Treasury responds on ring-fencing changes

Treasury has published the Government response on the recommendations of the Independent Panel on ring-fencing and proprietary trading. The report had made several recommendations to reduce the rigidity of the regime and some of its unintended consequences.

As a result, the Government plans to consult in mid-2023 on a series of near-term reforms which will:

• take banking groups that do not have major investment banking operations out of the regime, on the basis that the regime is a barrier to retail-focussed banks where ringfencing does not provide financial stability benefits, and is a barrier to growth for newer, smaller banks;
• update the definition of “Relevant Financial Institution” which will remove a barrier that currently prevents some small businesses (like IFAs) from accessing financial services, and will also take away a disproportionate compliance burden on banks;
• remove blanket geographical restrictions on ring-fenced banks that operate subsidiaries or service clients outside the EEA;
• make technical amendments that will improve the functioning of the regime;
• review and update activities that ring-fenced banks cannot carry out – by looking at whether additional activities could be permitted;
• review the deposit threshold with a view to increasing it to £35bn; and
• consider how to align the ring-fencing and resolution regimes.