Britain’s leading banks are facing up to a tough and uncertain future following the move by U.K. chancellor George Osborne to impose strict new rules to ring-fence riskier investment operations from their retail activities.

Osborne wants to see banks that do not comply severely punished and even broken up into separate operations, although the rules have yet to be finalized with MPs aiming to have the finished document in place in the coming months.

The U.K. appears to be going a step further than that of the European Union and the similar Liikanen proposals, while the U.S. is also looking to implement its own measures to curb risk-taking within banks following the financial crisis, with its Volcker rule—a cornerstone of the 2010 Dodd-Frank financial regulatory overhaul.

But banks, who are already having to gear up to deal with a plethora of other post-crisis regulations, such as the Basel III capital adequacy regime, are fearing yet more misery ahead.

And the British institutions believe they will be at even more of a disadvantage because of Osborne’s latest banker-bashing.

“This will create uncertainty for investors, making it more difficult for banks to raise capital which will ultimately mean that banks will have less money to lend to businesses,” said Anthony Browne, chief executive of the British Bankers’ Association, a U.K. trade body.

“No other major economy is considering moving away from the universal model of banking because it undermines banks’ ability to provide all the services businesses need. This decision will damage London’s attractiveness as a global financial centre.”

Although the new year has started brightly for investment banks in the City of London as markets have rallied, it is a recovery from a low base as trading volumes in December hit their lowest levels since the dark days following the fallout from the collapse of U.S. investment bank Lehman Brothers in 2008.

And it is this new assault by Osborne that has some fearing that London may even lose its way as Europe’s premier financial center.

“The City jobs market has bounced back since the start of the year—but that rebound is from absolute rock bottom in December,” said Mark Cameron, chief operating officer at Astbury Marsden, a financial services recruitment firm.

“We are still far from having turned the corner on the poor jobs market of 2012. New job creation in the City has been extremely depressed as politicians and regulators have put enormous pressure on the investment banks to scale back activity.

“Although the equity markets are healthier that hasn’t really fed into job creation yet. M&A activity and equity issuance through IPOs is still very low. For the City jobs market to recover, the investment banks need to be firing on more cylinders.”

The politicians in the U.K., though, seem determined to push ahead with the ring-fence plans.

“A reserve power to split up any bank that tries to undermine the integrity of the ring-fence will increase the chances of its success,” said Andrew Tyrie, a Conservative MP and chairman of the Parliamentary Commission on Banking Standards.

“Banks require discouragement from gaming the rules. They will always try to do so unless strong disincentives are put in place.”

The proposed rules to electrify bank ring-fences between retail banking and investment banking operations could also bring added complications, especially to banks’ back office functions.

“Banks need to seriously start evaluating the system and process implications in addition to legal structure and capital demands,” said Daniel Mayo, practice leader, global financial services technology, at Ovum, a U.K. consultancy.

“While the primary core banking systems that run these lines of business are typically quite separate, IT infrastructure and systems that support payments, risk management, finance and other back office functions are often shared.

“The exact operational requirements of ring-fencing is to be finalized; however the primary aim of being rapidly able to separate ring-fenced operations of business lines will have significant implications on IT that will extend beyond merely changing structure of shared services functions.

“Banks will need to prove that the operational integrity of support functions can be maintained in the event of separation, from commercial, governance and direct operational perspectives.”