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By Max Colchester and Margot Patrick 

LONDON--Several U.K. banks will have to restructure their operations and find extra capital in the coming years to comply with tough new rules imposed by the Bank of England.

Big U.K. banks will be required by so-called ringfencing rules to separate their retail banks from investment banking activities. The aim is insure depositors and small businesses aren't put at risk if a lender's investment banking operations fail.

On Thursday the Bank of England said the ringfenced retail operations of big U.K. banks would have to hold extra capital to cover systemic risk in their operations, even if they are part of larger well capitalized banks.

The central bank's Financial Policy Committee has yet to determine exactly how much extra capital the six affected banks will need to hold but the regulator said they may need a total of GBP3.3 billion ($5.12 billion). The required leverage ratio will be determined in 2017.

The Bank of England also said that banks subject to the rules will need permission from the central bank for their retail arms to pay dividends to their parent companies and pay market rates for services provided by other parts of their organizations.

The new rules come into force in 2019 and apply to six U.K. banks which each hold more than GBP25 billion in deposits-- Barclays PLC, HSBC Holdings PLC, Lloyds Banking Group PLC, Royal Bank of Scotland Group PLC, Co-operative Bank PLC and Santander UK, the British arm of Spain's Banco Santander SA.

Details on the rules, though tough, offered few surprises to bank investors, prompting bank shares to rise on the news.

The plans are in line with expectations, said Steven Hall, banking partner at KPMG. Banks "can pay dividends against a backdrop of capital requirements which are tightening," he said.

Since the ringfencing idea was proposed in 2011 banks have been lobbying hard to water down the rules.

Bank executives have expressed concern that they won't be able to control their ringfenced units, which will have their own board of directors and management. Another major concern: how much capital needs to be locked up in the units and how easily dividends can be paid up to the holding company.

Guidelines published by the central bank in a paper Thursday gave more clarity on how these units will be structured.

Ringfenced entities will need their own support functions, although they will be able to access other functions, such as back office support, within the larger group through outsourcing agreements, the paper said.

The new rules could hinder moving capital around the banks. Lenders will have to hold capital against loans made between the ringfence and non-ring fenced bank, the Bank of England said.

Some retail-focused banks, such as Lloyds Banking Group PLC, are aiming to put most of their operations within a ringfenced entity. Others such as Barclays PLC and Royal Bank of Scotland Group PLC face a challenge to ensure they can effectively run two stand-alone banks under a holding company. Executives at HSBC Holdings PLC, which has large global operations, are particularly eager to be able to redeploy excess reserves to more profitable parts of their banking empire.

The regulator is planning to tweak the rules depending on each bank's business model and lenders will be allowed to apply for waivers after the final rules are published in 2016.

Write to Max Colchester at max.colchester@wsj.com and Margot Patrick at margot.patrick@wsj.com

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(END) Dow Jones Newswires

October 15, 2015 07:04 ET (11:04 GMT)

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