what does ring fence mean 
the term ring fence refers to the creation of a virtual barrier that segregates a portion of a company s financial assets from the rest this may be done to reserve money for a specific purpose to reduce taxes on the individual or company or to protect the assets from losses incurred by riskier operations moving a portion of assets offshore to reduce an investor s net worth or lower the taxes due on income is one example of ring fencing understanding ring fencesthe term has its origins in the ring fences that are built to keep farm animals in and predators out in financial accounting it is used to describe a number of strategies that are employed to protect a portion of assets from being mixed with the rest ring fencing may involve transferring a portion of assets from one high tax jurisdiction to another with lower or no taxes or less onerous regulations in other cases it may be used to keep the money in reserve for a specific purpose it also may be done to make the money unavailable for another purpose this is the intent of the british ring fencing law which went into effect at the beginning of 2019 it requires financial institutions to ring fence their consumer banking activities to protect customer bank deposits from potential investment banking losses the institutions were forced to recreate their banking arms as separate entities each with its own board 1the law intends to forestall another bank bailout like the one that followed the 2008 financial crisis the government bailout was forced by the perceived vulnerability of ordinary consumers and their savings to a collapse of the big banking institutions 12britain passed a law at the start of 2019 that requires financial institutions to ring fence their everyday banking activities from their investment arms ring fencing kicks in for banks that have more than 25 billion in core deposits 3advantages and disadvantages of ring fencingone of the primary benefits of using ring fencing as a strategy is that it provides a layer of protection over certain business assets it protects these assets from market risk volatility taxation insolvency and even seizures this strategy also helps keep the financial system sound and helps provide banks with a safety net that s because core assets are shielded from non core ones to prevent any major ripple effect when the economy tanks as it did before the great recession this puts less of an onus on taxpayers if banks succumb to economic pressure in the future the same way they did when the government had to bail them out after the financial crisis the premise behind ring fencing is that it separates core assets such as retail banking from those that are deemed to be non core assets like investment arms the problem with this is that separating groups of assets may lead to a reduction in oversight and the weakening of risk management 4banks and other organizations that are required to ring fence may take advantage of the fact that they must separate their assets which could lead to a beneficial end goal this includes more favorable tax treatment if they move their non core assets offshore which could lead to a drop in tax revenue for the home country protects against certain risksleads to a safer and secure financial systemreduces oversight and weakens risk managementmoving certain assets offshore may lead to drop in tax revenueoffshore ring fencingthe term is often used in the u s to describe the transfer of assets from one jurisdiction to another usually offshore in order to reduce an investor s verifiable income or reduce the investor s tax bill it also may be used to shield some assets from seizure by debtors it may be legal to ring fence assets to reduce taxation or avoid regulation as long as it stays within the limits set in the laws and regulations of the home country the limit typically is a certain percentage of the annual net worth of the business or individual meaning that the dollar amount will vary over time ring fencing can also describe earmarking assets for a particular purpose for example a savings account may be ring fenced for retirement a company may ring fence its pension fund to protect it from being drained for other business expenditures 