What is ring-fencing?
Ring-fencing is a process that the largest UK banks must comply with in order to separate their core retail banking from investment banking. The purpose of the process is to support financial stability by simplifying the structure of banking groups with the aim of protecting retail customers from the effect of future financial crises involving other parts of the bank's businesses. These banks must have completed the process by 1 January 2019.
Why are you receiving correspondence?
The changes are required to be made in compliance with the timeframes set out below and will require the banks to undertake various steps to notify their customers. In addition some banks have to go through a legal process, known as a Ring-fencing Transfer Scheme or RFTS, in order to restructure their business. The key dates for the relevant banks are set out below:
As part of the RFTS these banks need to notify any affected parties including its landlords. This notification process will occur in the run up to, and following, the key dates above and is purely procedural in nature.
What do you need to do?
You do not need to do anything. The RFTS will be considered and reviewed by the Court and if approved a further notification will be sent out confirming the process. The legal identity of the tenant entity will automatically change from one company within the bank`s group to another such company. This is not an application in accordance with the lease but a statutory process which takes place outside of the normal landlord and tenant relationship.
What is the impact?
Whilst we acknowledge that there might be a perceived impact on the financial covenant strength of the tenant bank by virtue of the ring-fencing of part of the business, and thus potentially on the value of your property investment, the overall purpose of the RFTS is to create a more stable legal entity better placed to ride out any future financial difficulties. This should mean more certainty of future income as the banks will continue to be bound by their lease obligations following the transfer to the new tenant entity. In any event you will not be entitled to seek any further security as the process is not an assignment of, or other process under, the lease.