This tight deadline means that the Commission requests responses to this call for evidence by Wednesday 31 October.
The main objectives as set out in the policy document accompanying the draft Bill (Sound banking: delivering reform) are:
A. making banks better able to absorb losses;
B. making it easier and less costly to sort out banks that still get into trouble; and
C. curbing incentives for excessive risk taking.
The Commission is seeking views on whether the draft Bill will successfully give effect to these objectives and it is the most efficient and effective means of delivering them.
In addition, the Commission would welcome responses to the detailed questions below. It is not necessary to address every question, and those submitting evidence should feel welcome to address other relevant matters not raised in the questions. Where these questions relate to proposed secondary legislation that the Government has not yet published, the Commission would welcome your view based on the Government’s stated intentions as set out in the accompanying policy document and the June white paper.
Objectives and general approach
1. Does the draft Bill successfully give effect to the objectives set out in paragraph 1.3 of Sound banking: delivering reform and is it the most efficient and effective means of delivering those objectives?
2. Do any of the recommendations of the Independent Commission on Banking (ICB), which the draft Bill seeks to implement, need revision as a consequence of developments since the ICB’s report?
3. Do the powers in the draft Bill and the Government’s stated intentions for their use give effect to the ICB’s recommendations? Are any deviations justified?
4. What should be the timetable for implementation of these measures, and should it be set out more clearly?
5. The draft Bill proposes continuity objectives on the PRA and FCA. Are these appropriate and compatible with their other objectives?
Banking standards and competition
6. What will be the impact of the proposed changes in the draft Bill on banking standards in the UK more widely?
7. What will be the impact of the separation of retail and wholesale banking on the culture prevailing within each?
8. What will be the impact of the ring-fence on competition, both in retail and investment banking, and in other areas of financial services?
Delegated powers and accountability
9. The draft Bill grants a large number of delegated powers to the Government. Are the principles under which delegated powers are to be exercised sufficiently clear?
10. Does the scope of the delegated powers in the draft Bill represent an appropriate balance between flexibility for the Government to respond to changing conditions and accountability to Parliament and the public?
11. Is there sufficient clarity about the Government’s intended use of delegated powers, both to enable public understanding and to enable affected banks to prepare for the proposed changes?
12. The draft Bill provides for review of the ring-fencing rules by the PRA every five years. Does the proposed review mechanism provide sufficient accountability?
13. Is the power to be able to exempt certain categories of deposit-taking firms from having to establish a ring-fenced bank appropriate, and on what basis should the conditions for exemption be set?
14. Is the range of core and excluded activities defined in the draft Bill appropriate and sufficiently broad? Are the Government’s stated intentions for using powers to define further core and excluded activities appropriate?
15. Which categories, if any, of customer should be permitted to deposit with a non ring-fenced bank?
16. The Government is considering whether to allow ring-fenced banks to offer simple derivatives to their customers. Should they be allowed to? If so, what safeguards would be necessary?
17. Are the proposed corporate governance arrangements between the ring-fenced bank and the wider group sufficient to ensure the independence of the ring-fenced bank? Are these arrangements compatible with directors’ duties and principles of accountability?
18. How appropriate are the proposed restrictions on exposures and operational dependencies between the ring-fenced bank and the rest of the group? Will these result in a sufficient degree of independence and resilience?
19. Will it be possible to effectively monitor and police the ring-fence, given the degree of regulatory discretion the draft Bill proposes?
20. How effective will the provisions on corporate governance for ring-fenced banks be in promoting a wider improvement of standards? Should other measures also be considered?
21. Is the proposal to prefer insured deposits in the event of a bank insolvency justified? Is there a case for broadening the scope of deposits which benefit from this protection?
22. Does the draft Bill adequately implement the ICB’s recommendations on loss absorbency requirements?
23. The draft Bill gives the Government power to direct the way in which the regulators can implement loss-absorbency requirements. How appropriate and well-designed is this power?
24. Is the Government’s stated intention for the design of loss-absorbency requirements workable? Will it provide a sufficiently well-capitalised banking system? In particular, how justified is the intention to allow an exemption for assets held in overseas operations?
25. Is the Government justified in its decision not to implement the ICB recommendation for a higher leverage ratio than is required by Basel III?
26. Will the UK authorities have the necessary tools and powers (as a result of this legislation and other initiatives) to be able to resolve a large failing ring-fenced or non-ring-fenced bank, while maintaining financial stability and minimising the risk to public funds?
27. What is your assessment of the Government’s preferred design of “bail-in” powers needed to improve bank resolution? How likely is it that the Recovery and Resolution Directive will deliver effective bail-in powers?
28. Is the impact assessment of the costs and benefits credible and balanced?
29. Might there be any other unintended consequences which have not been considered?
30. What will be the impact of the proposals on the international competitiveness of UK banks?
31. Are the proposals consistent with existing and forthcoming international and EU regulatory initiatives, for example the recent Liikanen Report? To what extent are they likely to be superseded or generate conflicts?
32. What other matters should the Commission take into account?
Each submission should:
• clearly state at the top which individual’s or organisation’s views the submission represents (which may be different from the particular person who sends it);
• begin with a short summary in bullet point form;
• have numbered paragraphs; and
• be in Word format with as little use of colour or logos as possible.
A copy of the submission should be sent by e-mail to email@example.com and marked “Draft Banking Reform Bill”. There is no need to send a hardcopy.
It would be helpful, for Data Protection purposes, if individuals submitting written evidence send their contact details separately in a covering letter. You should be aware that there may be circumstances in which the Commission will be required to communicate information to third parties on request, in order to comply with its obligations under the Freedom of Information Act 2000.
A guide for written submissions to Select Committees may be found on the parliamentary website:
• Guide for Witnesses to House of Commons Select Committees
Please also note that:
• Material already published elsewhere should not form the basis of a submission, but may be referred to within a proposed memorandum, in which case a hard copy of the published work should be included.
• Memoranda submitted must be kept confidential until published by the Commission, unless publication by the person or organization submitting it is specifically authorised.
• Once submitted, evidence is the property of the Commission. The Commission will normally, though not always, choose to make public the written evidence it receives, by publishing it on the internet (where it will be searchable), by printing it or by making it available through the Parliamentary Archives. If there is any information you believe to be sensitive you should highlight it and explain what harm you believe would result from its disclosure. The Commission will take this into account in deciding whether to publish or further disclose the evidence.