Financial Services Bill

Session 2010 - 12
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Other Bills before Parliament

Financial Services Bill

Financial Services Bill
Part 4 — Collaboration between Treasury and Bank of England, FCA or PRA
135

(3)
Where qualifying financial assistance has been provided, the power of
direction is exercisable by reference to the provision of the assistance unless it
appears to the Treasury that the assistance has been recovered.
(4)
It is immaterial for the purposes of subsection (3)—
(a)
whether the qualifying financial assistance was provided before or
5
after the commencement of this section, and
(b)
whether or not a public funds notification had been given in connection
with it.
(5)
For the purposes of this Part qualifying financial assistance is provided if, and
only if—
10
(a)
the Treasury or the Secretary of State provide financial assistance to or
in respect of a financial institution,
(b)
the Treasury incur expenditure in connection with the exercise by the
Treasury, the Bank, the PRA, the FCA or the Secretary of State of any of
their powers under Parts 1 to 3 of the Banking Act 2009,
15
(c)
the Treasury arrange a loan from the National Loans Fund in
pursuance of a request by the scheme manager of the Financial Services
Compensation Scheme under section 223B of FSMA 2000, or
(d)
the Treasury provide financial assistance to the scheme manager of that
scheme for the purpose of funding expenses incurred or expected to be
20
incurred under it.
(6)
For the purposes of this section the circumstances in which qualifying financial
assistance is to be taken to have been recovered include the following—
(a)
where, in the case of a loan, the principal of the loan has been repaid
and all interest due under the terms of the loan has been paid,
25
(b)
where, in the case of a guarantee or indemnity, the Treasury or the
Secretary of State will not become liable under the guarantee or
indemnity,
(c)
where, in a case involving the issue or transfer of shares to the Treasury
in connection with the provision of qualifying financial assistance, the
30
shares are no longer held by the Treasury.
57
Treasury power of direction
(1)
Subsection (2) applies where—
(a)
the power of direction is exercisable by virtue of section 56(2) by
reference to a public funds notification and the Treasury are satisfied
35
that Condition A is met, or
(b)
the power of direction is exercisable by virtue of section 56(3) by
reference to the provision of qualifying financial assistance and the
Treasury are satisfied that Condition A or Condition B is met.
(2)
The Treasury may give a direction to the Bank of England relating to one or
40
more of the following—
(a)
the provision by the Bank to one or more financial institutions of
financial assistance other than ordinary market assistance offered by
the Bank on its usual terms,
(b)
the exercise by the Bank of any of the stabilisation powers, as defined
45
by section 1(4) of the Banking Act 2009, or
(c)
the exercise by the Bank of its powers under Part 3 of that Act (bank
administration).

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(3)
Condition A is that the giving of the direction is necessary to resolve or reduce
a serious threat to the stability of the financial system of the United Kingdom
which is connected—
(a)
in case within subsection (1)(a), with the matters to which the public
funds notification relates;
5
(b)
in a case within subsection (1)(b), with the matters that gave rise to the
provision of the qualifying financial assistance.
(4)
Condition B is that—
(a)
the qualifying financial assistance was provided for the purpose of
resolving or reducing a serious threat to the stability of the financial
10
system of the United Kingdom, and
(b)
the giving of the direction is necessary to protect the public interest in
connection with the provision of that assistance.
(5)
References to the provision of qualifying financial assistance are to be read in
accordance with section 56(5).
15
(6)
This section is subject to section 58.
(7)
Nothing in this section limits the powers conferred by section 4(1) of the Bank
of England Act 1946 (Treasury directions to the Bank).
58
Directions under section 57: supplementary provisions
(1)
References in this section to a direction are to a direction under section 57.
20
(2)
Before giving a direction, the Treasury must consult the Bank of England.
(3)
On being given a direction, the Bank may, if it considers it appropriate to do so,
give the Treasury a report on how it is complying or intends to comply with
the direction, and on such other matters relating to the direction as it considers
appropriate.
25
(4)
The Treasury may at any time by notice to the Bank revoke a direction.
(5)
The revocation of a direction does not affect the validity of anything previously
done in accordance with it.
(6)
Where Treasury’s power of direction is exercised by virtue of section 56(2) by
reference to a public funds notification, the direction remains in force (unless
30
revoked under subsection (4)) even if the public funds notification is
subsequently superseded by a notification under section 55(3).
(7)
Where Treasury’s power of direction is exercised by virtue of section 56(3) by
reference to the provision of qualifying financial assistance, the direction
remains in force (unless revoked under subsection (4)) even if it appears to the
35
Treasury that the qualifying financial assistance has subsequently been
recovered.
(8)
Each of the following must be in writing—
(a)
a direction,
(b)
a report under subsection (3), and
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(c)
a notice revoking a direction.

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Part 4 — Collaboration between Treasury and Bank of England, FCA or PRA
137

59
Duty to lay direction etc before Parliament
(1)
As soon as practicable after giving or revoking a direction under section 57 or
receiving a report under section 58(3), the Treasury must lay before Parliament
a copy of the direction, notice of revocation or report.
(2)
But subsection (1) does not apply in a case where the Treasury consider that the
5
publication of the direction, notice of revocation or report would be against the
public interest.
(3)
Where the Treasury decide that publication of a direction, notice of revocation
or report would be against the public interest, they must from time to time
review that decision and if they subsequently decide that publication is no
10
longer against the public interest they must comply with subsection (1).
60
Duty of Treasury, Bank and PRA to co-ordinate discharge of functions
(1)
The Treasury (on the one hand) and the Bank of England and the PRA (on the
other) must arrange to co-ordinate the discharge of their respective functions
so far as they—
15
(a)
relate to the stability of the UK financial system, and
(b)
affect the public interest.
(2)
In complying with subsection (1), the Treasury, the Bank and the PRA must
have regard in particular to the importance of co-ordination in circumstances
where the Bank has given, or is considering the giving of, a public funds
20
notification.
61
Memorandum of understanding: crisis management
(1)
The Treasury (on the one hand) and the Bank of England and the PRA (on the
other) must prepare and maintain a memorandum describing in general terms
how they intend to comply with section 60 in relation to the circumstances
25
mentioned in subsection (2) of that section.
(2)
The memorandum must, in particular, make provision about—
(a)
what the Treasury and the Bank regard as a material risk for the
purposes of section 54(1);
(b)
steps to be taken when the Bank has given a public funds notification;
30
(c)
the respective roles of the Treasury, the Bank and the PRA, in cases
where the Bank has given a public funds notification, in relation to the
consideration and assessment of, and taking of, steps to resolve or
reduce, threats to the stability of the UK financial system;
(d)
how the Treasury, the Bank and the PRA will co-operate in fulfilling
35
those roles;
(e)
the use by the Treasury of their power under section 57;
(f)
matters connected with the Bank’s compliance with a direction under
that section;
(g)
the obtaining and sharing of information.
40
(3)
The memorandum may make provision about such other matters as may be
agreed between the Treasury, the Bank and the PRA, which must be matters
that—
(a)
relate to the stability of the UK financial system or the regulation of
financial services, and
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Financial Services Bill
Part 4 — Collaboration between Treasury and Bank of England, FCA or PRA
138

(b)
affect the public interest.
(4)
The memorandum need not make provision about the relationship between
the Bank and the PRA.
(5)
The Treasury, the Bank of England and the PRA may, with the agreement of a
body falling within subsection (6), include in the memorandum provisions
5
relating to co-operation between any of them and that body in relation to
matters falling within subsection (3)(a) and (b).
(6)
The bodies falling within this subsection are—
(a)
the FCA;
(b)
the scheme manager of the Financial Services Compensation Scheme;
10
(c)
any other body exercising functions that relate to the stability of the UK
financial system or the regulation of financial services.
(7)
The Treasury must—
(a)
lay before Parliament a copy of the memorandum and any revised
memorandum, and
15
(b)
publish the memorandum as currently in force in such manner as they
think fit.
62
Memorandum of understanding: international organisations
(1)
The Treasury, the Bank of England, the FCA and the PRA (“the UK
authorities”) must prepare and maintain a memorandum describing how they
20
intend to co-ordinate the exercise of their relevant functions so far as they relate
to membership of, or relations with, the European Supervisory Authorities, EU
institutions and other international organisations.
(2)
The “European Supervisory Authorities” are the European Banking Authority,
the European Insurance and Occupational Pensions Authority and the
25
European Securities and Markets Authority.
(3)
“Relevant function”—
(a)
in relation to the FCA or the PRA, means any of its functions;
(b)
in relation to the Bank of England, means any of its functions relating
to the stability of the UK financial system or the regulation of financial
30
services;
(c)
in relation to the Treasury, means any of their functions relating to the
matters mentioned in paragraph (b).
(4)
The memorandum is to be made with a view to ensuring—
(a)
that, to the extent that it is appropriate to do so, the UK authorities
35
agree consistent objectives in relation to matters of common interest;
(b)
that, to the extent that it is appropriate to do so, they exercise their
relevant functions in a way that is likely to advance those objectives;
(c)
that they exercise their relevant functions in a way that is consistent and
effective.
40
(5)
The memorandum must, in particular, make provision—
(a)
stating, in relation to each of the UK authorities, those international
organisations of which it is a member or with which it has relations and
which are concerned with matters that are related to its relevant
functions;
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Financial Services Bill
Part 5 — Inquiries and investigations
139

(b)
for there to be a committee for the purposes of the co-ordination
mentioned in subsection (1);
(c)
for that committee to include representatives of the UK authorities and
to be chaired by a representative of the Treasury;
(d)
about the procedures to be followed by the UK authorities in agreeing
5
consistent objectives in relation to matters that materially affect 2 or
more of them;
(e)
about how the UK authorities will consult each other about the
discharge of their relevant functions relating to international
organisations.
10
(6)
The memorandum need not make provision about co-ordination between the
FCA and the PRA in relation to membership of, or relations with, the European
Supervisory Authorities (as to which, see section 3E of FSMA 2000).
(7)
The UK authorities may, with the agreement of a body exercising functions
relating to the stability of the UK financial system or the regulation of financial
15
services, include in the memorandum provisions relating to co-operation
between any of them and that body in relation to membership of, or relations
with, the European Supervisory Authorities, EU institutions and other
international organisations.
(8)
The Treasury must—
20
(a)
lay before Parliament a copy of the memorandum and any revised
memorandum, and
(b)
publish the memorandum as currently in force in such manner as they
think fit.
63
Interpretation of Part 4
25
(1)
This section has effect for the interpretation of this Part.
(2)
“Public funds notification” is to be read in accordance with section 54(2).
(3)
“Financial assistance” includes giving guarantees or indemnities and any other
kind of financial assistance (actual or contingent).
(4)
The Treasury may by order provide that a specified activity or transaction, or
30
class of activity or transaction, is to be or not to be treated as financial assistance
for the purposes of this Part; and subsection (3) is subject to this subsection.
(5)
“Qualifying financial assistance” is to be read in accordance with section 56(5).
Part 5
Inquiries and investigations
35
Inquiries
64
Cases in which Treasury may arrange independent inquiries
(1)
This section applies in two cases.
(2)
The first case is where it appears to the Treasury that—
(a)
events have occurred in relation to—
40
(i)
a collective investment scheme,

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(ii)
a person who is, or was at the time of the events, carrying on a
regulated activity (whether or not as an authorised person), or
(iii)
listed securities or an issuer of listed securities,

which posed or could have posed a serious threat to the stability of the
UK financial system or caused or risked causing significant damage to
5
the interests of consumers, and
(b)
those events might not have occurred, or the threat or damage might
have been reduced, but for a serious failure in—
(i)
the system established by FSMA 2000, or by any previous
statutory provision, for the regulation of such schemes, or of
10
such persons and their activities, or the listing of securities, or
(ii)
the operation of that system.
(3)
The second case is where it appears to the Treasury that—
(a)
events have occurred in relation to a recognised clearing house or a
recognised inter-bank payment system which—
15
(i)
posed or could have posed a serious threat to the stability of or
confidence in the UK financial system, or
(ii)
caused or risked causing significant damage to business or
other interests throughout the United Kingdom, and
(b)
those events might not have occurred, or the threat or damage might
20
have been reduced, but for a serious failure in—
(i)
the system established by Part 18 of FSMA 2000, or by any
previous statutory provision, for the regulation of clearing
houses,
(ii)
the system established by Part 5 of the Banking Act 2009 for the
25
regulation of inter-bank payment systems, or
(iii)
the operation of either of those systems.
(4)
If the Treasury consider that it is in the public interest that there should be an
independent inquiry into the events and the circumstances surrounding them,
they may arrange for an inquiry to be held under section 65.
30
(5)
In this section—
“event” does not include any event occurring before 1 December 2001 (but
no such limitation applies to the reference in subsection (4) to
surrounding circumstances);
“recognised inter-bank payment system” means an inter-bank payment
35
system, as defined by section 182 of the Banking Act 2009, that is a
recognised system for the purposes of Part 5 of that Act.

65
Power to appoint person to hold an inquiry
(1)
If the Treasury decide to arrange for an inquiry to be held under this section,
40
they may appoint such person as they consider appropriate to hold the inquiry.
(2)
The Treasury may, by a direction to the appointed person, control—
(a)
the scope of the inquiry;
(b)
the period during which the inquiry is to be held;
(c)
the conduct of the inquiry;
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(d)
the making of reports.

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(3)
A direction may, in particular—
(a)
confine the inquiry to particular matters;
(b)
extend the inquiry to additional matters;
(c)
require the appointed person to postpone the start of, or suspend, an
inquiry until a specified time or until a further direction;
5
(d)
require the appointed person to discontinue the inquiry or to take only
such steps as are specified in the direction;
(e)
require the appointed person to make such interim reports as are so
specified.
66
Powers of appointed person and procedure
10
(1)
The person appointed to hold an inquiry under section 65 (“A”) may—
(a)
obtain such information from such persons and in such manner as A
thinks fit,
(b)
make such inquiries as A thinks fit, and
(c)
determine the procedure to be followed in connection with the inquiry.
15
(2)
A may require any person who, in A’s opinion, is able to provide any
information, or produce any document, which is relevant to the inquiry to
provide any such information or produce any such document.
(3)
For the purposes of an inquiry, A has the same powers as the court in respect
of the attendance and examination of witnesses (including the examination of
20
witnesses abroad) and in respect of the production of documents.
(4)
“The court” means—
(a)
the High Court, or
(b)
in Scotland, the Court of Session.
67
Conclusion of inquiry
25
(1)
On completion of an inquiry under section 65, the person holding the inquiry
must make a written report to the Treasury—
(a)
setting out the result of the inquiry, and
(b)
making such recommendations (if any) as the person considers
appropriate.
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(2)
Any expenses reasonably incurred in holding an inquiry under section 65 are
to be met by the Treasury out of money provided by Parliament.
68
Obstruction and contempt
(1)
If a person (“P”)—
(a)
fails to comply with a requirement imposed on P by a person holding
35
an inquiry under section 65, or
(b)
otherwise obstructs such an inquiry,

the person holding the inquiry may certify the matter to the High Court (or, in
Scotland, the Court of Session).
(2)
The court may enquire into the matter.
40
(3)
If, after hearing—
(a)
any witnesses who may be produced against or on behalf of P, and