On 15 October 2015, the Bank of England issued two consultation papers on the implementation of ring-fencing and operational continuity. The Bank of England explains that the proposals seek to ensure that ring-fenced banks have sufficient capital resources on a standalone basis to shelter them from risks arising in other parts of their groups. The proposals relating to continuity are designed to ensure a broader range of banks and building societies structure their operations in a way that allows shared services which are critical to the economy to continue in the event of a failure by another part of the group.
In summary, the proposals seekf to ensure:
- A ring-fenced bank has sufficient financial resources and liquidity.
- Intragroup exposures and arrangements between the ring-fenced bank and the rest of the group are managed in a prudent manner, at arm’s length.
- The ring-fenced bank is clear on the PRA’s expectations on the use of financial market infrastructures.
- The ring-fenced bank can demonstrate the ability to continue to provide critical economic functions during resolution.
The publication of these two consultation papfers means firms with core deposits greater than £25 billion 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. This consultation closes on 15 January 2016.