Keith Skeoch: ‘Banks have come a long way since the dark days of 2008’

Keith Skeoch chaired the UK Government’s Ring-Fencing and Proprietary Trading Review, and is the former co-chief executive of Standard Life Aberdeen

The ring-fencing regime was introduced following the financial crisis and broadly required banks to separate their retail businesses from investment banking. In the same way RBS became the poster child of the financial crisis, ring-fencing became the poster child for UK banking reform.

The review [Skeoch chaired the UK government’s Ring-fencing and Proprietary Trading Review, which published its report on 15 March] into the regime was required by statute, but the quality of evidence and analysis, the level of engagement with stakeholders, and the expertise and insights of my fellow panel members, made it intellectually rewarding and a real privilege to lead.

The final report provides a thorough analysis of the regime. Our recommendations, I believe, add real value to the future of regulation for the UK banking sector.

We recommended that the ring-fencing regime should remain in place for now. But more flexibility is needed across the regime, including exemptions for certain activities and some smaller banks. Although technical in nature, at the heart of our recommendations is a forward-looking focus to help banks provide the services to their customers that are needed, while giving authorities more flexibility in their ability to regulate a dynamic and ever-changing sector.

Two issues left a lasting impression during the review. First, banks have come a long way since those dark days in 2008. During the Covid pandemic, for instance, the government and businesses relied on banks to provide much-needed financial support.

READ Ring-fencing review leaves UK banks with uncertain future

That is testament to the work of regulators and banks to change the culture, practices and even structure of the sector that were so destructive in the lead up to 2008. I think the reforms introduced following the recommendations of the Independent Commission on Banking were a key driver in bringing those changes about.

The second striking issue is the complexity and dynamic nature of how banking supports the economy.

Following the financial crisis, a narrative emerged founded on the idea investment banking is bad and retail banking is good. Nothing in life is black and white, and that is equally true of banking. Both retail and investment banking play critical roles in the economy.

That is not just my view – it is also the view of regulators around the world and the reason why the UK’s resolution regime aims to ensure that critical services continue in failure, regardless of whether they are retail or investment activities.

The review recognized the difficult gray areas: the dangers of creating ossified retail banks; how authorities plan for the failure of banks in practice; and the complexity created by the interaction of different regimes.

Our recommendations are focused on the future and look to play their part in creating a simpler and stronger industry. The risks and opportunities that the economy and banking face today are very different to those of 10 years ago and I have no doubt will be very different 10 years hence.

My hope is for authorities to take a step back and consider the different and contrasting regulations that aim to improve financial stability so that there is an aligned, coherent approach to how banks are regulated, supervised and, if needed, resolved.

At the moment, the regimes are not working together, which is not great for customers, creates excessive complexity for the authorities and the banks, and could be disastrous for taxpayers if the worst were to happen.

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