The high-risk activities would include, among others, unsecured loans to hedge funds and private equity investments, according to the report.
Activities that could remain outside the trading unit would include interbank lending, mortgages and small business loans, as well as some hedging activities for non-bank clients.
The separation rule would apply to banks with available-for-sale assets worth more than 100 billion euros ($129 billion) or amount to more than 15 percent to 25 percent of a lender’s total assets, according to the report. Supervisors would also carry out other assessments before applying the measure, while the “smallest banks” would be exempt.
“The review creates even more uncertainty for U.K. banks,” Jeremy Jennings-Mares, capital markets partner at law firm, Morrison and Foerster LLP, said in an e-mail before the Liikanen-group report was published.
“What banks need more than anything now is certainty and a realistic timetable to be able to properly plan for the effect the proposals will have on their business in the long term,” he said.
On pay, regulators should consider setting “absolute levels to overall compensation,” including banning bonus pots that exceed fixed dividends, according to the report.
The group also called for a share of bonus awards to be in debt that can be written down if a lender gets into difficulties.
Consideration should be given to plans by the European Parliament to set limits on how far bonuses can exceed fixed pay, according to the report.
Such a cap would “substantially ease the task of the supervisory authorities in screening out undesirable remuneration policies,” according to the report.