UK regulator to have last word in retail bank reform


LONDON, Oct 12 (Reuters) - Britain's main financialregulator will decide what activities the country's retail banksare able to carry out under a new reform aimed at shieldingtaxpayers from having to bail out the industry again.

The draft Banking Reform Bill issued on Friday includes therequirement for banks to separate their domestic retail businessform other bank operations, but it said it will leave much ofthe detail on the scope of this so-called ring-fencing tosecondary legislation.

That effectively allows the successor to the currentFinancial Services Authority to decide what banking activitiescan be undertaken within the UK retail banking operations. Thereremains uncertainty on what the ring-fenced business can andcannot offer, such as providing derivatives services tocustomers.

The reform bill, which also gives savers higher priority inthe event lenders hit trouble, is aimed at implementing manyproposals made by an independent committee earlier this year.Legislation will be enacted by 2015 and reforms in place by2019, the government said.

"The draft Bill appears to leave a lot of detail to bedetermined in secondary legislation. We will press vigorously tofind out what that is going to contain," said Andrew Tyrie, thechairman of a Commission on Banking Standards that will studythe proposals.

The government said the regulator is best placed to oversee,

monitor and update rules and "respond flexibly" as bankingpractices evolve.

Tyrie's Commission will report by Dec. 18, and a bill willbe introduced in Parliament early next year.

Britain, which used to pride itself on its light-touchregulation, is pushing harder on reforms than many countriesafter being one of the nations hardest hit by the 2008 financialcrisis, but has said it is keen for consistency across Europe.

It said the UK ring-fencing model was compatible withproposals put forward this month by an EU advisory group thatwants banks to separate their trading activities from retaildeposit-taking.

A report by the Independent Commission on Banking, chairedby Oxford University academic John Vickers, formed the basis forBritain's reforms, although some of the ICB's proposals willcome into force through European or global regulations so arenot included in the Reform Bill.

The proposals included in the Reform Bill would cost theindustry between 2 billion and 5 billion pounds ($3 billion and$8 billion) a year, the government estimated.

There will also be a one-off transitional cost of between1.5 billion and 2.5 billion pounds and the reforms are likely toreduce the value of the government's stakes in Royal Bank ofScotland and Lloyds by up to 5 billion pounds,it estimated.

But the government said the cost was worth it.

"The benefits of the preferred option will accrue fromincreased financial stability," it said.

($1 = 0.6234 British pounds)

(Reporting by Steve Slater; Editing by Hans-Juergen Peters)

((steve.slater@thomsonreuters.com)(+44)(0)(20 7542 4367 andfollow me on twitter @reuterssteves))