Banks’ legal and compliance departments are expected to grow with the implementation of reforms recommended this week by the Independent Commission on Banking, chaired by Sir John Vickers (pictured).

The centre of power for corporate counsel will be located firmly on the retail side and legal functions will also become more top-heavy, with the creation of new governance layers within the corporate group, each requiring board members and advice.

In a report published on Monday, the commission recommended that banks’ UK retail subsidiaries be ‘legally, economically and operationally separate from the rest of the banking groups to which they belonged’. Retail subsidiaries will contain so-called ‘mandated services’, whose ‘continuous provision is critical to the economy’.

Reed Smith partner Jacqui Hatfield, head of financial services advisory, said: ‘Most activities will be within the retail, ring-fenced side of banks.’ She added that managing risk and compliance for investment banking activities would, by comparison, be a ‘softer option’.

As legally separate entities, UK retail subsidiaries will have their own board that is ‘suitably independent’ from any wider corporate group, and will require their own advice and support.

Sitting above the ‘ring-fence’ in most banking groups would be a group head of legal, who will have to manage and define their relationship with legal and compliance heads from both the retail and investment banks. ‘This will be costly for banks to do,’ Hatfield noted.

There will also be implications for the FSA’s in-house lawyers, including 200 solicitors, as the regulator concentrates on the soundness of the ‘mandated services’ provided by banks from within the ring-fence.

This would accelerate a trend which is already apparent. The FSA increased staff numbers by the equivalent of 478 full-time posts in 2010/11. Of those, 246 were added to strengthen the supervisory capacity, concentrating on ‘most systemically important firms’ regulated.

Significant risks will remain inside retail banking. Clifford Chance partner Simon Gleeson pointed out: ‘In general, bank crises are caused by the "popping" of asset bubbles, and this generally impacts hardest on asset-backed lending - notably mortgages and commercial real estate. This activity will almost certainly be within the ring-fence.’