Law Society evidence to the Parliamentary Commission on Banking Standards
Dorothy Livingston, the Chair of the Law Society Banking Reform Working Group and competition law partner at Herbert Smith Freehills LLP will today give evidence to the Parliamentary Commission on Banking Standards as part of their scrutiny of the Financial Services (Banking Reform) Draft Bill.
Her evidence follows the submission of written evidence to the Commission outlining a number of concerns and questions about the draft Bill.
The Law Society is concerned to ensure the reforms do not have unintended and unhelpful consequences and that a workable system for ring-fencing retail from investment banking is put in place.
In particular the Bill's skeletal nature and its reliance on a significant amount of secondary legislation create uncertainty as to whether the UK regime and the EU rules in this area are compatible.
In addition, the draft Bill and the recent white paper raise a number of important questions that the government should urgently examine before implementing the proposed model of ring-fencing. These include:
- Will business customers and consumers get a worse deal from their banks as a result of the proposed changes?
- Will EU banks, which are not ring-fenced, have a competitive advantage in providing banking services to UK customers?
- Will ring-fenced banks be left vulnerable to a cash-flow crisis, because they are forced into excessive short term borrowing by the combination of ring-fencing, guaranteed depositor preference and bail-in?
- Will the proposed narrow remit of ring-fenced banks make it more difficult for their small business customers to grow?
- Will a ring-fenced bank be able to serve the international trading needs of its business customers or will it be forced to send them elsewhere?
- Will the UK's 'front-running' on this issue result in UK headquartered banks eventually having to comply with overlapping EU and/or international ring-fenced regimes, effectively dividing UK banks into three?