Lloyds hopes for waiver from ring-fenced board demand -sources

* Banks must submit proposals to regulator on Tuesday * Rules to shield ordinary customers from riskier activities * Regulator has said it has powers to waive rules for some * Barclays, HSBC to set up separate units for IT services By Matt Scuffham LONDON, Jan 6 (Reuters) - Lloyds Banking Group wants Britain's financial regulator to grant it a waiver from new rules requiring banks to have separate boards of directors for their retail and investment operations, sources said. The Bank of England (BOE) is forcing banks to establish a boundary around their branch activities to protect taxpayers from any future exposure to the multibillion-pound bailouts required to rescue lenders during the 2007-09 financial crisis. Among the requirements will be new boards for the supposedly safer, ring-fenced entities, new staff contracts and separate pension schemes. Banks will also need to separate their risk-management and IT operations. By dividing up a bank's activities, it would make it easier to wind up troubled sections without the risk of dragging down the healthy parts of the business. The Financial Times reported late on Monday that Lloyds was seeking an exemption from the board requirement, arguing that because more than 90 percent of its operations will sit inside of the ring-fence there is no need for a separate board. The BOE's Prudential Regulation Authority has said it will take a "proportionate approach" to how the rules are applied. "The PRA will consider applications from firms for modifications of rules," the regulator said in a consultation paper published in October. In the consultation paper, the regulator said it had a "discretionary power to waive or modify rules...where the application of rules would be unduly burdensome or would not achieve the purposes for which the rules were made". Any bank with 25 billion pounds of UK deposits will need to set up a ring-fenced unit by 2019. At present, six lenders would be affected -- HSBC, Lloyds, Barclays, Royal Bank of Scotland, Santander UK and the Co-operative Bank. Andrew Tyrie, head of an influential parliamentary committee that scrutinises Britain's finance ministry, has warned that banks could look to find ways around the ring-fence and should face the threat of being broken up if they do. Britain's biggest customer-facing banks -- Lloyds and RBS -- hope to include as much as possible within the ring-fenced entity, whereas those with more risky investment activities, such as Barclays and HSBC, want fewer of their assets to be kept within the ring-fence, industry sources have said. Barclays plans to keep its Barclaycard credit card division outside of the ringfence, the sources said. Barclays and HSBC are also expected to set up separate subsidiaries for their IT operations and other functions. Banks must submit their plans to the PRA by the end of Tuesday. (Additional reporting by Huw Jones and Steve Slater; editing by Keith Weir)