Britain's Parliamentary Commission on Banking Standards (Banking Commission) on Friday said the law should enforce full separation of retail banking and investment banking if commercial banks try to game the ring-fencing rule.

The Banking Commission was authorized to study the draft of Financial Services (Banking Reform) Bill, which proposed banks to ring-fence retail services from riskier investment services and raise capital reserves.

"Remember at the moment banks will probably behave, but in the long run they will find a way to gaming the ring-fence if they don't have a strong disincentive to do so," said Andrew Tyrie, chairman of the Banking Standards Commission.

Under the draft bill, if a bank fails, regulators could sell off its investment services while the rest of the galvanization could operate independently and smoothly.

Tyrie asked the government to go further, saying the draft proposals fall well short of what is required.

"Over time, the ring-fence will be tested and challenged by the banks," Tyrie said, "That is why we recommend electrification. The legislation needs to set out a reserve power for separation; the regulator needs to know he can use it."

The Treasury has vowed to reform Britain's banking sector, which was bailed out in the 2008 financial crisis and exposed Libor-rigging scandal earlier this year.

The Banking Reform Bill should go before the Parliament early next year.