Economic Secretary Tulip Siddiq has stated that Labour will scale back the ring-fencing rules imposed on banks and financial institutions following the global financial crisis of 2007-08.
These rules were implemented through the Financial Services (Banking Reform) Act 2013 in response to the banks’ high-risk investing activities that caused the global financial crisis.
They mandated the separation of consumer retail activities used by households and small businesses from wholesale and investment banking activities to prevent cross-contamination of risk.
Speaking at today’s investor summit, Siddiq announced that the threshold on customer deposits required for the rules to take hold will be increased from £25 billion to £35 billion.
Banks that are overwhelmingly retail-focused (comprising 90% or more of their operations) will be exempt.
When the ring-fencing rules came into full force in 2019, additional amendments mandated that FSCS-protected deposits should receive preferential treatment in the event of insolvency.
There was also a general strengthening of regulatory oversight of how banks use their capital.
While these sweeping changes were intended to eliminate the likelihood of more ‘too-big-to-fail’ financial institutions having to be bailed out by the public, banks have long contended that they are draconian and reduce the UK’s competitiveness as a global financial hub.
The loosening of the regulatory grip forms part of Labour’s promises to boost investment in Britain.