UK Banking Reform

Structural Reform of the UK banking sector

The Financial Services (Banking Reform) Act of 2013 is a UK Government proposal aiming to impose higher standards of conduct on the UK’s banks. It also looks to improve their loss-absorbing capacity and outlines plans for the “ring-fencing" of retail and wholesale banking activities.


The UK Banking Reform

The global economic crisis which began in 2007, led to a host of regulatory reforms across the financial services industry designed to protect the taxpayer and the wider economy in the event of another crisis. A number of the reforms require changes to the structure of banking groups so that, in the event of severe financial stress an institution can be recovered or, in financial failure, swiftly resolved.

In 2013, legislation was passed in the UK requiring that certain universal banks in the UK such as HSBC, which offer personal, commercial and investment banking services, separate, or ring-fence, their UK retail and commercial operations from wholesale or investment banking activity. As a consequence, the HSBC Group is required to make certain structural changes in the UK.

The Financial Services (Banking Reform) Act 2013 (the Banking Reform Act) is a key part of the UK government’s plan to create a banking system that supports the economy, consumers and small businesses. The Banking Reform Act implements the recommendations of the Independent Commission on Banking, set up by the government in 2010 to consider structural reform of the banking sector. It also implements key recommendations of the Parliamentary Commission on Banking Standards, which was asked by the government to review professional standards and culture in the banking industry.

Separating retail banks from investment banks

The Banking Reform Act impacts all UK banks holding deposits of £25bn or more (currently six banks in the UK - HSBC, Barclays, Lloyds, RBS, Santander and the Co-operative Bank). HSBC’s competitors have not yet formally confirmed their finalised approaches to meeting the requirements and their application of the rules may be different to that of HSBC.

In response to these requirements, the HSBC Group is making certain structural changes in the UK. As part of these changes, the new ring-fenced bank (RFB) will be comprised of:

  • UK Retail Bank and Wealth Management (RBWM)
  • UK Commercial Bank (CMB)
  • UK Global Private Bank (GPB) clients will stay in the private bank which will become a subsidiary of the RFB

Global Banking and Markets (GB&M) will remain in its existing legal entity and form the majority of the non-ring-fenced bank (NRFB).

What does this mean for Global Banking and Markets clients?

HSBC’s approach to customer segmentation and propositions will not change as a result of ring-fencing and we are working to ensure that all HSBC customers see no change to their service proposition and banking experience. GB&M customers will continue to bank with HSBC Bank plc and benefit from our international network and the ring-fenced bank where appropriate. Equally, customers of the RFB will continue to benefit from our international network and our investment banking solutions.

The impact on the vast majority of GB&M customers will be minimal; however a small number of our customers will be required to migrate accounts to a new sort code and account number. This is due to the allocation of existing sort codes to either the ring-fenced bank or the non-ring-fenced bank. GB&M customers with sort codes allocated to the ring-fenced bank will need to move to a new sort code and account number in the non-ring-fenced bank. These clients will have the opportunity to consolidate and streamline their banking arrangements with HSBC. We will be working with these clients individually to minimise the disruption and will be in touch with affected clients in the near future.

The limited number of GB&M clients impacted by sort code migration will be communicated to in 2016. HSBC will be working with these clients individually to minimise the disruption and is already starting to speak to affected clients.

What benefits are expected?

The main objective of recovery and resolutions plans (RRP) is that in the event of severe financial stress an institution can be recovered or, if in financial failure, swiftly resolved and so reduce the risk that problems in one part of a banking group can affect the service to customers in another part of the group. Ring-fencing reform is designed to protect key retail and SME services in the UK by insulating ring-fenced customers from risks arising elsewhere in their organisation or in the wider financial system.

For GBM customers, the benefit is that they will continue to enjoy the same bank as today with the minimum of changes necessary.

Last updated: 29 Mar 2016