The Liikanen Report and EU ring-fencing measures
The Liikanen Report and EU ring-fencing measures

The following Financial Services guidance note provides comprehensive and up to date legal information covering:

  • The Liikanen Report and EU ring-fencing measures
  • The Liikanen report—core proposals
  • The concept of ring-fencing within Liikanen proposals
  • Disaster management—additional separation for recovery and resolution plans
  • Debt diversification for bail-in
  • Changes within the concept of risk-weighted assets
  • Reining in risk through improved corporate governance
  • The wider perspective on unbundling universal banks
  • EU regulatory response to the Liikanen Report
  • Banking reform and ring-fencing in the UK

This Practice Note provides a summary of work carried out by the European Commission's High-Level Expert Group (HLEG). The HLEG was set up in February 2012 to consider possible structural reforms to the EU's banking sector. Erkki Liikanen, Governor of the Bank of Finland was appointed chairman. The HLEG’s mandate was to determine whether financial stability, efficiency and consumer protection would be assisted through implementing structural changes as well as ongoing regulatory reforms. The HLEG held a consultation between 3 May and 1 June 2012 and presented its final report, known as the Liikanen Report, to the Commission on 2 October 2012.

The Liikanen report—core proposals

The Liikanen report made the following proposals:

  1. ring-fencing

  2. disaster management—additional separation for recovery and resolution

  3. diversification of assets for bail-in

  4. risk-weighted assets

  5. improving corporate governance to deliver more effective risk management

Each of these is discussed in greater detail below.

The concept of ring-fencing within Liikanen proposals

Mandatory segregation of retail banking and trading activities

The proposal for ring-fencing called for the segregation of retail banking (eg deposits and provision of services to the non-financial services sector) and trading activities (such as proprietary trading and market making). Trading would need to be carried on within a separately capitalised entity. This would not require complete separation—it would allow for a universal banking structure, with trading carried