The Lords will discuss the final stages of the plans next month, with the regulations expected to come into force in 2018 or 2019. It will then be for the House of Commons to pass the completed legislation, probably within the next six months
The Government decided to enforce a ring-fence after the Independent Commission on Banking, set up by George Osborne, recommended the split. Simple retail deposits and operations will be allowed within the ring-fence, while more complex hedging products will sit in a separate business division.
Many senior figures in banking believe that the new rules will mean the eventual full-scale division of Britain’s banks as maintaining an investment bank will become more costly. Barclays and the Royal Bank of Scotland could be worst affected, although the latter is winding down its investment arm under pressure from the Government.
In their letters, the businesses called for hedging products, which businesses use to insure themselves against risks of inflation changes, for example, are kept within the ring-fence. Foreign currency hedging, for example, is an important tool for managing a business’s costs.
Products outside the ring-fence are likely to increase the cost of capital for the corporates because they will be dealing with notionally less secure entities.
The businesses that have written the letters are thought to include utilities such as energy and water firms. Any increases in their costs will ultimately be passed on to the consumer.
The companies argue that they could also be forced to move their hedging operations to foreign banks operating in continental Europe, Asia or America, where the rules do not apply.
The split could also mean that businesses will have to deal with separate legal entities, increasing the level of risk.