The Bank of England (BoE) has published a speech on ring-fencing by James Proudman, BoE Executive Director, UK Deposit Takers Supervision. At the beginning of his speech Mr Proudman notes that “ring-fencing is a major infrastructure programme that forms part of a broader strategy of co-ordinated improvements” to the financial sector and that “ring-fencing is seeking to deliver wide-reaching benefits to the public.”

Other highlights in the speech include:

  • responsibility for putting up the ring-fence on time lies squarely with the banks themselves;
  • separating the ring-fenced banks into distinct legal entities is not sufficient to ensure ring-fenced banks conduct business in a way that protects core banking services. Strong arrangements are necessary at board level to ensure that the ring-fenced banks can take decisions independently both in times of crisis and, in good times, to maintain the integrity of the ring-fence;
  • the ability to act independently does not stop at board level but needs to permeate throughout the organisation. Banks’ IT systems need to be reconfigured to enable the ring-fenced banks’ financial ledgers to be distinct. Also transactions and services (including HR, property, security etc) across the ring-fence need to be negotiated on arms’ length terms;
  • to act independently also pre-supposes a certain level of financial independence. The viability of a ring-fenced bank needs to be sufficiently separated from that of the broader group; and
  • the BoE will require full and prompt implementation of the ring-fencing legislation and requirements by 2019. While the timelines vary, all banks plan to meet this deadline, with the bulk of restructuring activities planned from now to mid-2018.

Mr Proudman also briefly discusses two issues in his speech – changes to sort codes and transfers of business (ring-fencing transfer schemes). In relation to the latter Mr Proudman states:

“The Court process is expected to begin in late 2017 and last into 2018. As part of that process, customers may receive communications from their banks explaining the proposed moves and the Court process that will facilitate them. The completion of these transfers will require co-ordination between banks, their customers and counterparties, the Courts, the PRA, the FCA and the independent experts reviewing the schemes on behalf of the Court.”

View Putting up a fence – speech by James Proudman, 16 June 2017