Financial Services Bill

Session 2012 - 13
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Other Bills before Parliament

Financial Services Bill

Financial Services Bill
Part 1 — Bank of England
1

A
Bill
To
Amend the Bank of England Act 1998, the Financial Services and Markets Act
2000 and the Banking Act 2009; to make other provision about financial
services and markets; to make provision about the exercise of certain statutory
functions relating to building societies, friendly societies and other mutual
societies; to amend section 785 of the Companies Act 2006; to make provision
enabling the Director of Savings to provide services to other public bodies;
and for connected purposes.
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—
Part 1
Bank of England
1
Deputy Governors
(1)
In section 1 of the Bank of England Act 1998 (court of directors), for subsections
(2) and (2A) substitute—
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“(2)
The court shall consist of the following members appointed by Her
Majesty—
(a)
a Governor,
(b)
a Deputy Governor for financial stability,
(c)
a Deputy Governor for monetary policy,
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(d)
a Deputy Governor for prudential regulation, and
(e)
not more than 9 directors.”
(2)
In section 13 of that Act (Monetary Policy Committee), in subsection (2), for
paragraph (a) substitute—
“(a)
the Governor of the Bank,
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(aa)
the Deputy Governor for financial stability,
(ab)
the Deputy Governor for monetary policy,”.

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Financial Services Bill
Part 1 — Bank of England
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The Bank’s financial stability objective
(1)
Section 2A of the Bank of England Act 1998 (Financial Stability Objective) is
amended as follows.
(2)
In subsection (1)—
(a)
for “contribute to protecting and enhancing” substitute “protect and
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enhance”, and
(b)
for “systems” substitute “system”.
(3)
In subsection (2), for “and the Financial Services Authority)” substitute “, the
Financial Conduct Authority and the Prudential Regulation Authority)”.
(4)
Omit subsection (3) (which is superseded by the amendments made by section
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3 of this Act).
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Financial stability strategy and Financial Policy Committee
(1)
After Part 1 of the Bank of England Act 1998 insert—
“Part 1A
Financial Stability
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Financial stability strategy of the Bank
9A
Financial stability strategy
(1)
The court of directors must—
(a)
determine the Bank’s strategy in relation to the Financial
Stability Objective (its “financial stability strategy”), and
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(b)
from time to time review, and if necessary revise, the strategy.
(2)
Before determining or revising the Bank’s financial stability strategy,
the court of directors must consult about a draft of the strategy or of the
revisions—
(a)
the Financial Policy Committee, and
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(b)
the Treasury.
(3)
The Financial Policy Committee may at any time make
recommendations to the court of directors as to the provisions of the
Bank’s financial stability strategy.
(4)
The court of directors must determine the financial stability strategy of
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the Bank within 6 months of the coming into force of this section.
(5)
The court of directors must carry out and complete a review of the
Bank’s financial stability strategy before the end of each relevant
period.
(6)
The relevant period is 3 years beginning with the date on which the
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previous review was completed, except that in the case of the first
review the relevant period is the period of 3 years beginning with the
date on which the strategy was determined under subsection (4).
(7)
The Bank must publish its financial stability strategy.

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(8)
If the financial stability strategy is revised, the Bank must publish the
revised strategy.
(9)
Publication under subsection (7) or (8) is to be in such manner as the
Bank thinks fit.
Financial Policy Committee of the Bank
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9B
Financial Policy Committee
(1)
There is to be a sub-committee of the court of directors of the Bank (the
“Financial Policy Committee”) consisting of—
(a)
the Governor of the Bank,
(b)
the Deputy Governors of the Bank,
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(c)
the Chief Executive of the FCA,
(d)
2 members appointed by the Governor of the Bank after
consultation with the Chancellor of the Exchequer,
(e)
4 members appointed by the Chancellor of the Exchequer, and
(f)
a representative of the Treasury.
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(2)
Of the 2 members appointed under subsection (1)(d)—
(a)
one is to be a person who has executive responsibility within the
Bank for the analysis of threats to financial stability, and
(b)
the other is to be a person who has executive responsibility
within the Bank for the analysis of markets.
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(3)
Before appointing a person under subsection (1)(e), the Chancellor of
the Exchequer must—
(a)
be satisfied that the person has knowledge or experience which
is likely to be relevant to the Committee’s functions, and
(b)
consider whether the person has any financial or other interests
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that could substantially affect the functions as member that it
would be proper for the person to discharge.
(4)
The court of directors must keep the procedures followed by the
Committee under review.
(5)
The court’s function under subsection (4) is to stand delegated to the
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sub-committee constituted by section 3.
(6)
Schedule 2A has effect with respect to the Committee.
9C
Objectives of the Financial Policy Committee
(1)
The Financial Policy Committee is to exercise its functions with a view
to contributing to the achievement by the Bank of the Financial Stability
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Objective.
(2)
The responsibility of the Committee in relation to the achievement of
that objective relates primarily to the identification of, monitoring of,
and taking of action to remove or reduce, systemic risks with a view to
protecting and enhancing the resilience of the UK financial system.
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(3)
Those systemic risks include, in particular—
(a)
systemic risks attributable to structural features of financial
markets, such as connections between financial institutions,

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Part 1 — Bank of England
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(b)
systemic risks attributable to the distribution of risk within the
financial sector, and
(c)
unsustainable levels of leverage, debt or credit growth.
(4)
Subsections (1) and (2) do not require or authorise the Committee to
exercise its functions in a way that would in its opinion be likely to have
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a significant adverse effect on the capacity of the financial sector to
contribute to the growth of the UK economy in the medium or long
term.
(5)
In this Part “systemic risk” means a risk to the stability of the UK
financial system as a whole or to a significant part of that system.
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(6)
For the purposes of subsection (5) it is immaterial whether the risk
arises in the United Kingdom or elsewhere.
(7)
In subsection (3)(c)—
“credit growth” means the growth in lending by the financial
sector to individuals in the United Kingdom and businesses
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carried on in the United Kingdom;
“debt” means debt owed to the financial sector by individuals in
the United Kingdom and businesses carried on in the United
Kingdom;
“leverage” means the leverage of the financial sector in the United
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Kingdom.
9D
Recommendations by Treasury
(1)
The Treasury may at any time by notice in writing to the Financial
Policy Committee make recommendations to the Committee about—
(a)
matters that the Committee should regard as relevant to the
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Committee’s understanding of the Bank’s Financial Stability
Objective;
(b)
the responsibility of the Committee in relation to the
achievement of that objective;
(c)
matters to which the Committee should have regard in
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exercising its functions.
(2)
The Treasury must make recommendations under subsection (1)(a) or
(b) (“recommendations about the objective”)—
(a)
before the end of the period of 30 days beginning with the day
on which this section comes into force, and
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(b)
at least once in every calendar year following that in which the
first recommendations about the objective are made.
(3)
The Committee must respond to any recommendations made to it
under subsection (1) by notifying the Treasury, in relation to each
recommendation, of one or more of the following—
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(a)
action that the Committee has taken in accordance with the
recommendation;
(b)
if or to the extent that the recommendation does not relate to
immediate action, the Committee’s intention to act in
accordance with it;
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(c)
whether or not the recommendation relates to immediate
action, the Committee’s reasons for not intending to act in
accordance with it.

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Part 1 — Bank of England
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(4)
Notification under subsection (3) must be given or confirmed in
writing.
(5)
The Treasury must—
(a)
publish in such manner as they think fit any notice given under
subsection (1) or notification received under subsection (3), and
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(b)
lay a copy of it before Parliament.
9E
Other general duties
(1)
In the exercise of its functions, other than its functions under section
9A(2) or (3), the Financial Policy Committee must have regard to the
Bank’s financial stability strategy.
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(2)
In working with the FCA or the PRA or exercising functions in relation
to either of them, the Committee must, so far as it is possible to do so
while contributing to the achievement by the Bank of the Financial
Stability Objective, seek to avoid exercising the Committee’s functions
in a way that would prejudice—
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(a)
the advancement by the FCA of any of its operational objectives,
or
(b)
the advancement by the PRA of any of its objectives.
(3)
In the exercise of its functions, the Committee must also have regard
to—
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(a)
the principle that a burden or restriction which is imposed on a
person, or on the carrying on of an activity, should be
proportionate to the benefits, considered in general terms,
which are expected to result from the imposition of that burden
or restriction;
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(b)
the contribution to the achievement by the Bank of the Financial
Stability Objective that the Committee can make by disclosing
its views about possible systemic risks or disclosing other
information about possible systemic risks;
(c)
the international obligations of the United Kingdom,
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particularly where relevant to the exercise of the powers of the
Committee in relation to the FCA or the PRA.
9F
Functions of the Financial Policy Committee
(1)
The functions of the Financial Policy Committee are—
(a)
monitoring the stability of the UK financial system with a view
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to identifying and assessing systemic risks;
(b)
giving directions under section 9G;
(c)
making recommendations under sections 9N to 9Q;
(d)
preparing financial stability reports under section 9T.
(2)
The court of directors may, with the consent of the Treasury, arrange
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for specified functions of the Bank to be discharged by the Financial
Policy Committee.