A review of the UK’s ring fencing regime has concluded that it should be enforced, disappointing many banks that have wanted to scrap or relax the rules.

However, a panel of financial experts warned that over time, the system’s inflexibility could stifle the country’s retail banking market, eventually needing to be replaced by newer regulations designed to oversee lenders deemed “too big to fail.” ” are considered.

Ringfencing was introduced following the state’s massive bailouts during the financial crisis and requires lenders with more than £25bn in deposits to formally separate consumer operations from their investment banking to protect ordinary customers.

Despite lobbying from banks to either remove the rules entirely or raise the threshold, it should remain at £25bn, the panel led by Keith Skeoch, former CEO of Standard Life Aberdeen, advised the Treasury.

However, the review raised the prospect that some UK lenders with “minimal investment banking activities” could be removed from the regime, reducing the associated costs and complexity of compliance.

Of the seven banks subject to the rules, the Treasury could decide to release Santander UK, Virgin Money and TSB Bank, all of which have little or no trading activity and therefore very small ring-fenced units. Their bigger rivals Barclays, HSBC, NatWest and Lloyds should still meet.

“The ring fencing regime has succeeded in achieving some of its objectives of improving financial stability. † †[and is]worth keeping at this point, but it needs to be more adaptable, simpler and more coherent with broader regulation,” Skeoch said in a statement on Tuesday.

“The benefits of the regime will diminish over time, while the resolution regime will catch up with a more comprehensive solution for tackling too-big-to-fail,” he added. Otherwise “there is a risk that UK retail banking will harden in the longer term”.

Since ringfencing was first conceived in 2013, new rules have been introduced for capital buffers and how banks are resolved if they fail, which are more comprehensive, the review argued.

In the future, if a bank is deemed fully “resolvable” without any loss to taxpayers, the Treasury could decide to lift its ring fencing requirement.

The review recommended addressing the inadvertent exclusion of a number of smaller financial advisory firms from the rules, depriving them of access to financial services from the breakaway or unsecured side of a bank.

As indicated in a previous publication of the initial findings, the investigation found no evidence to support claims by challenger banks that the regime had caused mortgage prices to be cut.

Separately, some international investment banks have complained that the regulation slowed down growth and investment in the UK and affected London’s competitiveness on the international stage.

They had hoped the Treasury would consider easing the regime and raising the threshold to £40 billion or more after Brexit.

The issue was of particular concern to Goldman Sachs, which in 2018 set up a new UK retail bank called Marcus to cheaply finance its London-based international investment banking business. It quickly grew close to the £25bn deposit cap and was due to stop taking on new clients by 2020.

The ringfencing rules, which were intended to prevent future taxpayer bailouts on the scale of those in the wake of the 2008 financial crisis, only came into effect in 2019 after a six-year implementation process.

This post Expert review supports enforcement of UK retail bank foreclosure rules was original published at “https://www.ft.com/content/18bcf91c-62ea-4aea-9464-004697adeece”


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