Friday, 21 December 2012

UK: Banking Standards Committee recommends 'electrification' of proposed ring-fence for banks

The Parliamentary Commission on Banking Standards has published its first report in which it considers the Government’s draft Financial Services (Banking Reform) Bill and related proposals designed to implement, with some exceptions, the recommendations of the Independent Commission on Banking (ICB): see here (pdf). A summary of the report's conclusions and recommendations is available here. The Commission's report does not, however, represent its final opinion on the Government's proposals because the draft Bill provides only a framework and will be supported by secondary legislation. In the words of the Committee: "Without further information about the secondary legislation, it is not possible for this Commission to assess with any certainty how faithfully the Bill will give effect to the ICB recommendations. The jury is still out on the question of whether the Bill will implement those recommendations in letter and spirit" (para. 124).

With regard to the requirement for banks to ring-fence their retail and investment banking activities, the Committee concludes that the Government's proposals do not go far enough: electrification of the ring fence is proposed, i.e., a reserve power should be included in the legislation providing for full separation of retail and investment banking activities where the regulator concludes that the objectives of the ring-fence would not be met in respect of a particular bank. The Commission also concludes that the draft Bill needs to do more to ensure the independence of ring-fenced banks from other parts of the banking group. Amongst the suggestions made is the introduction of a legal duty on directors to preserve the integrity of the ring-fence.

The report also notes that next year the Commission will consider what contribution changes in areas such as competition, corporate governance, supervision and regulation and the civil and criminal law could make to enhancing standards and culture in banking.

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