British banks rushing to carry out capital ring-fencing have little room for error, with big risks of disruptions for customers, according to a senior regulator.
There is a “high degree of delivery risk” involved in bringing the plans into place, according to James Proudman, an executive director at the Prudential Regulation Authority (PRA) in charge of supervising deposit-taking banks.
The UK’s big banks are rushing to comply with the legislation, with a cut-off date of 1 January 2019.
In a speech delivered to the British Bankers’ Association in London, Proudman emphasised he expects banks to meet the deadline, but warned there is “little scope for slippage” in the existing plans.
Regulators moved to put ring-fencing on the statute books after the financial crisis, with fears that the mix of investment and retail banking operations in the biggest banks could expose UK households to losses on deposits, forcing the government to stand in.
Only banks with more than £25bn in retail deposits have to meet the new requirements to separate the divisions.
The regulations are expected to apply to RBS, Barclays, HSBC, Lloyds, Santander UK, as well as Virgin Money, TSB and Clydesdale. The Treasury estimated in 2013 the implementation costs will reach up to £4.4bn per year across the sector, with one-off costs of as much as £3bn.
Up to a million British consumers and businesses will see their bank sort codes changed, with banks having to ensure that automated bills, payments, and direct debits go through on time.
Meanwhile some bank customers will have to be transferred from one legal entity to another, a complex process which will involve courts, multiple regulatory bodies as well as independent experts to carry out detailed review of the moves to check their legality.
Proudman said: “As with any big infrastructure project, there is some potential for disruption to everyday activities as new group structures are moved into place and new ways of operating are brought on-line.”
The “significant restructuring challenges” faced by banks may be complicated further by the Brexit process, Proudman said. Regulators are working with the banks to form contingency plans so that they meet the deadlines, even if delays earlier in the process occur.