Beware 2019: UK Ring-fencing Rules are Coming
Authored by: Silvano Stagni, Global Head of Research at Hatstand, a Synechron Company
The Report recommended that any financial institution involved in retail activities should be divided into two subsidiaries: one for protected activities (broadly speaking retail and commercial banking) and one for non-protected activities (broadly speaking wholesale and commercial banking). Subsequently, the UK legislation was passed requiring banks with at least £25 Million in deposits to ring-fence their UK retail and commercial banking operations from wholesale and investment banking activities.
Ring-fencing must be completed by January 1, 2019. The operational, and technology changes required to implement ring-fencing, however, will need to occur in 2017 and 2018. If businesses think about this requirement in conjunction with the business changes to implement requirements like MiFID II, Basel III and Brexit, they could save time, effort and money through greater efficiency, business value, and economies of scale.
Building the 'Fence'
Ring-fencing requires banks to split their operations into at least two legal entities which will be owned by the same holding company. While this sounds simple, the change actually touches every area of the business from operations to technology, from products/services offered to client interactions. For instance, one set of clients will have to be split into two with some duplications depending on the products/services offered. Each company will have its own database, know your customer (KYC)information and reporting, technology systems, etc.