Financial Services Bill

Session 2010 - 12
Internet Publications
Other Bills before Parliament

Financial Services Bill

Financial Services Bill
Schedule 3 — Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000
182

Schedule 1ZB
Section 2A

The Prudential Regulation Authority
Part 1
General
Interpretation
5
1
In this Schedule—
“the Bank” means the Bank of England;
“functions”, in relation to the PRA, means functions
conferred on the PRA by or under any provision of this Act
(see section 2A(6) which affects the meaning of references
10
to such functions).
Constitution
2
The constitution of the PRA must provide—
(a)
for the Governor of the Bank to be the chair of the PRA,
(b)
for the Bank’s Deputy Governor for prudential regulation
15
to be the chief executive of the PRA, and
(c)
for the PRA to have a governing body.
3
The governing body must consist of —
(a)
the chair,
(b)
the chief executive,
20
(c)
the Bank’s Deputy Governor for financial stability,
(d)
the chief executive of the FCA, and
(e)
other members (in this Schedule referred to as “appointed
members”).
4
The validity of any act of the PRA is not affected—
25
(a)
by any vacancy resulting from a vacancy in the office of
Governor of the Bank, Deputy Governor of the Bank for
prudential regulation, Deputy Governor of the Bank for
financial stability, or chief executive of the FCA, or
(b)
by a defect in the appointment of a person—
30
(i)
to any of those offices, or
(ii)
as an appointed member.
5
The chief executive of the FCA must not take part in any
discussion by or decision of the PRA which relates to—
(a)
the exercise of the PRA’s functions in relation to a
35
particular person, or
(b)
a decision not to exercise those functions.
Appointed members of governing body
6
The appointed members must be appointed by the Bank with the
approval of the Treasury.
40

Financial Services Bill
Schedule 3 — Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000
183

7
Paragraphs 8 to 12 apply to the exercise by the Bank of its power
to appoint appointed members.
8
The Bank must secure that the majority of the members of the
governing body of the PRA are non-executive members.
9
For the purposes of paragraph 8, and for the purposes of the
5
PRA’s duty in section 3C (duty to follow principles of good
governance) none of the following is a non-executive member—
(a)
the members referred to in paragraph 3(a), (b) and (c), and
(b)
a member who is an employee of the PRA or of the Bank.
10
The Bank must have regard to generally accepted principles of
10
good practice relating to the making of public appointments.
11    (1)
Before appointing a person as an appointed member, the Bank
must consider whether the person has any financial or other
interests that could have a material effect on the extent of the
functions as member that it would be proper for the person to
15
discharge.
      (2)
The terms on which an appointed member (“M”) is appointed
must be such as—
(a)
to secure that M is not subject to direction by the Bank,
(b)
to require M not to act in accordance with the directions of
20
any other person, and
(c)
to prohibit M from acquiring any financial or other
interests that have a material effect on the extent of the
functions as member that it would be proper for M to
discharge.
25
      (3)
If M is an employee of the PRA, M’s interest as employee is to be
disregarded for the purposes of sub-paragraphs (1) and (2)(c) and
paragraph 14.
12
An employee of the FCA is disqualified for appointment as an
appointed member.
30
13
The PRA must pay to the Bank the amount of any expenses
incurred by the Bank in connection with the appointment of
appointed members.
14
The Bank may, with the approval of the Treasury, remove an
appointed member from office—
35
(a)
on the grounds of incapacity or serious misconduct, or
(b)
on the grounds that in all the circumstances the member’s
financial or other interests are such as to have a material
effect on the extent of the functions as member that it
would be proper for the person to discharge.
40
Terms of service
15    (1)
The terms of service of the members of the governing body are to
be determined by the Bank.
      (2)
The PRA must pay to the members of its governing body such
remuneration as may be determined by the Bank.
45

Financial Services Bill
Schedule 3 — Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000
184

      (3)
The functions of the Bank under sub-paragraphs (1) and (2) are to
stand delegated to the sub-committee constituted by section 3 of
the Bank of England Act 1998 (functions to be carried out by non-
executive members).
Arrangements for discharging functions
5
16    (1)
The PRA may make arrangements for any of its functions to be
discharged by a committee, sub-committee, officer or member of
staff of the PRA, but subject to the following provision.
      (2)
In exercising its legislative functions, the PRA must act through its
governing body.
10
      (3)
For that purpose, the following are the PRA’s legislative
functions—
(a)
making rules;
(b)
issuing codes under section 64;
(c)
issuing statements under—
15
(i)
section 63C, 64, 69, 192H, 192N, 210 or 345D, or
(ii)
section 76 of the Financial Services Act 2012;
(d)
giving directions under section 316 or 318;
(e)
issuing guidance under section 2H.
Records
20
17
The PRA must maintain satisfactory arrangements for—
(a)
recording decisions made in the exercise of its functions,
and
(b)
the safe-keeping of those records which it considers ought
to be preserved.
25
Annual report
18    (1)
At least once a year the PRA must make a report to the Treasury
on—
(a)
the discharge of its functions,
(b)
the extent to which, in its opinion, its objectives have been
30
advanced,
(c)
how it has complied with sections 2K and 2L,
(d)
its consideration of the principles in section 3B,
(e)
how it has complied with section 3D,
(f)
any direction given under section 3I during the period to
35
which the report relates,
(g)
how it has complied with section 354B(1) so far as relating
to co-operation with persons outside the United Kingdom,
and
(h)
such other matters as the Treasury may from time to time
40
direct.
      (2)
Sub-paragraph (1) does not require the inclusion in the report of
any information whose publication would in the opinion of the
PRA be against the public interest.

Financial Services Bill
Schedule 3 — Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000
185

      (3)
The report must be accompanied by—
(a)
a statement of the remuneration of the members of the
governing body of the PRA during the period to which the
report relates, and
(b)
such other reports or information, prepared by such
5
persons, as the Treasury may from time to time direct.
      (4)
The Treasury must lay before Parliament a copy of each report
received by them under this paragraph.
Consultation about annual report
19    (1)
In relation to each report made under paragraph 18, the PRA must
10
publish at the same time as the report an invitation to members of
the public to make representations to the PRA, within the 3
months beginning with the date of publication—
(a)
about the report,
(b)
about the way in which the PRA has discharged, or failed
15
to discharge, its functions during the period to which the
report relates, and
(c)
about the extent to which, in their opinion, the PRA’s
objectives have been advanced and the PRA has
considered the regulatory principles in section 3B.
20
      (2)
The invitation must be published in the way appearing to it to be
best calculated to bring the invitation to the attention of the public.
Report on consultation
20    (1)
The PRA must publish a report about its consultation in
accordance with paragraph 19.
25
      (2)
The report must contain an account, in general terms, of any
representations received in pursuance of the invitation published
under that paragraph.
      (3)
The report must be published not later than 4 months after the
date on which the report under paragraph 18 was published.
30
Accounts and audit
21    (1)
The Treasury may—
(a)
require the PRA to comply with any provisions of the
Companies Act 2006 about accounts and their audit which
would not otherwise apply to it, or
35
(b)
direct that any provision of that Act about accounts and
their audit is to apply to the PRA with such modifications
as are specified in the direction, whether or not the
provision would otherwise apply to the PRA.
      (2)
Compliance with any requirement under sub-paragraph (1)(a) or
40
(b) is enforceable by injunction or, in Scotland, an order for specific
performance under section 45 of the Court of Session Act 1988.
      (3)
Proceedings under sub-paragraph (2) may be brought only by the
Treasury.

Financial Services Bill
Schedule 3 — Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000
186

22    (1)
The PRA must send a copy of its annual accounts to the
Comptroller and Auditor General as soon as is reasonably
practicable.
      (2)
The Comptroller and Auditor General must—
(a)
examine, certify and report on accounts received under
5
this paragraph, and
(b)
send a copy of the certified accounts and the report to the
Treasury.
      (3)
The Treasury must lay the copy of the certified accounts and the
report before Parliament.
10
      (4)
The PRA must send a copy of the certified accounts and the report
to the Bank.
      (5)
Except as provided by paragraph 21(1), the PRA is exempt from
the requirements of Part 16 of the Companies Act 2006 (audit), and
its balance sheet must contain a statement to that effect.
15
      (6)
In this paragraph “annual accounts” has the meaning given in
section 471 of the Companies Act 2006.
Part 2
Status
Status
20
23
In relation to any of its functions—
(a)
the PRA is not to be regarded as acting on behalf of the
Crown, and
(b)
its members, officers and staff are not to be regarded as
Crown servants.
25
Exemption from requirement for use of “limited” in name of PRA
24
The PRA is to be exempt from the requirements of the Companies
Act 2006 relating to the use of “limited” as part of its name.
25
If the Secretary of State is satisfied that any action taken by the
PRA makes it inappropriate for the exemption given by paragraph
30
24 to continue, the Secretary of State may, after consulting the
Treasury, give a direction removing it.
Part 3
Penalties and fees
Penalties
35
26    (1)
In determining its policy with respect to the amounts of penalties
to be imposed by it under this Act, the PRA must take no account
of the expenses which it incurs, or expects to incur, in discharging
its functions.

Financial Services Bill
Schedule 3 — Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000
187

      (2)
The PRA must prepare and operate a scheme (“the financial
penalty scheme”) for ensuring that the amounts paid to the PRA
by way of penalties imposed under this Act are applied for the
benefit of authorised persons.
      (3)
The financial penalty scheme may, in particular, make different
5
provision with respect to different classes of authorised person.
      (4)
Up-to-date details of the financial penalty scheme must be set out
in a document (“the scheme details”).
27    (1)
The scheme details must be published by the PRA in the way
appearing to it to be best calculated to bring them to the attention
10
of the public.
      (2)
Before making the financial penalty scheme, the PRA must
publish a draft of the proposed scheme in the way appearing to the
PRA to be best calculated to bring it to the attention of the public.
      (3)
The draft must be accompanied by notice that representations
15
about the proposals may be made to the PRA within a specified
time.
      (4)
Before making the scheme, the PRA must have regard to any
representations made to it in accordance with sub-paragraph (3).
      (5)
If the PRA makes the proposed scheme, it must publish an
20
account, in general terms, of—
(a)
the representations made to it in accordance with sub-
paragraph (3), and
(b)
its response to them.
      (6)
If the scheme differs from the draft published under sub-
25
paragraph (2) in a way which is, in the opinion of the PRA,
significant, the PRA must (in addition to complying with sub-
paragraph (5)) publish details of the difference.
      (7)
The PRA must, without delay, give the Treasury a copy of any
scheme details published by it.
30
      (8)
The PRA may charge a reasonable fee for providing a person with
a copy of—
(a)
a draft published under sub-paragraph (2);
(b)
scheme details.
      (9)
Sub-paragraphs (2) to (6) and (8)(a) also apply to a proposal to
35
alter or replace the financial penalty scheme.
Fees
28    (1)
The PRA may make rules providing for the payment to it of such
fees, in connection with the discharge of any of its qualifying
functions, as it considers will (taking account of its expected
40
income from fees and charges provided for by any other provision
of this Act) enable it—
(a)
to meet expenses incurred in carrying out its functions or
for any incidental purpose,

Financial Services Bill
Schedule 3 — Financial Conduct Authority and Prudential Regulation Authority: Schedules to be substituted as Schedules 1ZA and 1ZB to FSMA 2000
188

(b)
to repay the principal of, and pay any interest on, any
relevant borrowing and to meet relevant commencement
expenses, and
(c)
to maintain adequate reserves.
      (2)
The “qualifying functions” of the PRA are—
5
(a)
its functions under or as a result of this Act, and
(b)
its functions under or as a result of a qualifying EU
provision that is specified, or of a description specified, for
the purposes of this sub-paragraph by the Treasury by
order.
10
      (3)
In sub-paragraph (1)(b)—
“relevant borrowing” means any money borrowed by the
PRA which has been used for the purpose of meeting
expenses incurred in relation to its assumption of
functions under this Act, and
15
“relevant commencement expenses” means expenses
incurred by the PRA, the FCA or the Bank of England—
(a)
in preparation for the exercise of functions by the
PRA under this Act, or
(b)
for the purpose of facilitating the exercise by the PRA
20
of those functions or otherwise in connection with
their exercise by it.
      (4)
For the purposes of sub-paragraph (3) it is irrelevant when the
borrowing of the money, the incurring of the expenses or the
assumption of functions took place (and, in particular, it is
25
irrelevant if expenses were incurred by the FCA at a time when it
was known as the Financial Services Authority).
      (5)
In fixing the amount of any fee which is to be payable to the PRA,
no account is to be taken of any sums which the PRA receives, or
expects to receive, by way of penalties imposed by it under this
30
Act.
      (6)
Any fee which is owed to the PRA under any provision made by
or under this Act may be recovered as a debt due to the PRA.
Services for which fees may not be charged
29
The power conferred by paragraph 28 may not be used to
35
require—
(a)
a fee to be paid in respect of the discharge of any of the
PRA’s functions under paragraph 13, 14, 19 or 20 of
Schedule 3, or
(b)
a fee to be paid by any person whose application for
40
approval under section 59 has been granted.