James Proudman, Executive Director for UK Deposit Takers Supervision of PRA, spoke at the British Bankers’ Association in London. He offered an overview of the implementation of ring-fencing to the industry and other relevant stakeholders. The implementation of ring-fencing is a “major step toward implementing the package of post-crisis reforms” in the UK, according to Mr. Proudman, and it will be implemented by January 01, 2019.
To achieve this deadline, much work must be completed by the banks within a limited timeframe. While the timelines vary, all banks plan to meet this tight deadline, with the bulk of restructuring activities planned from now to mid-2018." He also discussed in detail the role and purpose of ring-fencing and highlighted that ring-fencing aims to improve the resilience of the largest UK banks to enhance financial stability, to maintain the provision of core UK banking services used by individuals and small businesses and to help protect taxpayers from any further bank bail-outs. Mr. Proudman said “ring-fencing addresses the problem that arises from universal banks that allow investment and international banking activities to be placed on the same balance sheet as the critical functions of lending, deposit-taking and payment services for retail and small corporate customers.” Acknowledging the risks involved in implementing ring-fencing, he assured that “the Bank of England is working with banks to ensure they have suitable contingency plans in place to meet ring-fencing requirements by 2019.” Achieving the intended outcomes of ring-fencing will be a continuous, daily process— not a one-off event, he added.
For banks, this will require ensuring a clear line of sight of the ring-fence for both regulators and analysts to monitor, through regular reporting and disclosure obligations. The PRA is also considering how to supervise banks with ring-fenced structures and whether this will require changes to the current supervisory approach. The PRA will produce an annual report to Parliament publicly setting out the extent to which the banks have complied with the ring-fencing provisions. Where the PRA finds that a firm is not complying, it has new group restructuring or “electrification” powers, which enable the PRA to initiate a number of changes to a banking group subject to ring-fencing, if certain conditions are met. This is an important structural foundation provided by the legislation to set the right incentives for banks to comply. To conclude, he reinforced that ring-fencing will “contribute to a safer, more resilient and more resolvable banking system for the future—the completion of the ring-fence in 2019 will have been worthy of the building work taking place.”
Related Link: Speech (PDF)
Keywords: Europe, UK, PRA, Ring Fencing, Banking
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