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UK Set To Enact Law Separating Retail And Investment Banking Activities

Capital Market/ 15:30 , Feb 04, 2013

UK's Finance Minister George Osborn is due to announce a new UK banking law today, which will foresee the separation of retail and investment banking activities, in case a bank fails to follow the new rules, according to media reports. If a bank flouts the rules, the regulator and the Treasury will have the power to break it up altogether - full separation, not just a ring fence, Osborne has noted. 

Under the new UK banking law, the Bank of England will be monitoring the banking activities, and it will be able to force failing banks to sell off their investment or retail operations. Moreover, the new law will give customers the right to switch their bank account to a rival firm within only a week, while the transfer of funds between different banking accounts will speed up.

Last month, the Institute for Public Policy Research (IPPR) consulted the British Government to reform the banking sector, describing the current policy as “too timid.” Tony Dolphin, chief economist at IPPR, said that even the recent proposals of the Commission on Banking Standards to “electrify” the ring-fence between retail and investment banking businesses would not solve the problems with banks.

In detail, IPPR report “Don't bank on it: The financialisation of the UK economy” recommended the government to:(i) split into separate organisations, retail and investment banking activities; (ii) increase competition in retail banking; (iii) reduce risk-taking in investment banking;(iv) establish a British Investment Bank; (v) Investors should stop paying extremely high fees; (vi) establish new financial transaction taxes and find ways to minimize avoidance of them; (vii) control the overall level of speculative credit.

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