1. What is the ring-fencing regime?
The UK ring-fencing regime came into effect on 1 January 2019. It applies to all banking groups operating in the UK with more than £25 billion of core deposits. In practice that currently consists of the following banking groups: Barclays, HSBC, Lloyds Banking Group, NatWest Group, Santander UK, TSB, and Virgin Money UK.
The ring-fencing regime was established by the Financial Services (Banking Reform Act) 2013 and was supplemented by secondary legislation, as well as more detailed PRA rules.
Ring-fencing is designed to separate the activities of a banking group between a ring-fenced body (RFB) which undertakes core services such as deposit taking, from a non-ring-fenced body (NRFB) which undertakes other activities such as investment banking. The core services are ‘ring-fenced’ from these other excluded activities so that in the event of a failure of the NRFB, the provision of core services can continue.
Further information is available on the Bank of England’s website: https://www.bankofengland.co.uk/prudential-regulation/key-initiatives/ring-fencing
2. What is proprietary trading?
The Financial Services (Banking Reform Act) 2013 defines proprietary trading as taking place “where the person trades in commodities or financial instruments as principal.” The PRA further notes that “it requires the use of a firm’s own capital, or liquidity, or both. The profits or losses of the activity accrue to the firm, rather than to its clients. […] The key features of classic proprietary trading are that it is short-term and that it is conducted for profit.”
3. What issues will the review look at?
The Review Panel is required to review the operation of the legislation relating to ring-fencing and make recommendations as it sees fit.
Separately, the Review Panel is required to review proprietary trading engaged in by relevant authorised persons.
Further to the above, the Treasury has set out the terms of reference for the Review Panel. The terms of reference are available on the government website https://gov.uk/government/publications/members-of-the-ring-fencing-and-proprietary-trading-independent-review-panel-announced-and-terms-of-reference-for-the-review-published/independent-reviews-of-ring-fencing-and-proprietary-trading-terms-of-reference.
4. Who is supporting the review?
The Treasury appointed Keith Skeoch to chair the Review Panel, with responsibility to deliver the two reviews on ring-fencing and proprietary trading, along with panel members John Flint, Patrick Honohan, Betsy Nelson, Preben Prebensen and Linda Yueh.
The panel is supported by a secretariat, which operates independently of government. The secretariat is made up of staff from a range of backgrounds and disciplines including the Bank of England, the Financial Conduct Authority, the Competition and Markets Authority and a number of government departments.
5. How will the review hear from people and firms who have been impacted by the ring fencing regime or proprietary trading rules?
The Review Panel has launched a call for evidence to inform the Review Panel’s assessment of the impacts of the ring-fencing regime and rules applied to proprietary trading. The call for evidence documentation, and details on how to contribute to the review are available on the RFPT website.
6. How are the responses for the call for evidence being considered? When should I submit my response by?
Responses should be sent by email to email@example.com. If a postal response is necessary, contact the RFPT Review secretariat at the email address provided. This is due to ongoing restrictions relating to the Covid-19 pandemic.
The closing date for responses is 13th June 2021.
The responses will be considered by the Review Panel and will shape the analysis, conclusions and any recommendations made by the Review Panel.
7. Who should respond to the call for evidence?
The call for evidence is open to everyone. The Review Panel is keen to receive responses from a broad range of stakeholders and would encourage potential respondents who may not have evidence for all the areas covered, to consider submitting responses to the relevant subset of questions they have an interest or expertise in.
8. When will the review be published?
The Review Panel aims to finalise its written reports to the Treasury within one year of the beginning of the reviews, which commenced in February 2021. The Treasury will lay a copy of the reports before Parliament.