Those banks which presented a “significant risk” to the financial system would have a constant threat hanging over them not to find a way around the proposals in the draft Financial Services (Banking Reform) Bill, which is based on the recommendations of the Independent Commission on Banking (ICB).
The Isle of Man and Channel Islands governments will be following this development closely, as the way in which the crown dependencies will position their banking sectors is the subject of on-going negotiation with the UK.
The chairman of the PCBS Andrew Tyrie, MP said: “For the ring-fence to succeed, banks need to be discouraged from gaming the rules. All history tells us they will do this unless incentivised not to. That’s why we recommend electrification. The legislation needs to set out a reserve power for separation; the regulator needs to know he can use it.
Furthermore, we need periodic reviews of the sector to reassure us that the ring-fence as a whole is working. Tougher measures may yet be required.”
The PCBS will also take further evidence on whether full separation of proprietary trading – “something akin to a Volcker Rule” – may be appropriate.
Next year the PCBS agenda will also include reporting on what contribution changes in areas such as competition, corporate governance, supervision and regulation and the civil and criminal law could make to enhancing standards and culture in banking.
This first 146-page report, by the PCBS was put together by a 10-member panel, including former chancellor of the exchequer Nigel Lawson.
The commission was set up by the current UK chancellor George Osborne in response to the first revelations about the rigging of the Libor market in June of this year.
