Michael LewisFollowing the 2023 consultation by the previous government on implementing the recommendations of the Panel led by Sir Keith Skeoch to review the workings of the ring-fencing regime for large banks that took effect in 2019, the government has now published feedback on the proposals for change with draft legislation to implement it. The changes will:
- increase the deposit threshold for the regime to £35bm;
- use “trading assets” as the numerator for the secondary threshold calculation as a more practical way of measuring investment banking activities than relying on “excluded activities” listed in legislation;
- setting calibration of 10% of tier 1 capital for the secondary threshold;
- ensure that banks that are part of G-SIBs will not be exempt from the regime as a result of the secondary threshold;
- require both tier 1 capital and trading assets to be calculated on a consolidated basis. But following consultation responses, the government has introduced provisions to cater for different types of financial group and some new transitional provisions;
- allow RFBs to incur exposures of up to £100,000 for a single ring fenced institution at any one time;
- remove geographic restrictions on where RFBs can operate (subject to PRA requirements);
- introduce a 4 year transition period for complying with the regime when a RFB acquires another bank that is not subject to ring fencing;
- enable RFBs to invest in UK SMEs;
- permit some limited greater flexibility in other investments and activities.
The government has decided, for the moment, not to introduce a blanket de minimis, given the difficulties of implementing and supervising it in a coherent and consistent way.
The draft legislation amends both the “Core” Activities Order and the “Excluded Activities” Order that comprise the current regime.