UK Government Report
Retail and Corporate Banking Sector
For the purpose of this analysis, banking is split into three functions:
– Retail banking – individual/consumer deposit taking and lending;
– Business/Corporate banking – including lending and other banking services offered to large businesses; and
– Investment (or wholesale) banking – markets activity and other ancillary services.
This paper looks at the first two of these, and the Wholesale Capital Markets papercovers the third. This paper broadly covers the following activities:
– Provision of banking services – including the ability to open/operate a bank account;
– Deposit taking – holding money on behalf of consumers and businesses;
– Lending to individuals – activities such as credit cards or mortgage lending;
– Commercial lending – such as commercial property or a small business loan; and
– Business/corporate banking, providing retail type services to large business clients including financing, trade and cash management/payment services.
The current EU regulatory regime
There is a series of EU regulatory measures that deal with banking as a whole. The most significant of these is the Capital Requirements Directive IV (CRD IV) and the Capital Requirements Regulation (CRR).
CRD IV and CRR together provide that a bank authorised in one member state may establish a branch in another Member State or provide services remotely there, subject solely to its home state authorisation. The conditions necessary to make such mutual recognition feasible are detailed harmonised rules across the EU covering the safety and soundness of banks. CRD IV/CRR sets out 15 services which banks authorised in one Member State may provide under the passport.
These cover most traditional banking activity: deposits; lending; finance leasing; payment services; other means of payment (e.g. travellers’ cheques); guarantees and commitments; trading in certain instruments on own account or of customers; participation in and service provision for securities issues; advice to corporates on structure, strategy and mergers/acquisitions; money broking; portfolio management and advice; safekeeping and administration of securities;credit referencing; safe custody; and issuing electronic money.
Banks may also provide investment services under their CRD IV authorisation, but are subject to the investment services rules contained in MiFID II.
Any authorised bank in the EU or the EEA is able to provide the above services across the EU/EEA either by establishing a branch, or remotely on a services basis. Many international banks choose to establish authorised subsidiaries in the UK, and then offer their services across the EU.
Other relevant EU legislation includes the Bank Recovery and Resolution Directive, which sets rules on how to resolve a bank, and the Deposit Guarantee Scheme Directive, which legislates to ensure that individual depositors are protected in the event of bank failure.
There are also a number of pieces of EU legislation focused on retail financial services offered by banks such as:
– Payment Services Directive II – Setting out rules on the provision of payment services by banks, e-money issuers, and payment institutions;
– Consumer Credit Directive – Setting rules on the provision of consumer lending;
– Mortgage Credit Directive – Setting rules on the provision of mortgage lending;
– Payment Accounts Directive – Setting rules regarding switching between payment accounts, the comparability of fees and providing a right to a basic bank account;
– Interchange Fee Regulation – Capping card fees;
– MiFID II / MiFIR – Setting out rules on the provision of investment services forbanks and investment firms; and
– Distance Marketing Directive – Minimum standards of disclosure and cancellationrights.
EU prudential, resolution and depositor rules are derived closely from international standards set by the Basel Committee on Banking Supervision and the Financial Stability Board (FSB), in which the UK has been an active participant. By contrast, issues relating to market structure, transparency and conduct are largely developed at the EU level. The EU has generally followed these international standards closely. Even in areas where the FSB has not set standards (e.g. consumer or mortgage credit), the EU has taken into consideration the FSB’s analysis.
The UK has been a strong advocate internationally of robust capital standards for banks, and negotiated for flexibility within CRD IV to impose additional requirements on UK banks for macroprudential purposes. The UK is also implementing a domestic policy of ring-fencing retail banking from other banking activities.