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LONDON (Reuters) - Lloyds Banking Group's (LLOY.L) Chief Executive, Antonio Horta-Osorio, will on Thursday call for British banks to accept new rules designed to protect their domestic retail customers from riskier parts of their operations.
Britain's financial regulator is consulting with banks over the issue and will publish final rules next year to give lenders time to implement changes ahead of a 2019 deadline for their introduction.
Some senior bankers believe other regulatory changes and structural reforms already underway within banks have made the need for ring-fencing redundant. Horta-Osorio, however, will say it remains a key element of new regulations designed to ensure banks can support the economy in a strong and sustainable way.
"To people who say ring-fencing is too burdensome, I would simply say that having an effective ring-fence can, over time, reduce the level of capital required in the banking sector," he will say at a British Bankers Association conference.
Lloyds, Britain's biggest retail bank, is less affected by the new rules than some of its rivals, because the vast majority of its activities will sit within the ring-fenced operation.
Horta-Osorio will tell the conference that the regulatory burden on banks will continue to increase until trust in the industry is rebuilt.
"The regulation burden will only stop growing once the public and regulators trust us to manage our sector in a responsible manner," he will say.
Britain's competition watchdog is currently investigating the market for personal current accounts and banking services to small businesses and will publish its provisional findings in September.
Lloyds will be under particular scrutiny as it has the highest market share in personal current accounts and the second highest in small business banking services.
The bank, which was rescued by the government during the financial crisis, was fined 117 million pounds by the financial regulator this month for failings in the way it handled complaints about mis-sold loan insurance.
Horta-Osorio will say that the emergence of a number of new banks in Britain since the 2007-9 financial crisis will drive competition.
"New technology entrants to the market are bringing new ideas and new approaches to providing products and services that have the potential to disintermediate banks from the role that high street banks have traditionally played," he will say.
The government has sold more than half its stake in Lloyds, which was rescued at a cost of 20.5 billion pounds to taxpayers, and the bank is expected to return to full private ownership within the next year.
Editing by Susan Fenton