This is the latest step in the government’s plan to create a stronger and safer banking sector.
The Banking Reform Bill will fundamentally reform the structure of the UK banking sector making banks more resilient to shocks, easier to fix when they get into difficulty and reducing the severity of financial crises in the future.
The government has been very clear. In the future, when banks make losses, retail customers should not be excessively affected and taxpayers’ money will not be used to bail banks out as it has been in the past.
The consultation sets out key details, in the form of draft statutory instruments, on the ring-fence, including the scope of the ring-fence, the de minimis exemption from ring-fencing and the prohibitions on ring-fenced banks’ activities, and on the framework for applying loss absorbency requirements to systemic banks.
The government published illustrative drafts of the principal statutory instruments in March 2013 to aid Parliamentary scrutiny of the Bill. It has continued to develop these, alongside further secondary legislation, and now seeks views on the following four statutory instruments:
- The Ring-fenced Bodies and Core Activities Order, which defines the proposed threshold below which banks will be exempted from having to ring-fence, and the thresholds above which large organisations and high net worth individuals will have the option to deposit outside the ring-fence, if they so choose.
- The Excluded Activities and Prohibitions Order, which defines a range of activities that will not be permitted inside the ring-fence, including a prohibition on ring-fenced banks having exposures to certain financial institutions. It also creates a number of exemptions to the excluded activities and prohibitions defined under the Bill, including exemptions to permit ring-fenced banks to sell simple derivatives and to enable them to manage their own risks.
- The Banking Reform (Loss Absorbency Requirements) Order, which regulates the way in which the Prudential Regulation Authority will exercise its powers to set bail-inable debt requirements on systemic UK banks and building societies (including a requirement to set minimum standards).
- The Fees and Prescribed International Organisations Regulations, which enable expenses incurred by the Treasury as a result of UK participation in international organisations concerned with financial stability or financial services to be reclaimed from the financial services industry.
The consultation will close on 9 October 2013. The government remains committed to putting all necessary legislation in place by the end of this Parliament and will seek to introduce final versions of these draft statutory instruments to Parliament as soon as time allows, following the granting of Royal Assent to the Banking Reform Bill.
The Banking Reform Bill will have its second reading in the House of Lords on 24 July 2013.
Notes to Editors
- The Banking Reform Bill is primarily an enabling Bill, which gives the Treasury the necessary powers to implement the policy underlying the Bill through secondary legislation. This is appropriate given the technical nature of many of the provisions, and allows the government to respond flexibly to changes in the banking system.
- The consultation document can be found together with the government’s previous publications on banking reform on the policy page: Creating stronger and safer banks
- The illustrative drafts of the statutory instruments published in March 2013 are available on the archived HM Treasury website.