The draft Financial Services (Banking Reform) Bill has now been published. This Bill is the first legislative step towards implementing the ring-fencing and depositor preference recommendations of the Independent Commission on Banking (ICB) made in September 2011. The Government has also confirmed its policy in relation to a number of other related reforms, some of which will be published in the version of the Bill to be laid before Parliament early next year. The Bill is primarily a piece of framework legislation, which means that much of the detail will be implemented through secondary legislation – without undergoing critical pre-legislative scrutiny.

The draft Bill contributes to the European and international debate on banking reform and comes 11 days after the publication of the Liikanen report on the reform of the European banking sector. That report strongly supports a bail-in tool and a requirement for the structural separation of banks’ trading activities from retail deposit-taking, and is thought by the Government to be compatible with the ICB reforms.

This briefing summarises the key provisions of the Bill, updates the status of implementation of other ICB recommendations, and identifies the next steps.

Click here for our previous briefing on the Government's response to the ICB's final report.  



  • Autumn: FSA review on prudential and conduct barriers to entry and expansion in banking sector
  • 18 December: Report on pre-legislative scrutiny of Banking Reform Bill
  • Late 2012: OFT review of personal current account market


  • Early 2013: Banking Reform Bill to be introduced to Parliament
  • Q1:  FCA discussion paper on promoting transparency in its and firms' operations, when serving consumer interests
  • Before April: FSA and Bank of England to reduce barriers to entry for new banks
  • September: Current account redirection service to be established

Beyond 2013

  • May 2015:  Legislative process for primary and secondary legislation on ICB reforms to be completed
  • 2019: Banks to comply with ring-fencing and loss-absorbency measures
  • 1 January 2019: FSCS insured deposits to be made preferred debts
  • 2025: Ring-fenced banks must separate pension funds for employees of a ring-fenced bank from the pension funds of other group entities

Key points

  • Both the FCA and PRA will be required to advance the objective of protecting the uninterrupted provision of vital banking services – the "continuity objective."
  • Deposit-taking is the only core activity specified in the draft Bill
  • Secondary legislation will provide details on many areas of the ring-fence, including:
    • threshold of when an entity becomes and exempt bank and falls outside of the ring-fence;
    • circumstances when "accepting" deposits will not be a core activity;
    • exceptions from the excluded activity of "dealing in investments as principal"; and
    • prohibitions on ring-fenced banks.
  • The Government is waiting on the advice from the Parliamentary Commission on Banking Standards (expected on 18 December) on whether or not ring-fenced banks should be permitted to offer "simple derivatives" to customers.
  • Largest firms to be required to hold PLAC of up to 17% of risk weighted assets.
  • Overseas entities of UK-headquartered banks that do not pose a risk to EEA financial stability will be exempt from the PLAC requirements – but regulator may take into account non-EEA entities in PLAC calculations.
  • Treasury will be able to direct how the PRA imposes debt requirements on specified classes of institutions.
  • Deposits covered by the FSCS will be treated as preferential debt, over other senior unsecured creditors - unsecured creditors will be exposed to greater risks.
  • New industry levy will be introduced to cover Treasury expenses in connection with membership of international organisations.
  • FSCS will have new statutory duties