Goldman, JPMorgan ring-fencing talks stoke fears of weakened rules

Records obtained by Financial News show how influential City groups, including the Wall Street banks, had the ear of a panel reviewing the rules far more often than groups representing consumers.

While the panel recommended the government keep the core of the ring-fencing regime — which attempts to safeguard consumer deposits by splitting them from investment banking — it suggested a number of tweaks.

“With banks writing their own rules, it is no wonder the public are losing faith in the government’s ability to listen and meet their needs,” said Positive Money senior economist David Barmes.

A Freedom of Information Act request from FN shows Goldman Sachs held two meetings with the panel in the run-up to its report. The bank had previously questioned the ring-fencing threshold, citing it as a barrier to growth for its digital bank Marcus, which launched in the UK in 2018. Goldman declined to comment on its engagement with the review.

Other banks that got meetings included JPMorgan — which continues to build its nascent Chase savings brand in the UK — HSBC, Barclays, and NatWest.

Banking and business lobbyists such as the Confederation of British Industry, TheCityUK, and UK Finance also feature, leading to questions from some campaigners about the level of influence that financial services firms could have had on the results compared to consumer groups.

JPMorgan, Goldman Sachs, HSBC and Barclays all declined to comment. NatWest was contacted for comment.

The ring-fencing rules were set up in the wake of the financial crisis, splitting consumer deposits from riskier investment banking activities in a bid to shelter retail operations in the event of another collapse.

Former Standard Life Aberdeen chief Keith Skeoch was asked to chair an independent panel on whether the rules were still up to scratch. His report, published in March, backed keeping the £25bn deposit threshold at which banks must separate their operations, but argued that where banks were deemed “resolvable” under a separate bankruptcy regime, they should be taken out of the ring-fencing net, alongside other tweaks that amounted to a slight loosening of the regime.

The government has kept quiet on the recommendations since. The new taskforce is made up of top Bank of England and Treasury officials, which will help inform the government’s next steps and potentially put an end to the state of limbo, the people familiar told FN.

A source close to the review said a number of civil servants supported the panel through a secretariat, and some of these staffers have now been assigned to the taskforce.

READ Ring-fencing review leaves UK banks with uncertain future

According to research and campaign group Positive Money, close to a third of Treasury minister meetings in 2020 and 2021 were with the financial sector and its lobbyists, far more than any other sector, and almost three-quarters of all past and present Bank of England decision-makers have held roles in private finance.

Marloes Nicholls, head of policy and advocacy at The Finance Innovation Lab, told FN: “The most important insight from the Skeoch Review is that ring-fencing is doing its job – protecting people’s money and taxes from the costs of reckless casino banking. Since the report endorses the ring-fence, it is baffling that it also opens the door to removing it in the name of the competitiveness of the big banks.”

However, a person close to the review said that the lack of a consumer voice was partly due to a lack of proactive engagement by those groups.

“We got good traction with all of the banks that were involved. We had conversations with them, they made submissions, we followed up on the submissions… so that we really did understand what we were being told, and the evidence put in front of us,” they said.

“We actually found it quite difficult to get somebody who was going to speak from a customer perspective. So not just individuals, but also small-to-medium-sized businesses. It wasn’t for the want of trying and looking to reach out.”

Others in the City have noted that lobbying tends to be muted around ring-fencing on the part of major banks. Since they have spent time and money splitting their businesses, many may be unwilling to undertake another massive task to undo that work so soon.

A financial services partner at a City law firm who works with major banks said: “Ring-fencing was a massive issue for the industry, because they spent a lot of years implementing it. It is not just, ‘This is a retail client, go here, an institutional client here’. – There’s a huge amount of overlap. Systems had to be divided. It was a massive project. Having done it, are they going to agitate to change it all?”

The source close to the review also said that while the government is pushing to cut regulatory red tape to deliver a Brexit dividend for the City, it did not try and influence the ring-fencing findings.

“The Treasury played it with a pretty straight bat,” they said. “There was absolutely no pressure from the Treasury to push us one way or the other.

“We certainly don’t feel that that would lead to a bonfire of regulation that would take us backwards to the culture that existed in the banking sector before the crash.”

A Treasury spokesperson declined to comment on the potential timeframes for government action on the panel’s recommendations.

An update was set to come at the Mansion House dinner of City leaders on 19 July, where now ex-Chancellor Rishi Sunak could have unveiled the government’s post-Brexit plan for financial services regulations.

However, the reform agenda has been thrown into doubt by the departure of City minister John Glen, who was spearheading much of the work.

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