Concept: Ring-Fence

#23

I came across this concept when working on a supply chain problem, where one of the requirements was to 'ring-fence the inventory so no other businesses can access it.' Turns out, it has a connotation in finance too.

What?

• A virtual barrier segregating a portion of an individual's or company's financial assets from all else
• Usually done to reserve money for some reason, reduce taxes on the individual or company, or to protect the assets from losses incurred by other activities
• Can also be used as a method for mitigating liquidation risk or to improve a corporate credit rating

Example

Moving a portion of assets offshore to reduce an investor's net worth

History

When Warren Hastings took charge as the Governor-General (1772-1785) at a critical period of British rule when the British were to encounter the powerful combination of the Marathas, Mysore and Hyderabad, he introduced a ring-fence policy, aimed at creating buffer zones to defend the East India Company's frontiers

Related

Ring-fencing in banking - a new regulation requiring the largest UK banks to separate their core retail banking services from their investment banking and international banking activities