16.10.2015, 02:29
Bank of England announces further proposals to strengthen the financial system through structural reform
OREANDA-NEWS. October 16, 2015. The Bank of England has today published two consultation papers: one on ring-fencing and one on operational continuity.
These proposals will ensure that ring-fenced banks are protected from shocks originating in other parts of their groups, as well as the broader financial system, and can be easily separated from their groups in the event of failure.Well-capitalised, resilient firms mean that when problems occur, critical economic functions, including retail banking, can be maintained and economic growth can be supported through ongoing banking activity. Today’s proposals seek to ensure that ring-fenced banks have sufficient capital resources on a standalone basis, sheltering them from risks originating in other parts of their groups.
The proposed rules also mean that a ring-fenced bank can be more easily detached from the wider group by ensuring intragroup arrangements operate on an arm’s length basis – helping ensure important services remain available in the event of a failure of other parts of the group.The publication of these two consultation papers means firms will be able to put in place detailed plans to ensure that they are prepared to ring-fence their core retail activities from 1 January 2019. These consultation papers also provide greater clarity on the operational continuity rules affecting other firms providing functions that are critical to the economy.Andrew Bailey, Deputy Governor of the Bank of England and Chief Executive of the Prudential Regulation Authority (PRA) said:
“Making our firms more resilient has been at the forefront of our post-crisis reform agenda. Today represents an important step forward in achieving this aim. We have provided clarity for affected banks on how we will implement ring-fencing and this will enable firms to take substantial steps forward in their preparations for structural reform.”Proposals for ring-fenced banksThe PRA is required under the Financial Services and Markets Act 2000, as amended by the Financial Services (Banking Reform) Act 2013, to make policy to implement the ring-fencing of core UK financial services and activities. From 1 January 2019, banks with core deposits greater than ?25 billion (broadly those from individuals and small businesses) will be required to ring-fence their core retail activities.
These proposals will ensure that ring-fenced banks are protected from shocks originating in other parts of their groups, as well as the broader financial system, and can be easily separated from their groups in the event of failure.Well-capitalised, resilient firms mean that when problems occur, critical economic functions, including retail banking, can be maintained and economic growth can be supported through ongoing banking activity. Today’s proposals seek to ensure that ring-fenced banks have sufficient capital resources on a standalone basis, sheltering them from risks originating in other parts of their groups.
The proposed rules also mean that a ring-fenced bank can be more easily detached from the wider group by ensuring intragroup arrangements operate on an arm’s length basis – helping ensure important services remain available in the event of a failure of other parts of the group.The publication of these two consultation papers means firms will be able to put in place detailed plans to ensure that they are prepared to ring-fence their core retail activities from 1 January 2019. These consultation papers also provide greater clarity on the operational continuity rules affecting other firms providing functions that are critical to the economy.Andrew Bailey, Deputy Governor of the Bank of England and Chief Executive of the Prudential Regulation Authority (PRA) said:
“Making our firms more resilient has been at the forefront of our post-crisis reform agenda. Today represents an important step forward in achieving this aim. We have provided clarity for affected banks on how we will implement ring-fencing and this will enable firms to take substantial steps forward in their preparations for structural reform.”Proposals for ring-fenced banksThe PRA is required under the Financial Services and Markets Act 2000, as amended by the Financial Services (Banking Reform) Act 2013, to make policy to implement the ring-fencing of core UK financial services and activities. From 1 January 2019, banks with core deposits greater than ?25 billion (broadly those from individuals and small businesses) will be required to ring-fence their core retail activities.
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