The Independent Panel on Ring-fencing and Proprietary Trading has published its final report: see here (pdf). Various recommendations are made, including that the scope of the ring-fencing regime should be changed to include firms only where there is a clear financial stability benefit.
The terms of reference for two reviews - one for ring-fencing, the other for proprietary trading - have been published by HM Treasury: see here. Both reviews are required by the Financial Services (Banking Reform) Act 2013 (specifically, section 8 and section 10).
Earlier this month, in Lloyds Bank Plc & Ors R(ring-fencing transfer scheme) (Rev 1) [2018] EWHC 1034 (Ch), Mr Justice Hildyard sanctioned the proposed ring-fencing transfer scheme for Lloyds Bank. This is the second time that the High Court in England and Wales has done so; the first was in March: Re Barclays Bank Plc And Woolwich Plan Managers Ltd, Re [2018] EWHC 472 (Ch), [2018] WLR(D) 158.The design of a ring-fencing transfer scheme is a matter for the board of the bank concerned. There may be many possible approaches to the design of a statutorily-compliant ring-fencing transfer scheme that will affect stakeholders differently. The choice is for the directors of the bank concerned, acting properly in accordance with their duty under section 172(1) of the Companies Act 2006 (which is to act in the way they consider, in good faith, would be most likely to promote the success of the company having regard to matters including those specified in that subsection)."The Lloyds decision is of interest because Mr Justice Hildyard chose to add what he termed a "reservation" or "gloss" in respect of the courts' acceptance of the judgment of directors in proposing a particular scheme:
I accept that the court will give considerable latitude to commercial decisions of a board which has appeared properly to address the correct question and acted in accordance with its duties under statute and common law. I accept, more particularly, that where there are different designs of scheme, none of which leaves people materially adversely affected, or no more so than is reasonably necessary to achieve the ring-fencing purpose, the choice is for the promoters (and thus the directors) to make. However, I would wish to emphasise that when the second part of the Statutory Question [see section 109A(4) of the Financial Services and Markets Act 2000] is being addressed, the question is not whether any adverse effect is greater than is reasonably necessary given the constraints of the particular scheme design, but whether that adverse effect is such as to be greater than reasonably necessary in order to achieve the statutory purpose. If the adverse effect appears material, and it appears likely that another scheme design would have avoided the adverse effect, that may call in question the scheme design chosen; and the court would not be required to accept the directors' choice (albeit that it would then also have to consider potential adverse effects of other designs). In other words, the greater the adverse effect, the more justified the scrutiny of the scheme design, and the less may be the readiness of the Court to accept the commercial judgment of the directors".
The
Financial Services and Markets Act 2000 (Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions) (Amendment) Order 2016 was made last week and comes into force on December 1. The Order makes eighteen amendments to the ring-fencing regime, in order to address various issues that have arisen as banks make the structural changes demanded by the new regime. An overview of each of these amendments is available in the explanatory memorandum accompanying the Order: see here (pdf).
The Financial Services (Banking Reform) Act 2013 (Commencement No. 10) Order 2016 was made earlier this week and brought into force, yesterday, further provisions of the framework for ring fencing banking activities under the 2013 Act. Information about the Order is available in the accompanying explanatory note and for information about the provisions of the 2013 Act that have been brought into force by earlier Orders, see here.
The Prudential Regulation Authority has today published two consultation papers as part of its work establishing the new framework for ring-fenced banks. The first paper deals with prudential requirements, intragroup arrangements and use of financial market infrastructures: see here (pdf). The second paper is concerned with operational continuity in resolution: see here (pdf).
The Prudential Regulation Authority published several consultation papers today. One of the papers sets out the PRA's proposed rules in respect of its implementation of the audit committee requirements under the new EU statutory audit framework (more specifically, article 39 of the Statutory Audit Directive (Directive 2006/43/EC), as amended by Directive 2014/56/EU): see here (pdf). Another paper seeks views on a draft statement of policy regarding the PRA's approach to ring-fencing transfer schemes: see here (pdf).
The Prudential Regulation Authority has published a policy statement on the implementation of ring-fencing, dealing with legal structure, governance and continuity of services and facilities: see here (pdf). The policy statement provides feedback on the responses received to Consultation Paper 19/14 published in October 2014, and the amendments that the PRA has made to the draft rules and supervisory statements included in this consultation paper. Updated ‘near final’ versions of the rules and supervisory statements are included in the policy statement. The final rules and supervisory statements are expected next year. The new ring fencing framework is due to come into effect on 1 January 2019.
The Bank of England has today published several consultation papers that set out proposed changes designed to improve the resilience and resolvability of deposit-takers and reduce the disruption to customers and the system if a deposit-taker or insurer fails: see here. A consultation paper has also been published in respect of the implementation of bank ring-fencing and this focuses on legal structure, governance and the continuity of services and facilities: see here (pdf). The governance part of this paper considers, amongst other things, the proposed requirements for the composition and structure of the board of ring-fenced bodies.
The Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014 was made yesterday and comes into force on 1 January 2015: see here (pdf). The Order forms part of the statutory framework governing the ring-fencing of banking activities and defines which banks are ring-fenced bodies and the activities which can only be done by ring-fenced bodies. It also defines the circumstances in which accepting deposits can be undertaken by banks that are not ring-fenced. Further information is available in the explanatory memorandum prepared to accompany the Order: see here (pdf).
A copy of the Financial Services (Banking Reform) Act 2013 was published today on the UK legislation website: see here or here (pdf). The Act became law yesterday and will be supported by secondary legislation. In this regard, the Government yesterday published a summary of the responses received in respect of four proposed statutory instruments: see here (pdf). The Government also explained how it intends to proceed in respect of these statutory instruments, which include the Ring-fenced Bodies and Core Activities Order; Excluded Activities and Prohibitions Order; Banking Reform (Loss Absorbency Requirements) Order; and Fees and Prescribed International Organisations Regulations).
The Financial Services (Banking Reform) Bill has completed its passage through the House of Lords and House of Commons. Royal Assent is now required for the Bill to become law, whereupon it will be known as the Financial Services (Banking Reform) Act 2013. Royal Assent is expected tomorrow.
The Financial Services (Banking Reform) Bill has completed third reading in the House of Lords. Ping pong is scheduled for today, during which the House of Commons will consider the amendments made to the Bill in the Lords.
Final rules to implement the so-called Volcker rule (as found in section 13 of the Bank Holding Company Act, inserted by section 619 of the Dodd-Frank Act) have been published: see here (pdf).
An overview of the rules is available here.
The Financial Services (Banking Reform) Bill completed report stage in the House of Lords last week. It is scheduled to receive its third reading on 9 December 2013. A copy of the bill, as amended at report stage, is available here or here (pdf).
The Financial Services (Banking Reform) Bill began its Committee stage in the House of Lords yesterday. The official record of debate - Hansard - is available here and here. Debate began with discussion of some of the governance implications of ring-fencing and the role of regulators in determining the governance arrangements of ring-fenced banks. Committee stage debate resumes on 15 October; the Bill's progress can be followed here.
As part of reforms being made to the regulatory framework governing banks, including the Financial Services (Banking Reform) Bill currently before Parliament, the Government has published draft secondary legislation for comment: see here (pdf). Drafts of the following are included: Ring-fenced Bodies and Core Activities Order; Excluded Activities and Prohibitions Order; Banking Reform (Loss Absorbency Requirements) Order; and Prescribed International Organisations Regulations.
The Financial Services (Banking Reform) Bill, which was introduced in the 2012-13 session of Parliament, has been carried over into the new session which began this week following the State Opening of Parliament. The Bill provides the framework for ring-fencing banks' activities. A copy of the Bill, as reintroduced, is available here or here (pdf). Explanatory notes are available here or here (pdf). The Bill will next be considered at report stage in the House of Commons.
The Financial Services (Banking Reform) Bill received its second reading in the House of Commons earlier this week: see here. The Bill begins the committee stage next week and amendments have already been tabled. Amongst those tabled yesterday - available here or here (pdf) - are several relating to the governance of ring-fenced banks. One amendment sets out a requirement for the Secretary of State to provide by secondary legislation that shareholder approval is required for the appointment of remuneration consultants. Another amendment sets out requirements regarding the composition of the ring-fenced bank's board but is not well drafted: "Half of the board of directors of the ring-fenced body, both executive and non-executive, will be made up of independent persons". Is the intention to require half exactly or (more likely) at least half? Do the words "both executive and non-executive" add anything to the amendment?
The Parliamentary Commission on Banking Standards published its second report of the 2012-13 session today: see here or here (pdf). Titled Banking reform: towards the right structure, the report considers the Government's response to the Commission's first report and provides suggested amendments in respect of the Financial Services (Banking Reform) Bill which receives its second reading in the House of Commons today and contains provisions requiring the ring-fencing of banks' activities following recommendations made by the Independent Commission on Banking.
