UPDATE 3-UK to review bank rules as London looks for post-Brexit boost

(Adds Bank of England)

By Huw Jones

LONDON, April 20 (Reuters) - Britain launched on Tuesday an
independent review of banking capital and proprietary trading
rules that is set to pit banks against their regulator as
London's powerful financial industry looks to boost its global
competitiveness after Brexit.

Since the start of 2019, Britain requires HSBC, Barclays and
other banks to "ring-fence" the retail arms of their operations
with capital to shield them from any losses in their riskier,
investment banking arms, after taxpayers had to bail out lenders
during the financial crisis.

Proprietary trading refers to banks using their own money to
take bets on stocks, bonds and other assets on their own account
rather than trading on behalf of a client.

The United States has eased its own proprietary trading
rules and the City of London financial district is keen to
remain competitive with Wall Street.

"Over the last decade, UK banks have seen significant
changes to the environment in which they operate, including the
fallout from the COVID-19 pandemic, the UK’s exit from the EU,
and wider changes in the UK financial sector," the independent
review said in its call for evidence.

The review was called by the finance ministry and the
independent panel is chaired by City veteran Keith Skeoch. The
panel includes John Flint, former CEO of HSBC.

Banks also hold multiples of capital in their safety buffers
compared with a decade ago, making them far more resilient in
the face of shocks.

The Bank of England, which polices ring-fencing, had no
comment on Tuesday. Its Deputy Governor Sam Woods told the
Telegraph newspaper last year he would defend ring-fencing to
"my last drop of blood", as it made "no sense" to jumble up the
domestic banking system with a giant global trading centre in
the City.

The review lists a series of questions to ask people's views
on the two sets of rules.

Britain's full departure from the European Union on Dec. 31
means it no longer has to comply with the bloc's financial
rules, freeing it up to tailor regulation to UK lenders, though
the ring-fencing rules are home-grown.

"This review presents a unique opportunity to assess the
observed impacts of the regulatory regimes, intended or
otherwise, for financial stability, competition,
competitiveness, and the balance between these in light of the
changes in the UK financial sector and wider economy," the
review said.

Ring-fencing, which requires an independent board and
additional compliance requirements, is applied to banks with
retail deposits of more than 25 billion pounds ($35 billion),
and banks are expected to push for a higher threshold.

New banks have said the extra costs make it harder for them
to build up scale to compete with established banks in
mortgages.

Last year, Goldman Sachs closed its easy access savings
business to new customers in Britain to avoid hitting the
threshold for introducing ring-fencing.

The review will report back to the finance ministry within a
year.

($1 = 0.7150 pounds)
(Reporting by Huw Jones. Editing by Catherine Evans and Mark
Potter)