that it can fail safely without public support, then there is a case for gradually reducing the intensity of some structural constraints. But doing so requires agreed metrics, transparent assessments and a willingness to re-tighten rules if early warning indicators flash amber. A one-way ratchet towards ever-lighter regulation would be Jenga without a hard hat.
Mending, not ending, the fence
The real test for the next phase is whether policy-makers can distinguish between two options: one, mending the fence so it does its job better and two, opening so many gates that the structure stops offering meaningful protection altogether. If reforms amount to targeted changes linked to demonstrable improvements in resolvability and better evidence on real-economy outcomes, they will be overdue. If they leave the field wide open just as the lessons of the last crisis are fading from memory, we may yet discover that what some saw as a boot on the neck of business was also a hand on the tiller of stability.
[1]Bank of England Quarterly Bulletin article, “Ring‑fencing: what is it and how will it affect banks and their customers?”, 2016 Q4:
[2] ibid
[3]Bank of England, Letter from Andrew Bailey to Dame Meg Hillier MP on ring‑fencing, 28 May 2025:
[4] Independent Panel on Ring‑fencing and Proprietary Trading (Skeoch Review), Final Report, March 2022 (landing page with PDF link):
[5] HM Treasury, “Ring‑fencing reforms” (policy paper, 9 December 2022):
https://www.gov.uk/government/publications/ring-fencing-reforms
[6] Mansion House speech video (for a public, non‑paywalled reference):
https://www.youtube.com/watch?v=pi9WQg5q1Ro
[7] Reuters, “Top British bank chiefs urge finance minister to scrap ring‑fencing in letter”, April 2025:
https://www.reuters.com/business/finance/top-british-bank-chiefs-urge-chancellor-scrap-ring-fencing-letter-sky-news-2025-04-26/
[8] Slaughter and May, “UK bank ring‑fencing: worthwhile reforms?”, November 2024:
https://www.slaughterandmay.com/insights/new-insights/uk-bank-ring-fencing-worthwhile-reforms/
[9] Independent Panel on Ring‑fencing and Proprietary Trading (Skeoch Review), Final Report, March 2022 (landing page with PDF link):
[10] Reuters piece covering Bailey’s July 2025 Treasury Committee exchange with Reeves’ comments:
[11] Example of press reporting citing Barclays Group CEO C.S. Venkatakrishnan on retaining ring‑fencing in 2025 is typically folded into broader ring‑fencing reform and Mansion House coverage (often paywalled); one accessible route is via aggregated coverage and commentary, for example:
https://www.regulationtomorrow.com/eu/mansion-house/ (Shearman commentary summarising Mansion House and ring‑fencing debate)