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Risk and Regulation - PDF

   

Added on  2020-05-11

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Running head: RISK AND REGULATIONRisk and RegulationName of the Student:Name of the University:Authors Note:

RISK AND REGULATION1Table of ContentsIntroduction................................................................................................................................2Part 1..........................................................................................................................................2Part 2:.........................................................................................................................................7Conclusion................................................................................................................................14Reference..................................................................................................................................15

RISK AND REGULATION2IntroductionThe main aim of the report is to analyse and research the UK banking regulation ruleof ring fencing. The report discusses the new regulation and the background of the regulation.The limitations of the new regulations are also discussed in the report. In the second part ofthe report an UK bank RSB is selected to analyse the implementation of the ring fencingpolicy. Part 1An act was passed by the legislation in United Kingdom that it will be mandatory forlarge UK banks to separate their core banking services from their investment bankingservices on and from 1st January 2019. This process of separating the core banking servicesand the investment banking services apart from each other is termed as Ring-Fencing (Cullen2017). Independent Commission on Banking under the chairmanship of Sir John Vickersrecommended ring-fencing through the Financial Services (Banking Reform) Act 2013.Supplementary legislation which were passes later in the year 2014, 2015 and in 2016provides the details regarding the system of ring-fencing. The Prudential RegulationAuthority (PRA) along with Financial Conduct Authority (FCA) also set out rules andregulations for ring fencing.Ring fencing is considered as a completely new strategy of the Bank of England inorder to shape up the largest UK banks. The main aim of the regulators is to split up theservices of retail bank through branch, online from that of the investment banking and largerbank’s global operations. This is ensure that the business’s vital portion will be in safe areawhich will not affect the normal people’s working operation in case of any failure caused ininvestment banking sector (Wilmarth 2014). In other words, the regulatory authoritydescribed that in case if the banking system crashes then due to the implementations of newregulation it will be possible to keep running the retail banking services.

RISK AND REGULATION3The working process of risk-fenced banks have been clearly stated under severallegislations. This operation includes:The risk-fenced banks have been ordered to ensure that they must not be too reliantfor revenue on their investment bank.Risk-fenced banks must maintain a separate legal, risk and Human Resourceoperations and department of their own.These banks must ensure their own independent access to the system of payments atthe top and shall maintain extra capital buffers of considerable amount.A certain number of international and domestic improvements in banking regulations areintroduced or currently under process due to the severe financial crisis that occurred earlier.While most of these changes are taken up in order to improve the resolvability of the banksand others are made to take care of the resilience. Under the Financial Services and MarketAct 2000 amended by the Financial Service Act 2013, in the UK Prudential RegulationAuthority (PRA) is required to make any changes to the rules or to implement the ring-fencing of core UK services related to finance (Masciandaro and Suardi 2014). Thislegislation of ring fencing is only applicable to the large banks of UK with an average of 3year of business and core deposits amount exceeding £25 Billion. This legislation was passedso that in case of any financial crisis or failure, the normal and essential banking activities donot get hampered. Essential banking activities are those core banking services that a bankprovides to its regular or normal customer which includes:Acceptance of deposits from customers,Making payment into a customer’s account,Providing facilities of withdrawing money,Enabling to make payments from an account of the customer,

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