The Government has confirmed plans to ring-fence banks’ retail operations from their investment arms in its draft banking reform bill.
The bill, published last week, implements proposals put forward by Sir John Vickers’ Independent Commission on Banking, which stop short of full separation.
The bill imposes duties on the Prudential Regulation Authority and Financial Conduct Authority to ensure core banking services are provided without interruption and the ring-fence is maintained. The Government says the reforms will allow the orderly failure of retail banks.
The Treasury has taken a broad power to exclude certain activities from retail banking, with most set to be detailed in secondary legislation.
The draft Bill provides that dealing in “investments as principal” is an excluded activity. This would exclude most of the derivatives and trading activities currently undertaken by wholesale and investment banks.
The bill states: “This policy aims to insulate banking services critical to individuals and small and medium-sized enterprises from shocks elsewhere in the financial system, and to make it easier to ensure continuous provision of those services.”
Treasury select committee chair Andrew Tyrie said: “The draft bill appears to leave a lot of detail to be determined in secondary legislation. We will press vigorously to find out what that is going to contain. Only by doing so will anyone – the industry, bank customers, Parliament and the public – be able to find out what this legislation really means for them.”