What is ring-fencing?
Your bank looks after your money and helps you make payments. It may also give you loans and overdrafts. These are consumer or 'retail' banking services and it is crucial that you can access them when you need them – in good times and bad.
Many large banks also undertake other, more complex, activities. Trading in financial markets is one example. And these come with their own risks. This was clear during the 2008 global financial crisis.
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.
And 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's economy suffered the deepest recession since the Second World War.
That had a severe effect 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 happened next? And does ring-fencing affect me?
Throughout 2017 and 2018, banks in the UK that needed to separate retail services from the rest of their business (explained in one of our Quarterly Bulletin articles) were given until 1 January 2019 to make necessary changes.
To comply with these rules, they moved some customers into a new part of the business. Different customers were affected in different ways. Some had their their details changed, eg a new sort code or their account number changed. Payments sent using old details were rerouted using automatic redirection facilities. Each bank communicated with its own customers about ring-fencing and how it would affect them.
Where can I find out more information?
Each bank should have communicated 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 in unsolicited emails
- 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.
- the FCA has a page for customers on ring-fencing
- you can find more details on ring-fencing in a Bank of England article and on this HM Treasury webpage
- the Financial Services Compensation Scheme (FSCS) insures deposits of UK authorised financial providers; in the event your bank went bust today, you could get back up to £120,000 of your money; the deposit protection limit rose from £85,000 to £120,000 on 1 December 2025
- for more information on financial regulation in the Crown Dependencies, please see the following links: Jersey Financial Services Commission, Guernsey Financial Services Commission and Isle of Man Financial Services Authority; Crown Dependency customers of banks subject to ring-fencing in the UK should contact their bank if they have questions about how it affects them
