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Fund managers call for total retail/investment banking split

London UK Thames Parliament 480

The Investment Management Association is questioning whether banking reform proposals to ringfence retail operations go far enough, with some members calling for a full split between retail and investment banking.

In its submission to the Parliamentary Commission on Banking Standards, the IMA says some asset managers now believe Government proposals do not go far enough.

In June, the Government published its Banking Reform white paper to ringfence retail banking operations based on the Independent Commission on Banking proposals.

The Parliamentary Commission on Banking, set up by the Government in the wake of the Libor-fixing scandal, will take evidence in September and report back by December 18 to make recommendations to the banking reform bill.

IMA head of communications Mona Patel says: “While the IMA supported the proposal in the Independent Commission on Banking’s final report to ringfence a bank’s retail operations, we now believe it is right to question whether or not this goes far enough and indeed some of our members consider complete separation is the way to go.”

Patel says the structure of the banking sector was a driving factor in the financial crisis and created misselling scandals in payment protection insurance and interest rate swaps.

She adds: “Trust is also critical to efficient and effective capital markets and if a key player in those markets cannot be expected to act with integrity there is a detrimental knock-on effect on the whole of the financial services sector.”

The IMA questions whether a sales-based culture is causing misselling scandals and asks whether commission should be awarded on the basis of customer satisfaction rather than sales targets.

ICB chair Sir John Vickers has criticised the Government for watering down his proposals in its white paper.

Evolve Financial Planning director Jason Witcombe says: “There is a general feeling that banks have become too big and if the casino banking side was split from the retail side, then it would be easier for investors to understand what the bank does.”

Timeline of banking reform

May 2010: The Liberal Democrats first propose a split to retail and investment banking in their general election manifesto.

June 2010: The Independent Commission on Banking is set up by the Government to investigate how to a separation of retail and investment arms would work, as set out in the Coalition Agreement.

November 2011: The ICB’s final report recommends ringfencing retail operations from investment.

June 2012: Chancellor George Osborne unveils the Banking Reform white paper setting out the Government’s proposals for a ringfence.

July 2012: The Government sets up the Parliamentary Commission on Banking Standards after the Libor scandal. Despite calls for a judge-led inquiry from Labour, it gains all-party support.

January 2013: Banking Reform Bill will be launched for Parliamentary debate.

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  1. Anything short of a complete separation of share holdings will not work.

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