What is ring-fencing and will it affect me?

Around one million bank account holders are set to have their banking details changed as a result of new ring-fencing rules. In fact, for thousands, the process has already begun. But what is ring-fencing, and what does it mean for you?

If you’re a Nationwide customer you’ll be pleased to hear that these changes won’t apply to your account, because it only affects some large banks, not building societies.

A decade has passed since the start of the financial crisis, and ring-fencing is one of the reforms put in place to reduce the likelihood of another one taking place. The new rules require large banks to separate traditional retail banking activities like bank accounts from their potentially risky activities, including investment banking.

The idea is to protect account holders should the bank take a hit from wider problems in the global market, or get into trouble with its investment activities.

The new rules come into force in January 2019, although the process to ring-fence banks has been a number of years in the making. Ring-fencing rules will only apply to the largest banks – those with more than £25 billion in consumer and small business deposits. So if you have an account with a smaller bank, you shouldn't be affected by the new rules.

Building societies like Nationwide are exempt from these rules. We don’t have any investment banking activities.

Banks affected by the new rules will split into two separate legal entities – one for their retail operations and the other for their investment banking activities. This may mean that account holders will be issued with new sort codes, account numbers or both, while the banks may establish new headquarters just for their retail banking services.

Your bank will notify you if your details are changing, but you shouldn't have to do anything at first. Payments sent to old account numbers or sort codes will be automatically transferred, for the time being at least.

Different banks may implement ring-fencing in different ways, so make sure you read any explanatory materials you're sent. If you don't understand it all, get in contact with your bank and ask them to talk you through it.

Whenever significant financial services changes take place, opportunist fraudsters are quick to capitalise, so if you're an affected account holder, it's important to be on your guard.

Be wary about any communication out of the blue from someone claiming to be from your bank, whether that's a phone call, text message or email.

If you're in doubt about a caller's authenticity, just hang up. It's easy to call your bank using the phone number on your statements to establish whether it was genuine. Make sure to wait a little bit between calls in case the previous caller remains on the line, especially on a landline. Equally, if an email appears suspicious, make sure not to click on any links it may contain as this could make you more vulnerable to phishing scams.

It's important to remember that no bank or building society will ever ask you for your personal information, bank details or PIN. If a caller asks you to provide those details, it's a good sign that it's a scam.