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The UK plans to do away with ring-fencing regulations in efforts to deregulate London

By:
on Nov 30, 2022
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  • The UK plans to do away with the ring-fencing of retail banks
  • Ring-fencing requires financial institutions to divide banking services
  • Brexit supporters want laws that hinder economic growth removed

According to sources familiar with Treasury’s plans, the United Kingdom government is expected to relax it’s ring-fencing of banks as part of an initiative to deregulate London and have a “Big Bang” following Brexit.

The UK plans to do away with the ring-fencing of retail banks

Ring-fencing mandates that banking organizations divide their retail banking activities into investment and global banking operations. It served as a component of the government’s reaction to the 2008 global financial crisis and was designed to shield UK retail banks from shocks coming from other countries.

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Retail banking operations, such as accepting deposits from high-end clients and small companies, must be organizationally, operationally and financially distinct from corporate finance arms under the system, which applies to banks with over £25 billion in core deposits.

Ring fencing was put into place in January 2019, but a study of the regulations under Keith Skeoch’s direction—the former CEO of Abrdn Plc—found that it was “overly stringent.” In 2021, the Treasury said it would have a consultation on Skeoch’s report.

Speaking at the Financial Times banking summit, City minister Andrew Griffith said,

We can make the UK a better place to be a bank, to release some of that trapped capital over time around the ring-fence.

The largest investment institutions in the UK will continue to be ring-fenced. Still, smaller institutions with fewer trading activities may be exempt, according to the source with knowledge of the situation.

Brexit supporters want laws that hinder economic growth removed

Supporters of Brexit from the EU saw it as a chance to do away with laws they said were unneeded and hindering economic growth. A strategy to recreate the “Big Bang,” the deregulation wave in 1986 that transformed London City into a major international financial centre, is crucial to this plan.

Initially, the idea was to relax rules drawn for EU member states to make the UK’s financial institutions more competitive by enabling them to capture a larger share of the global markets. But, recently, the government has been under pressure to actualize financial reforms.

Banks had requested that the Treasury reduce the separation of investment and retail banking. In addition, smaller lenders had previously stated that they would like to have their needed loss-absorbing capital reduced.