HM Treasury has launched a consultation on proposed near term reforms to the U.K. ring-fencing regime—"A Smarter Ring-Fencing Regime"—and published its response to its call for evidence on the practicalities of aligning the ring-fencing and resolution regimes for banks. These potential changes to the four-year-old ring-fencing regime were announced in the government's Edinburgh Reforms, which we discuss in our client note: "UK Government Publishes Edinburgh Reforms for Financial Services."
The near-term reform proposals respond to the recommendations of the Independent Review on Ring-fencing and Proprietary Trading conducted by Sir Keith Skeoch. The proposals for near-term reforms would involve:
The consultation paper is accompanied by draft secondary legislation that would implement the near-term reforms—the draft Ring-fenced Bodies, Core Activities, Excluded Activities and Prohibitions (Amendment) Order. Responses to the consultation, including feedback on the draft Order, may be submitted until November 26, 2023. HM Treasury intends to lay legislation implementing these changes in early 2024.
Regarding the practicalities of aligning the ring-fencing and resolution regimes for banks, the government intends to publish its policy response to the call for evidence and will consult on any further proposals for reform of the ring-fencing regime in the first half of 2024.
A Financial Markets Law Committee paper published in November 2021, to which Shearman & Sterling contributed, set out a series of very detailed potential reforms to make the ring-fencing regime more effective and eliminate uncertainties and difficulties with the regime. For the most part, the current proposals do not address the issues raised in that paper. HM Treasury is however proposing two important changes; the introduction of the de minimis threshold to allow RFBs to incur an exposure of up to £100,000 to a single RFI, and those that will permit RFBs to have exposures to RFIs that qualify as SMEs.
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