Treasury is consulting on drafts of four pieces of secondary legislation under the Financial Services (Banking Reform) Bill:

  • the Ring-fenced Bodies and Core Activities Order: this sets out the de minimis level below which firms will be exempted from the ring-fencing requirement, and the conditions under which certain deposits can be held outside the ring-fence;
  • the Excluded Activities and Prohibitions Order: this sets out the activities which in principle may not take place within the ring-fence, with exemptions which will allow certain otherwise prohibited activities to take place within the ring-fence - for instance, the sale of simple derivatives, trading for risk management, securitisation of own assets and holding customers' equity after a debt-for-equity swap. The Order also limits exposures to certain financial institutions. Since its last consultation, Treasury has also decided to allow certain commodity trading within the ring-fence;
  • the Loss Absorbency Requirements Order: this establishes the framework for non-capital primary loss-absorbing capacity that could be imposed on systemic UK institutions; and
  • the Fees and Prescribed International Organisations Regulations: this enables Treasury to reclaim from the financial services industry expenses incurred from participating in international organisations.

Treasury will make further legislation to ensure that ring-fenced banks are not (and cannot become) liable for the pension schemes of bodies which are not ring-fenced, and will keep under review its decision to exclude building societies from ring-fencing requirements.

Treasury asks for comments by 9 October and wants to introduce the draft legislation into Parliament as soon as possible. (Source: Banking Reform: Draft Secondary Legislation)