The UK's Treasury has published a
white paper setting out how the government intends to implement the recommendations of the
Independent Commission on Banking (the Vickers Report). The paper offers further detail on plans to separate retail and investment banking through a "ring fencing" and increase competition in the UK banking sector. Further, the paper sets out proposals to make banks more resilient, as well as making them simpler to resolve in the event of failure.
A robust ring fence, separating investment banking and related activities from more traditional personal and business lending, is vital to reduce structural complexity and to make banks easier to resolve in crisis, where speed of execution is vital. Ring-fenced banks must be genuinely independent from other parts of the group. The ring-fenced bank should not carry out any activities through non-EEA subsidiaries or branches. A separate risk committee should be set up in the ring-fenced bank, whose risk management function should introduce additional safeguards, over and above what the ICB recommended. But, in order to provide the UK’s SMEs with essential banking services, ring-fenced banks should be able to offer simple hedging products, subject to the necessary safeguards. Recent EU and international reforms to derivatives mitigate the risk that these derivatives pose a barrier to resolution. The Government is committed to legislating to require banks to implement the ring-fence in this Parliament.
The Government also views the recommendations of the Vickers Report aimed at fostering competition in the UK sector as sound and sensible and will move legislation toward achieving those as well.
The Government reiterates its strong support for a more competitive UK banking sector. The emergence of a strong challenger bank from the Lloyds Banking Group divestment is important. To further stimulate the ability of new entrants to compete on a level playing field, the Bank of England and Financial Services Authority are conducting reviews of prudential and conduct requirements to ensure that these are proportionate and do not pose excessive barriers to entry for prospective new entrants. The Government remains committed to ensuring that the new, industryfunded switching service is operational by September 2013, and that transparency of products for consumers is enhanced. The Government will shortly issue a consultation on a number of options to reform the strategy setting of payments, to ensure that UK payments systems meet the current and future needs of consumers, businesses, other users and the wider economy.
Comments are due by September 6 2012. Draft legislation will follow in Autumn 2012 and the white paper anticipates that all legislation will be in place by the end of this Parliament in 2015.