Vickers Report - good news on the horizon for the Crown Dependencies?

Last week HM Treasury issued its long awaited White Paper on the recommendations of the Independent Commission on Banking, outlining its plans for the implementation of the Vickers Report.  Although it is still not clear what the implications will be for the Crown Dependencies, there are some promising signs.

As had been widely trailed, the UK Government proposes including a ‘ring fence’ for domestic retail operations of universal banks, forcing the separation of retail banking operations from the riskier investment banking.  The ring-fenced retail banks will not be permitted to offer their services to clients outside of the European Economic Area and the largest ring fenced firms will be required to hold a capital buffer of 17% against risk-weighted assets - a tougher funding requirement than exists in any country other than Switzerland.  This follows the recent agreement on the passage of the new Capital Requirements Directive and Regulation in the EU Council of Ministers, where the UK argued for the flexibility to implement higher capital requirements than the agreed minimum.

The overseas operations of UK banks have been exempted from the ring-fence, in line with expectations. The paper commits to implementing a bail-in mechanism, although the White Paper is short on detail on how this will operate.

The key issue for the Crown Dependencies is what impact the new arrangements will have on UK banks with branches or subsidiaries in the Islands.  In fact, the White paper specifically refers to the Crown Dependencies (which are important providers of banking deposits to the UK banking system, through upstreaming arrangements) and provides that:

“ It is possible that in the future cross-border resolution agreements with other non-EEA jurisdictions will emerge that provide resolution authorities a sufficient level of comfort that branches or subsidiaries in those countries will not present a barrier to resolution, nor an increased risk to the UK taxpayer. Where this is the case, arrangements may be made bilaterally to allow for ring-fenced banks to maintain subsidiaries or branches in those jurisdictions. In this regard, the Government is working with the authorities of Guernsey, Jersey and the Isle of Man to establish the conditions under which branches or subsidiaries in those jurisdictions would be consistent with the objectives of ring-fencing. It is encouraging to see that a combined effort, by industry, regulator and government has had some impact on accommodating upstreaming of valuable deposits into the UK banking system.”

Jersey Finance Limited has committed to continuing to work with the Jersey Bankers Association and the British Bankers’s Association to inform and encourage the right outcome for the UK Banking industry as well as for Jersey, whilst ensuring that the Island operates in the spirit of Vickers and in accordance with the intentions of the UK government.

The consultation on the White Paper closes on 6 September 2012, and legislation will be written in autumn.