Banking Industry Faces Regulatory Challenges Amidst Ring-Fencing and Cryptoasset Concerns

Regulatory Challenges in the UK Banking Industry

The UK banking industry is facing several regulatory challenges, including the requirement to separate core retail banking services from investment and international activities, as well as concerns over cryptoassets.

Ring-Fencing Requirement

According to a recent Policy Statement by the Prudential Regulation Authority (PRA), banks in the UK must treat intra-group exposures to entities outside their ring-fenced bank sub-group as equivalent to third-party exposures. This is part of the PRA’s large exposures framework, which aims to mitigate risk and promote financial stability.

• The ring-fencing requirement has been criticized for posing challenges to the banking industry, including foreign banks that may not enter or expand into the UK due to additional regulatory costs.
• The PRA’s Large Exposures framework also prohibits ring-fenced banks from carrying out certain excluded activities, such as investment and wholesale banking.

Concerns over Cryptoassets

The Basel Committee on Banking Supervision has expressed concerns over cryptoassets, which it considers an immature asset class with high volatility and a lack of standardization. The committee has set out its prudential expectations for bank exposures to cryptoassets, warning that they do not reliably provide the standard functions of money and are unsafe to rely on as a medium of exchange or store of value.

Proposed Regulations

The PRA’s Consultation Paper 15/19 proposes tighter limits for large exposures to certain French non-financial corporations, in reciprocation of changes made by France. The proposed measure applies on a consolidated basis to global systemically important institutions and other systemically important institutions under the Capital Requirements Directive (CRD) IV.

Implementation Challenges

The banking industry is also facing challenges in implementing the PRA’s ring-fencing regime, which requires banks to separate core banking services from wholesale and investment activities by January 2019. A panel reporting to the Treasury will review the practical implications of this regime and its impact on competition in the sector.

Conclusion

In conclusion, the UK banking industry is navigating a complex regulatory landscape, with challenges posed by ring-fencing, cryptoassets, and other regulatory requirements. As the industry continues to evolve, it is essential that regulators strike a balance between promoting financial stability and supporting economic growth.