On February 5, the Financial Markets Law Committee published a paper highlighting uncertainties identified in relation to the ring-fencing provisions contained in the draft Financial Services (Banking Reform) Bill 2012 – 2013.  Three key areas were identified as being problematic, as follows:

• Compatibility with EU law: the operation of the depositor preference and group support provisions may conflict with the proposed Recovery and Resolution Directive and certain provisions, as drafted, may also indirectly discriminate against nationals of other member states.
• Drafting uncertainty: the current definition of “core services” is very unclear and the proposed transitional provisions create uncertainty as to the enforceability of existing arrangements between banks and customers.
• Scope of the ring-fence: as drafted, the legal, economic and operational independence of the ring-fenced bank is uncertain due to a lack of clarity in the provisions setting out the height and location of the ring fence.