The Law Society of England and Wales has warned the proposed Financial Services (Banking Reform) Bill could have negative consequences for businesses, consumers and ultimately the UK's reputation as a leading financial centre.
Under the proposed legislation the government plans to separate the retail and investment activities of UK banks and introduce restrictions to the way customers can access banking services.
In its evidence to the Parliamentary Commission on Banking Standards, the Law Society questioned the government's plan to implement a ring-fence around retail banks and argued the proposal could create instability in the banking system.
Law Society chief executive Desmond Hudson said that if the government gets this wrong it could disadvantage UK banks and damage the UK's competitiveness as a place for international business and finance.
'When we need Britain's banks to be lending to support growth, their best management brains will be adapting their business practices to the latest regulations.
'We've no particular desire to return to the excesses of the past, of red-braces wearing bankers sprinting from Porsche to Ferrari dealerships, but we are interested in protecting a healthy banking sector which supports the wider UK economy and a whole range of other industries and exports.'
Chair of the Law Society working group, Dorothy Livingston, questioned the skeletal nature of the bill and overreliance on secondary legislation, which is expected to fill in the detail of the final shape of the ring-fence.
'An overreliance on secondary legislation adds to business uncertainty. Without sight of the detail it is impossible to predict the success or failure of the ring-fence. The government must give sufficient time so MPs can fully consider the secondary legislation to ensure the impacts on customers and the banking industry have been fully considered and addressed by the time the legislation is implemented.'
There is also concern that foreign banks that are not ring-fenced (or differently ring-fenced) will have a competitive advantage, which could undermine one of the key aims of ring-fencing: protecting taxpayers from risky banking.
Desmond Hudson added:
'It is vital that well-intentioned plans do not create a straitjacket for the UK economy, by stunting growth in other sectors. Neither should they pass unnecessary additional costs to businesses and customers, through increased charges or higher borrowing rates. We risk creating a complex set of overlapping regulations and loading costs and uncertainty into an already challenging market for financial services.'
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About the Banking Reform Working Group
The Law Society Banking Reform Working Group is comprised of specialist City lawyers in banking law, financial services law, competition law, EU law and international commercial law as well as economists.
Dorothy Livingston, the chair of the Law Society Working Group, was called to give oral evidence to the Parliamentary Commission on Banking Standards on 8 November 2012.
View the evidence
Notes to editors
The Law Society of England and Wales is the independent representative for solicitors, established in 1825. The Society works globally to support and represent its members, promoting the highest professional standards and the rule of law.
Contact: Press Officer, Clare Wills, The Law Society
+44 (0)20 7316 5624