Shearman & Sterling LLP | Financial Regulatory Developments Focus | UK Ring-Fencing Regime to Remain Unchanged in a "No Deal" Brexit Scenario
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  • UK Ring-Fencing Regime to Remain Unchanged in a "No Deal" Brexit Scenario
    HM Treasury has published explanatory guidance on potential changes to the U.K.'s laws on ring-fencing in preparation for a "no deal" scenario in which the U.K. leaves the EU on March 29, 2019. The draft Ring-Fenced Bodies (Amendment) (EU Exit) Regulations 2018 have not yet been published. HM Treasury intends to publish the draft Regulations in due course and to lay them before Parliament before exit day.

    From January 1, 2019, the U.K. ring-fencing laws will require U.K. banks and banking groups which hold more than £25 billion in core deposits to separate their core retail banking business from their investment banking business. Restrictions will limit the products that a ring-fenced bank can offer and where it can conduct business. In particular, a ring-fenced bank will not be able to own a banking subsidiary or branch which is established outside of the EEA. The U.K. legislation defines the activities that a ring-fenced bank may or may not undertake by reference to definitions in EU legislation.

    HM Treasury is proposing to continue to allow ring-fenced banks to own an EEA bank subsidiary or branch to minimize the disruption to U.K. banks as a result of Brexit. In addition, the draft Regulations will amend the definitions used in the U.K. legislation to ensure that the ring-fencing regime continues to operate as it should when the U.K. leaves the EU.

    The explanatory guidance notes that a statutory review of the ring-fencing regime is due in 2020-2021 and states that this may be an appropriate juncture at which to assess the ring-fencing regime.

    View the explanatory guidance.

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