The deadline for banks to have submitted plans to separate investment banking and retail operations through ring-fencing has been reached today and regulators will now read through the plans.
IT departments are still unclear about what they will have to do, but should begin to understand the challenge following the submission of plans.
The UK’s big banks, such as Barclays, RBS and HSBC are most affected. How these banks plan to split IT infrastructures and separate contracts with IT services firms will be a key challenge.
The rule, introduced in 2011, followed Independent Banking Commission (IBC) recommendations, which were drawn up after the retail operations of UK banks suffered in the 2008 financial crisis.
The IBC looked at ring-fencing in large banks. This means keeping the retail bank separate from risk-taking investment operations, such that the investment bank could fail without jeopardising the retail bank and its customers. Ring-fencing is seen by many in the financial sector as less harsh than a complete separation.
For IT departments, this could mean individual systems will require separation, with entire IT operations and outsourcing agreements facing restructuring.
An investment banking IT source said as yet the impact on IT is unclear: “IT’s role in the ring fencing should become clearer once the plans are in.”
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One banking IT source told Computer weekly that the biggest challenge will be separating infrastructures.
“If you have shared datacentres and share IT outsourcing contracts it will be difficult and potentially expensive to separate," he said. He said it is still in question “how rigorous the regulators will be around shared outsourced services, including offshore service.”
A Parliamentary Commission on Banking Standards report in 2013 wanted to take ring-fencing a step further through the “electrification of the ring fence,” to prevent banks “gaming the rules".
"Over time, the ring fence will be tested and challenged by the banks. Politicians, too, could succumb to lobbying from banks and others," it said.
"For the ring fence to succeed, banks need to be discouraged from gaming the rules. All history tells us they will do this unless incentivised not to. That’s why we recommend electrification.”