LONDON (Alliance News) - The Bank of England Monday said it wants banks that expect to be subject to ring-fencing requirements by 2019 to submit a preliminary plan of their anticipated legal and operating structures by the end of 2014.
The Prudential Regulation Authority, an arm of the Bank of England, is consulting on three areas of ringfencing policy ahead of new rules that will require banks with more than GBP25 billion of core deposits - broadly those from individuals and small businesses - to ring-fence their core activities from other activities like investment banking from the start of 2019.
The PRA is consulting on the legal structure of banking groups, governance, and continuity of services and facilities.
The move comes after the UK government introduced legislation to allow for ring-fencing of core banking services in the UK, following recommendations made by the Independent Commission on Banking.
The changes are designed to ensure that ring-fenced banks, and groups containing them, can be resolved in an orderly manner with minimal disruption to the provision of core services, in the event of serious issues affecting the institution or the wider sector.
The PRA is also consulting on changes to improve depositor and insurance policyholder protection.
For depositors, the proposed changes implement the requirements for deposit-takers under European rules, as well as proposing new measures which would allow customers to continuously access the deposits covered by the Financial Services Compensation Scheme if their
deposit-taker fails.
The aim of the proposals is to provide a mechanism to transfer accounts to another financial institution in the event of a deposit-taker's failure or enable faster pay-out of compensation. The proposals also introduce additional FSCS coverage for deposits that are temporarily higher than the current GBP85,000 compensation limit, for example in the event a depositor is buying a house. The limit could be raised to up to GBP1 million.
For insurance policyholders, the PRA is proposing changes to the insurance limits for FSCS compensation to increase protection for policyholders in the event of an insurer failing.
This would increase the limit to 100% of cover for annuities, pure protection, claims arising from death or incapacity and professional indemnity insurance.
"Improving the resilience and resolvability of firms has been at the heart of international and domestic reforms since the financial crisis. Ring-fencing will improve banks? resilience, by protecting them from shocks, and facilitate orderly resolution ? both of which are needed for a stable financial system," Andrew Bailey, Deputy Governor of the Bank of England and Chief Executive of the Prudential Regulation Authority, said in a statement.
"These proposals will allow customers to have continuous access to the money in their bank account ? or receive payment from the FSCS if this is not possible. Additionally, the increase in FSCS limits for certain types of insurance will mean policyholders who may find it difficult to obtain alternative cover, or who are locked into a product, have greater protection if their insurer fails," Bailey added.
By Samuel Agini; samagini@alliancenews.com; @samuelagini
Copyright 2014 Alliance News Limited. All Rights Reserved.
Barclays (BARC)
Lloyds (LLOY)
HSBC Holdings (HSBA)