Independent report

Independent reviews of ring-fencing and proprietary trading: Terms of Reference

Updated 24 September 2021

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This publication is available at https://www.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

Context

The Financial Services (Banking Reform) Act (FSBRA) 2013 requires the Treasury to appoint an independent panel to review the operation of the legislation relating to ring-fencing. The ring-fencing regime is a key area of UK banking sector reform recommended by the Independent Commission on Banking (ICB) in 2011 following the global financial crisis, which came into force in January 2019.

Separately, FSBRA also requires the Treasury to appoint an independent panel to review banks’ proprietary trading activities, following a statutory report that was required from the Prudential Regulation Authority and published in September 2020. Given the inherent links between the structure of the banking sector and proprietary trading activities, the Treasury has appointed a single panel to conduct both reviews.

Panel Members

The Treasury has appointed Keith Skeoch as chair of the panel, with responsibility to deliver the two reviews on ring-fencing and proprietary trading, along with the following panel members:

  • John Flint [footnote 1]
  • Patrick Honohan
  • Betsy Nelson
  • Preben Prebensen
  • Linda Yueh.

Scope

FSBRA 2013 requires the independent panel to review the operation of the legislation relating to ring-fencing and make recommendations as it sees fit. Within this broad mandate, the panel should examine how the ring-fencing regime meets its intended purpose of supporting financial stability and minimising risks to public finances through the effective separation of core banking services, whose continuous provision is vital to the economy and to customers, from other banking activities. The panel’s assessment on the effectiveness of ring-fencing should take into account the wider context of changes to banking regulation in recent years, including the introduction of the banking resolution regime.

In addition, the panel should assess the impact of the ring-fencing legislation on the following areas:

1) Competition in the banking sector, examining both any benefits from ring-fencing and the extent to which it may have acted as a barrier to growth for smaller banks;

2) Competition in the UK mortgage market, including considering the impact of ring-fencing on the price of mortgages and any risk-taking incentives the regime may have created for certain banks;

3) The international competitiveness of the UK banking sector; and

4) The provision of finance and related financial services to the economy, considering in particular whether ring-fencing has had any impact on lending conditions to small and medium-sized enterprises and on the provision of productive finance.

The panel should also examine any unintended consequences of the ring-fencing legislation and consider any areas that may require further clarification.

Separately, FSRBA 2013 requires the panel to review proprietary trading engaged in by relevant authorised persons.[footnote 2] The panel should review the PRA’s report on this topic, assess whether the risks related to proprietary trading are appropriately mitigated and consider any consequences from the evolution of proprietary trading in its assessment.

Remit to make recommendations

The review panel is required to make written reports to the Treasury on ring-fencing and proprietary trading.

The report on ring-fencing should set out the results of the review and any recommendations as the panel considers appropriate.[footnote 3]

The report on proprietary trading should state whether the panel agrees with the conclusions reached by the PRA in its report, whether the panel recommends any further restrictions on any kind of proprietary trading and set out other recommendations as the panel thinks fit.[footnote 4]

Timetable

The panel should aim to finalise its written reports to the Treasury within one year of the beginning of the reviews. The Treasury will lay a copy of the reports before Parliament.

  1. Panel change: John Flint stepped down from his position as a member of the independent review panel on Friday 24 September 2021 ahead of his taking up the role of Chief Executive of the UK Infrastructure Bank. ↩

  2. A relevant authorised person here has the same meaning as under FSMA 2000 section 71(A), where a “relevant authorised person” means a UK institution which meets condition A or B and is not an insurer. Condition A is that the institution has permission under Part 4A of FSMA 2000 to carry on the regulated activity of accepting deposits. Condition B is that the institution is an investment firm, it has permission under Part 4A of FSMA 2000 to carry on the regulated activity of dealing in investments as principal, and when carried on by it, that activity is a PRA-regulated activity. ↩

  3. FSBRA 2013 section 8(9) ↩

  4. FSBRA 2013 section 10(8) ↩

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