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Impacts of moving to a ring-fenced bank

Five areas for UK banks to consider when looking at the implications of ring-fencing.

Overview

Banking reform is one of the most significant changes currently impacting UK banking. The organisation, people and human resources (HR) implications of ring-fencing are substantial. While banks are beginning to address the contractual and structural implications of banking reform, they need to act on the people impacts, which will be much broader across the culture, employee value proposition and all HR services.

Banking reform: Background
To ensure resilience in the banking sector, the UK government is initiating reforms intended to reduce taxpayer exposure to future banking losses and to protect retail customers in the event of future shocks. The Independent Commission on Banking (ICB) was appointed by the government to provide recommendations to create a more stable and competitive basis for UK banking in the long term. In 2013 the UK Government introduced legislation for ring-fencing, and secondary legislation was passed in 2014 requiring all banks with £25m assets or greater to separate their organisation.

DOWNLOAD BANKING REFORM [PDF, 1.82MB]

Banks will need to address the challenges arising out of ring-fencing by:

  • Delivering an effective target organisation, corporate governance, culture and leadership changes

  • Ensuring the HR and people operations in the target organisation are fit for purpose in the ring-fenced bank (RFB)

  • Managing transformation delivery to move to the target HR, people and organisational framework

A retail ring-fence constitutes a legal and operational boundary around retail banking and business banking operations, thus separating them from riskier activities such as investment banking.

Key Findings

The impact on the bank’s people agenda will be seen across five areas: organisation design, leadership and culture, HR, people processes, and transition capability:

  • Optimising the organisation for banking reform: Banks will need to adjust or implement a new operating model and supporting organisation design for the RFB, the non-ring-fenced bank (NRFB), and the operational subsidiary where applicable.

  • Creating strong leadership and governance: Leadership and culture have been heavily criticised within financial services. Ring-fencing reasserts the need for efficient governance.

  • Readying the HR function to support the segregated bank: There is an active discussion around whether HR should sit in each bank, serve both banks from the operational subsidiary, or both.

  • Managing your people across the ring-fence: Banks will need to review people processes and the employee value proposition—and how these need to differ for the RFB, NRFB and any operational subsidiary.

  • Mitigating the transition and change execution risk: HR teams need to be ready to manage the significant and ongoing change.

Recommendations

We recommend that banks address key areas:

  • Establish clear roles and structures, but also determine how the different component parts of the bank continue to collaborate to serve customer needs effectively.

  • Promote a stronger, more ethical culture within all areas of their bank. Clarify accountabilities at a board level, and down the organisation in the new regime arising out of ring-fencing.

  • Continue providing HR systems to all entities, including logical separation where there is a need for different policies and processes to support RFB and NRFB.

  • Use of HR cloud services such as Oracle® Fusion and SAP SuccessFactors® will limit process divergence arising out of ring-fencing. Succession and talent processes is another area that will need to change.

  • HR leaders will need to guide their business on the people, culture and HR implications of the ring-fencing change. Consequently, they also need to embed the change in the new organisation after transition.

DOWNLOAD BANKING REFORM [PDF, 1.82MB]