What is Ring Fencing?
Ring fencing refers to the practice of separating or isolating a particular asset, liability, or business activity from the rest of an organization in order to protect it from potential risks or losses. It is often used in the financial industry to protect deposits or other assets of a bank or financial institution from the risks of other business activities or from the financial failures of other parts of the organization.
Ring fencing can be accomplished through a variety of methods, including the creation of separate legal entities or the use of financial instruments such as trusts or guarantees. It is often used in conjunction with other risk management techniques, such as capital requirements or stress testing, in order to provide additional layers of protection for the assets or activities being ring-fenced.
Ring fencing is often used in the financial industry to protect depositors and other stakeholders from the risks of financial failure or instability. It can also be used in other industries to protect the assets or activities of a particular business unit or division from the risks of other parts of the organization.