Legislation requiring UK banks to separate the provision of core retail services from other activities within their groups has been in force since 1 January 2019.
This so-called “bank ring-fencing regime” broadly covers UK banks with more than £25 billion of core (retail and SME) deposits and is provided by Part 9B of the Financial Services and Markets Act 2000 (FSMA).
There are two pieces of legislation made under Part 9B:
- The Financial Services and Markets Act 2000 (Ring-fenced Bodies and Core Activities) Order 2014 (SI 2014/1960) (as amended) (CAO) which broadly sets out the conditions under which a bank is a ring-fenced body; and
- The Financial Services and Markets Act 2000 (Excluded Activities and Prohibitions) Order 2014 (SI 2014/2080) (as amended) (EAPO), which specifies the restrictions and prohibitions to which ring-fenced bodies are subject.
However, the implementation of the bank ring-fencing regime in the UK has given rise to several issues of legal uncertainty.
The Financial Markets Law Committee (FMLC) has published a report to identify these legal uncertainties, explain their impact on market participants, and make recommendations on how each might be resolved.
The report has identified legal uncertainties relating to:
- The definition of the “core services”;
- The meaning and ambit of ring-fencing transfer schemes;
- Excluded activities not subject to the regime;
- The prohibition on incurring exposures to a range of financial institutions and exceptions to it;
- Liquidity management for ring-fenced banks;
- The identification of the “account holder”;
- Tax exposures; and
- The application of the regime to trade finance products.
The FMLC has sent a copy of the report to the Chair of the Ring-fencing and Proprietary Trading Independent Review (RFPT Review) panel for their attention.