Lloyds reportedly seeking easing of investment bank ringfencing rules

17th Feb 2014 11:02

Lloyds Banking Group is reportedly negotiating with the UK's Prudential Regulation Authority (PRA) to ease ringfencing rules on its investment banking activities as it fears the operation could be overwhelmed by new requirements due to come into force by the end of the decade.The Financial Times, citing people familiar with Lloyds' plans, said one option for the bank would be to abandon investment banking entirely and operate solely as a retail business.The bank, which is 37.2% owned by the UK government, wants the regulator to "lower" the proposed ringfence so retail and investment operations would not have to be separated as strictly as the new rules dictate.The FT said senior Lloyds executives were concerned about the costs of establishing separate boards, IT systems and risk and finance functions for the activities that are not included in the ringfence.Lloyds does not have as large an investment banking arm as other banks such as Barclays and Royal Bank of Scotland Group. Rules under the recently-passed Banking reform Act allow the regulator flexibility on governance rules where retail operations represent the majority business. "Given that we are predominantly a retail and commercial bank, we would expect to be less affected than other major UK banks by the implementation of a retail ringfence. We remain committed to providing our clients with a broad range of banking services," a Lloyds spokesman told the newspaper.The ringfence will force major UK banks to separate legally their retail banking operations from riskier investment banking operations, in line with the recommendations of the Independent Commission on Banking. The aim is to ensure the ringfenced bank is insulated from any problems that develop in the investment banking wing.The PRA is discussing how the new structure will work with all the big banks, and is expected to consult on the matter this year. The final deadline for implementation is set for 2019.Lloyds shares were up 0.28p to 80.73p at 10.58.FP