Andrew Tyrie MP, chairman of the influential Treasury Committee, has called on regulators and banking groups to fully implement the rules on ring-fencing retail operations and to toughen rules to reinforce independence of investment banks from high-street ‘siblings’.
Mr Tyrie, the former chairman of the Parliamentary Commission on Banking Standards, restated the commission’s warning against investment banks being parents of a ring-fenced bank, and recommended that regulators require ring-fenced banks to be owned by a holding company.
His statements came in response to the Prudential Regulation Authority’s publication today (6 October) of four papers relating to banks and other financial services institutions on ring-fencing, continuing operations during wind-down, depositor protection and policyholder protection.
The PRA released a consultation paper relevant to banking groups with core deposits greater than £25bn which will be required to ring-fence their core activities, along with other financial institutions and customers who have dealings with these banks.
The government has stated its intention for ring-fencing to take effect from the start of 2019, so the PRA intends to undertake further consultations next year - the consultation closed 6 January 2015 - and to publish final rules and supervisory statements in 2016.
The paper sets out policy proposals in three areas: legal structure arrangements of banking groups subject to ring-fencing; governance arrangements of ring-fenced bodies; and arrangements to ensure continuity of services and facilities to ring-fenced bodies.
The regulator’s proposals are designed to reinforce ring fenced banks’ independence from their ‘siblings’ within a banking group, to deal with possible conflicts of interest, for example, that non-executive directorships should be publicly advertised.
Mr Tyrie stated: “The more complex the rules the more vulnerable they are to gaming. It is now up to the leadership of banks to implement these rules constructively. Equally important is the exercise of judgement by the regulator to ensure that robust ring-fencing stays in place as banking evolves.
“The ‘electrification’ power over the ring fence, recommended by the banking commission and now on the statute book, should bolster the credibility and effectiveness of these rules.”
He added that the Treasury committee will be examining the proposals, starting with evidence from the PRA later this month.
peter.walker@ft.com
