Barclays is the first UK bank to receive approval for its ring-fencing scheme, which follows the 2011 recommendations of the Independent Commission on Banking, established as a response to the 2008 financial crisis. The restructure will take effect on 1 April 2018.
Under the reforms, UK banks that take in more than £25 billion in 'core' deposits from individuals and small businesses are required to formally separate their deposit-taking activities from their riskier investment banking activities by 1 January 2019. The ring-fenced entity has to be legally and operationally distinct from the wider banking group.
Banking reform expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said the development was significant.
“It is sobering to remember that it is now a decade since the occurrence of the events leading to the enactment of the banking reform regime. With Brexit due to be implemented during the same period in 2019, banking in the UK and particularly in London, will be vastly different to what has existed over the past 20 to 30 years,” Anderson said.
After considering written and oral submissions from Barclays, the Prudential Regulation Authority and the Financial Conduct Authority, the court sanctioned Barclays' ring-fencing scheme. This will see the bank separate out its retail banking operations, parts of its business banking operations and UK wealth management businesses into a new entity, Barclays Bank UK PLC.
Barclays' international and investment management businesses will remain part of Barclays Bank PLC, which will undertake activities outside the ring-fence.
The two entities will operate alongside, but independently from, one another as part of the Barclays Group under the listed entity, Barclays PLC.
The court said concerns raised by members of Barclays' pension scheme over the risk of the scheme being sponsored by the non ring-fenced bank, rather than Barclays Bank UK, had been “assuaged”.
The judge said the restructure was unlikely to have an adverse effect on the pension scheme or its members, as there was no material insolvency risk for Barclays Bank PLC. The non ring-fenced bank will also be larger and more diversified than the ring-fenced entity.
The banking reforms were implemented in 2013 through the Banking Reform Act, which was a significant part of the UK government's response to the 2008 banking crisis that also included an overhaul of the regulatory landscape. Around one million customers will be affected by the changes
The UK's other four major banks – HSBC, Lloyds, RBS and Santander – have also applied for sanction of their ring-fencing schemes. A Scottish court is dealing with RBS's application and the UK High Court will handle the other three applications.