Publication
Publication
On 14 July 2026, the Prudential Regulation Authority (the "PRA") published Consultation Paper CP10/26 (see here) (the "CP") proposing to delete the "shared services rules" (i.e. Rules 9.1, 9.2 and 9.3) of Chapter 9 of the Ring-fenced Bodies Part of the PRA Rulebook (the "Chapter 9 Rules"). If implemented as proposed, this would be a very welcome change to the regime for ring-fenced groups and the most operationally significant reform to the ring-fencing regime since it came into force on 1 January 2019.
The Chapter 9 Rules currently restrict, in broad terms, the ability of a ring-fenced bank ("RFB") to receive operational services and facilities from entities in its wider group (other than dedicated intragroup service companies). The PRA argues in the CP that these rules have become redundant considering other, more flexible regulatory frameworks that have matured since ring-fencing was introduced (e.g. the Operational Continuity in Resolution ("OCIR") regime) and that the costs of retaining them now outweigh the prudential benefits.
The CP has been published alongside a broader HM Treasury consultation on legislative reforms to the ring-fencing regime (including the proposed New Growth Allowance, broader derivatives permissions, and permitting RFB exposures to UCITS and certain types of financing vehicles), announced as part of the Government's Financial Services Growth and Competitiveness Strategy following last year's Mansion House speech. The PRA's proposals in the CP are, however, independent of the legislative package and are capable of being implemented through changes to the PRA Rulebook alone.
The consultation closes on 14 October 2026. The PRA intends to finalise policy in 2027, subject to the progress of the Financial Services and Markets Bill 2026 currently before Parliament.
The ring-fencing regime was designed to insulate core retail banking activities from risks arising elsewhere in a banking group or the wider financial system, which included operational independence and separation from the non-ring-fenced part of the group (“NRFB”) to ensure the continued delivery of the RFB's core activities.
To achieve this operational independence, the PRA introduced the Chapter 9 Rules, which operate as follows:
Rule 9.1 prevents the RFB from receiving operational services and facilities (where required on a regular basis) from group entities outside the ring-fence, unless the service provider is a "permitted supplier", that is, a dedicated intragroup service company (a "group services entity") or a ring-fenced affiliate. The CP identifies that there is no materiality threshold; Rule 9.1 applies to all services, however minor or non-critical to the RFB's core activities. This rule has raised a range of practical frictions, including additional costs of procuring from third parties when intragroup services are unavailable.
Rule 9.2 requires that, where the RFB receives services or facilities in connection with accepting core deposits, the contractual and organisational arrangements governing 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.
Rule 9.3 provides a limited carveout from Rule 9.2 for chains of permitted suppliers. Where an RFB's primary group service company depends on a secondary group service company for the services it provides, the RFB may agree to allow the primary supplier to suspend or alter its service provision to the extent it is itself prevented from supplying by the financial deterioration of the secondary supplier, subject to conditions including the RFB taking all reasonable steps to reduce the probability and impact of such disruption.
Two key developments since the introduction of the ring-fencing regime have diminished the case for retaining the Chapter 9 Rules:
Developments in the OCIR regime: The PRA considers Rule 9.2 is substantially similar in intent to existing requirements under the Operational Continuity Part of the Rulebook (in particular, Rule 3.2 of that Part which covers instances where a firm receives critical services from another party). Further, the OCIR regime does not impose a structural ban on intragroup service provision, and operates through controls-based and contractual safeguards, including resolution-resilient contracts, transitional service agreements, and requirements that intragroup critical service providers maintain a liquidity buffer. The Bank of England maintains ongoing assurance of firms' compliance through its bilateral resolution planning programme and testing under the Resolvability Assessment Framework.
The strengthening of complementary frameworks: The Operational Resilience framework requires firms to map their important business services, set impact tolerances, and demonstrate that they can remain within those during operational disruptions. The Outsourcing and Third Party Risk regime requires firms to maintain and test stressed exit plans for material intragroup outsourcing arrangements. These frameworks, in combination with Fundamental Rule 8 (requiring firms to be resolvable in an orderly manner with minimum disruption to critical services), are considered by the PRA to provide robust and adequate protection.
The PRA also notes that, unlike OCIR (which only applies to "critical services"), Rule 9.1 covers all services without any materiality threshold. This means the regulatory burden is disproportionate relative to the prudential risk being managed.
The deletion of the Chapter 9 Rules will likely provide greater flexibility for ring-fenced banking groups in how they structure operational and service arrangements. Such practical changes include:
Removal of the structural constraint on intragroup services. This allows RFBs to receive services directly from any group entity, including the NRFB, provided the relevant OCIR, Operational Resilience, and Outsourcing requirements are met. It will unlock the ability to share a wide range of functions across the ring-fence without the need for a dedicated service company structure.
Reduced compliance burden and cost. Groups will no longer need to assess compliance with Rule 9.1 on an ongoing basis, or seek rule modifications to address operational frictions.
Potential cost savings. The PRA estimates that deletion could yield ongoing savings, reflecting reduced duplication of functions, systems, facilities, and third-party procurement costs.
Reduced barrier to entry. Banks approaching the £35 billion core deposit threshold would no longer need to build a compliant service company structure as a precondition to ring-fencing, reducing the operational and cost barrier to growing into the regime.
The updated Chapter 8 of SS8/16 will reflect these changes, where the current detailed guidance on the Chapter 9 Rules will be replaced with a streamlined section directing firms to continuing frameworks (e.g. OCIR, Operational Resilience requirements, Outsourcing and Third Party Risk management requirements and arm’s length rules in Rule 3.5 and Chapter 12 of the Ring-fenced Bodies Part) but emphasising that financial and commercial transactions (as opposed to operational services) remain subject to separate ring-fencing constraints.
The PRA's proposals represent a substantive and long-awaited reform. The deletion of the Chapter 9 Rules, rather than a more incremental approach, signals a clear regulatory direction of travel towards greater flexibility in the ring-fencing regime consistent with the Government's growth agenda. For banking groups with ring-fenced entities, the proposals are a welcome change, and offer the prospect of meaningful operational simplification and cost reduction.
The proposals are, however, only one component of the wider reform package. The HMT legislative consultation running in parallel addresses other significant elements of the regime including the New Growth Allowance, expanded derivatives permissions and permitting RFB exposures to UCITS and certain types of financing vehicles supported by UK Public Financial Institutions.