“One ring-fence to rule them all and in the darkness bind them.”

Admittedly, the above is not a direct quote from the final report of the UK’s Independence Commission on Banking (the “Commission”) published on 12 September 2011 (the “Report).1 If implemented, the recommendations contained in the Report will, however, have a profound effect on the UK banking industry and the way it operates. The proposal that UK retail banking activities be carried out in a ring-fenced entity was the cornerstone to the interim report and has been preciously safeguarded by the Commission in its final recommendations. The Report has been described in some quarters as likely to prompt the biggest shake-up in UK banking in a generation. We summarise below the principal recommendations of the Report and provide some thoughts as to the impact the proposals will have if implemented.

The Commission was established by the UK government in June 2010 under the Chairmanship of Sir John Vickers and published its interim report in April 2011.2 The first part of the Report deals with the Commission’s recommendations for financial stability, which is divided into two main elements: (i) the proposals for a retail ring-fence for UK banking operations and (ii) measures it believes should be put in place to improve the loss-absorbency of UK banks. The second part deals with competition issues affecting UK banking markets. This alert focuses primarily on the Commission’s recommendations in relation to financial stability.