The UK regulators’ latest ringfencing
consultation has taken a hard line on intragroup arrangements
between ringfenced and non-ringfenced banks.
The paper, released this week, adds further detail to the
requirements for the UK’s largest lenders with
core deposits over £25 billion ($38.7 billion).
Despite banks winning a concession within the rules
which allow them to transfer capital from their retail arms to
other parts of the business in the form of dividends, other
measures are less conciliatory.
Of chief concern is how the in-scope banks (HSBC,
Barclays, RBS and Lloyds and Santander UK) are going to meet
the intragroup exposures between the ringfenced and
With regards to large exposure permissions, the EU
Capital Requirements Regulation (CRR) insists
that large exposures to individual entities or groups of
connected counterparties must be limited to 25% of the
firm’s eligible capital.
"No one ever gets near that figure, but they
typically give a zero percent risk weighting if you are exposed
to another group member," said Alan Bainbridge, partner at Norton Rose Fulbright
in London. "The PRA is not retaining that [measure]. So the
ring fence is going to have to have extra capital as a result,"
Most universal banking groups have always sought to
factor into their capital planning the likelihood that the
measure would be removed, but it will hit some banks more than
others. "The biggest impact will be on the institutions with
large investment banking arms rather than those which have
shifted their focus to the retail market," said Bainbridge.
Others are less concerned about the move. "This is
just applying the provisions of the CRR in a way that
recognises the ringfence. Intragroup concessions are not
allowed because otherwise the ringfence would be effectively
non-existent, it would be argued," said one London-based
- The UK’s
PRA has released its latest consultation paper for
ringfencing the country’s biggest financial
- Of chief concern is
how the in-scope banks are going to meet the intragroup
exposures between the ringfenced and non-ringfenced
- Despite this, there
is good news. Banks will be able to transfer capital from their
retail arms to other parts of the business in the form of
- The consultation
period ends on January 15. The deadline for in-scope
banks’ so-called near final plans is January 29
2016, a deadline that some believe is
Elsewhere in the consultation, the Prudential Regulation
Authority (PRA) conceded that the policies in the paper could
increase firms’ capital requirements, surprising
some by attaching a figure to this so-called aggregate
'The PRA has estimated that the application of Pillar
2A…on a sub-consolidated basis and the effect of not
granting large exposures permissions between ring-fenced bodies
(RFBs) and an RFB sub-group…could increase total capital
requirements by £2.2 to £3.3 billion in
aggregate,’ states the paper.
Some industry participants have been surprised by the
figure. Even at the top end of the PRA’s
estimates, £3.3 billion is comparatively minor when
spread across all in-scope institutions. Consumer finance
experts have predicted the costs will be passed onto customers,
a point which lawyers refute.
Despite the changes on the large exposure permissions,
Barney Reynolds, global co-head of Shearman &
Sterling’s financial institutions practice
believes the latest consultation is positive.
"I think the regulators are stretching the Vickers proposal
to the maximum, and being as accommodating as possible in order
to allow UK banks to compete on a more level footing with
foreign institutions," he said.
The consultation period ends on January 15. In-scope
banks’ so-called near final plans are due by
January 29 2016 – a deadline that some believe is
"The question will be how final those near final plans are,"
said one partner. "Regulators can only deal with what they get
and I think the banks are under a lot of pressure time wise to
construct their capital business plans in a way that meets
these new requirements. It’s not easy in the time
available," he added.
"The biggest impact will be
on the institutions with large investment banking
The consultation comes at a time when UK regulators appear
to be softening their stance on previous rulemaking. The paper
was released just a day after the UK Treasury announced its
intention to scrap the most contentious part of its senior managers regime, a new framework designed
to hold top-level executives to account.
In a last-minute U-turn, the
Treasury said it would remove from the bill the principle of
the reversal of the burden of proof, which would have, in
effect, seen senior managers treated as guilty until they could
prove themselves innocent.
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