The U.K. Prudential Regulation Authority has published a Review of the PRA ring-fencing rules for U.K. banks. The ring-fencing regime came into force in 2019 and the PRA is required to review the rules it has made under the regime every five years. This is the PRA's first such review. The PRA found that most rules have performed satisfactorily and are generally well understood by industry. Some areas for improvement include:

• Better aligning the rules relating to the provision of services to ring-fenced banks from non-ring-fenced parts of a group with other PRA rules on operational continuity in resolution and operational resilience.
• Reducing the frequency with which banks must review their internal policies on arm's length transactions.
• Potentially extending the duration of modifications to rules relating to governance arrangements for individual RFBs, where needed.
• Removing the requirement for RFBs to deliver annual regulatory reports on certain tax exposures, given the immateriality of the amounts reported so far.

The PRA plans to consult on potential changes to its rules after more detailed analysis.

HM Treasury separately published a consultation on near-terms reforms to the ring-fencing regime and a policy paper on aligning the ring-fencing and bank resolution regimes in 2023. Secondary legislation implementing the near-term reforms is expected to be laid before Parliament in early 2024, while further proposals for alignment between the ring-fencing and bank resolution regimes is expected in the first half of 2024.

A Financial Markets Law Committee paper published in November 2021, to which Shearman & Sterling contributed, set out a series of very detailed potential reforms to make the ring-fencing regime more effective and eliminate uncertainties and difficulties with the regime. Neither the PRA's latest review nor HM Treasury's proposals address, for the most part, the issues raised in that paper.

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