So, Sir John Vickers’s report was published almost 2 weeks ago now, and we have seen a surprisingly warm welcome from Bob Diamond, who sees the report as “a welcome step towards the greater clarity that banks need to be able to operate with confidence”. We have also seen some contradictory statements, questioning the whole ring-fencing idea and the sentiment that retail banking is less risky than investment banking, brandished “casino banking”.

Regardless of which side of the fence you’re on, we’re about to enter the pre-lobbying phase.

I’ve been asked by a number of banks “should I be doing something about this now?”… Yes, there are steps banks should take now, in order to both get the wheels in motion to comply with the 2019 regulation, but as important, to identify areas which should be focused on for lobbying efforts.

1. Write loss absorbency measures into Basel III programmes

Vickers’s loss absorbency measures are relatively clear and largely an enhancement of the Basel III rules. In terms of implementation, it would make sense to write these into banks’ pre-existing Basel III programmes; particularly in light of the fact that the time lines are consistent.

 2. Make use of the time

There is almost 8 years until the recommendations need to be implemented, but banks will need to be lobbying hard by 2014/2015. By planning operational changes early, banks will reduce costs and disruption to the business – early investment will save future costs.

3. Let the defining begin!

Def: Your markets: Banks will need to redefine their customers – to place them on either side of the ring-fence. While most is mandatory, it’s not all clear-cut. Large corporates for example can be served on either side.

Def: The support operating model: Achieving separability is largely being left for banks to decide. They will need to make important decisions regarding all support functions – will there be replicated functions on each side of the ring-fence, or will banks create a bankruptcy-remote entity within the group?

Def: The future legal structure: The answers to the previous two points will drive the future legal structure.

4. Make decisions early, 2012 would be a good start

Current projects can be directed to ensure consistency with the target 2019 operating model – they can even help deliver it. The sooner banks have got to grips with the implications of the report, and what options it presents them, the better equipped they will be to lobby for a more favourable outcome.

 5. Avoid big one-off transfers

The easiest way to move from one operating model to another is typically to let business run down in the old model and book new business into the future model, rather than transferring it all in one go. There are legal benefits, as well as cost and simplicity – as the new business is being written in the new legal structure, existing contracts won’t need to be unpicked.