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published SEPTEMBER 19, 2011
International law firm Freshfields Bruckhaus Deringer on the ICB's final proposals on UK banking regulation

International law firm Freshfields Bruckhaus Deringer says the Independent Commission of Banking's (ICB) final proposals on UK banking regulation, if implemented, will significantly affect the international and domestic competitiveness of UK-based banks with retail operations in the following ways:

The report also does not clarify how the super-equivalent capital requirements (detailed above) may be squared with the proposed EU fourth Capital Requirements Directive, the draft of which currently provides for maximum harmonisation.
Mark Kalderon, a partner in Freshfields’ financial institutions group, comments: 'Capital ratios will obviously be the key cost for the banks, however there is a significant amount of red tape that will increase spend and staffing requirements. As it stands, some institutions will be required to implement a dual process of disclosure similar to that of a UK listed company for separate entities under a parent. Dual reporting lines will increase compliance costs and these will inevitably be passed on to the consumer.’
‘Additionally ring-fenced banks will be required to have largely separate operations, with intra-group dealings only carried on at arm's length, thus increasing the complexity, and presumably the cost, of the provision of intra-group services,’ he says.
He adds, ‘The report also falls short of proposing full structural separation of the retail and wholesale parts of a bank, partly since retail customers can still benefit from a "one-stop" relationship where they require both retail and wholesale services, but there is no discussion of the increased costs to small business of having to deal with separate entities for their banking and hedging activities where rights of set-off would be unavailable.’





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