The Bank of England has today laid out further details about how Britain's biggest banks will have to restructure in order to comply with so-called ring-fencing regulations.
From 2019, banks with core deposits greater than £25bn will have to separate their retail activities from the riskier parts of the business. The requirements were first set out in the Financial Services (Banking Reform) Act in 2013.
In two separate papers today, the Prudential Regulation Authority (PRA) set out how banks would need to organise both their key and "back office" operations – and provided further estimates of just how much those changes would cost.
The regulator said that the under the new regulations, affected banks could need to hold up to £3.3bn of extra capital.
The PRA also estimated that restructuring "back office" – such as IT, human resources and other support services – could cost firms up to five per cent of their operating budgets initially, and then three per cent for each year after that.
The regulations are expected to apply to six banks: RBS, Barclays, HSBC, Lloyds, Santander UK and Co-op.
Other slightly smaller firms, such as TSB and Virgin Money, could be hit by the regulations, as well, if their core deposits exceed the £25bn threshold by 2019.
Bank of England deputy governor Andrew Bailey said the papers were "an important step forward" and "provided clarity for affected banks".
But Simon Hunt, UK banking and capital markets leader at PwC, said: "While banks will welcome the additional clarity provided by today's announcement, there is little in the way of good news."
"Ring-fencing will remain costly both in transition and once implemented and may leave UK banks at a strategic disadvantage to their international peers," Hunt added. "Banks will also have to manage a number of significant uncertainties that still remain such as the overall capital requirement for the ring-fenced bank when finalising and implementing their ring-fencing plans over the coming months and years."
The Financial Conduct Authority (FCA) is expected to set the capital requirements for ring-fenced banks as soon as next year.