Bank ring-fencing rule gives foreign banks advantage George Osborne has endorsed the Independent Commission on Banking's recommendation that British retail banking businesses must be ring-fenced from lender's riskier investment banking divisions. However, the Chancellor inserted a loophole that will allow banks not incorporated in the UK to dodge the requirement. The ICB proposed that all banks authorised to take retail deposits in the UK must ring-fence their British retail businesses, however Mr Osborne said the requirement would apply only to UK incorporated banks. Lawyers at City law firm Allen & Overy noted the different impact this would have on foreign banks and UK-based lenders. "This is good news foreign banks operating through branches, but poses a headache for domestic institutions - which will rightly claim they are at a competitive disadvantage - and also raises the risk of migration of retail financial services to non-UK banks, which would impede the UK authorities' ability to safeguard stability of the UK financial system," the law firm said in a briefing paper. Several foreign banks operate British retail banking businesses that will not be affected by the new rules, meaning they will not have to go to the expense of creating the new ring-fenced subsidiaries unlike rivals such as Barclays, HSBC and Santander UK, which are all incorporated in the UK.