HM Treasury published its 'Government response to the independent review on ring-fencing and proprietary trading' on 9 December 2022. In line with the panel's findings, it agreed to retain the ring-fencing regime for the time being and announced a series of near-term reforms to improve its functioning, to be delivered through secondary legislation, alongside a call for evidence on longer-term alignment of the ring-fencing and resolution regimes. The reforms were enabled by the Financial Services and Markets Act 2023.
9 December 2022
Recommendation 1
Government
Change the scope of the ring-fencing regime to focus on large, complex banks: a) Banks with deposits below £25 billion should continue to be exempt from the ring-fencing regime; b) Banks with deposits above £25 billion that do not undertake excluded activities above a certain level should be exempt from the ring-fencing regime; and c) Only excluded activities above that level should be required to be placed in an NRFB.
Recommendation 2
HM Treasury
Align the ring-fencing regime with the resolution regime: a) HM Treasury should review the practicalities of how to align the ring-fencing and resolution regimes, with a view to introducing a new power for the authorities to remove banks from the ring-fencing regime that are judged to be resolvable.
Recommendation 3
Government
Adjust the restrictions on servicing relevant financial institutions: a) An exemption should be introduced to allow RFBs to provide banking services to smaller RFIs; b) The definition of RFIs should be moved from legislation to the PRA Rulebook; and c) A grace period should be introduced for NRFBs to move customers that are no longer classified as an RFI to an RFB.
Recommendation 4
Government
Improve the operation of the ring-fencing regime through technical amendments: a) Transitional periods for complying with ring-fencing rules should be introduced for mergers and acquisitions of banks; b) NRFBs should be enabled to service central banks outside of the UK; c) The status of trustees and insolvency practitioners should be clarified; and d) The notice of declaration onboarding requirement for NRFB customers should be removed.
Recommendation 5
Government
Remove the blanket geographical restrictions from legislation that prevent RFBs from establishing operations or servicing customers outside of the EEA.
Recommendation 6
Government
Review the excluded activities under the ring-fencing regime.
Recommendation 7
Government
The Bank of England should ensure that sufficient plans are in place as part of its contingency planning to provide liquidity to NRFBs in a stress scenario.
Recommendation 8
Government
Monitor risks from proprietary trading activities undertaken by banks in the UK.
Recommendation 9
Government
Monitor and mitigate potential risks emanating from proprietary trading activities undertaken in the non-bank sector.
No recommendations with this response.