Occurs when a portion of a company's assets or profits are financially separated without necessarily being operated as a separate entity, normally for regulatory purposes.
For instance in the banking world ringfencing is carried out in universal banks to prevent losses on the investment bank activities affecting customers in the commerical bank side of the bank i.e. it is a succint way of structuring the bank to isolate risks and loses in each of the seperate activities that banks undertake. This is highlighted in the diagram below as the ringfence prevents losses from one subsidary of the bank affecting the others.
