Financial Services Bill

Session 2012 - 13
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Financial Services Bill

Financial Services Bill
Part 5 — Inquiries and investigations
142

(b)
any statement made by or on behalf of P,

the court is satisfied that P would have been in contempt of court if the inquiry
had been proceedings before the court, it may deal with P as if P were in
contempt.
Investigations
5
69
Duty of FCA to investigate and report on possible regulatory failure
(1)
Subsection (3) applies where it appears to the FCA that—
(a)
events have occurred in relation to a regulated person or collective
investment scheme which—
(i)
indicated a significant failure to secure an appropriate degree of
10
protection for consumers,
(ii)
had or could have had a significant adverse effect on the
integrity of the UK financial system, as defined by section 1D of
FSMA 2000 (the integrity objective), or
(iii)
had or could have had a significant adverse effect on effective
15
competition in the interests of consumers in the markets for the
services described in paragraphs (a) and (b) of section 1E(1) of
FSMA 2000 (the competition objective), and
(b)
those events might not have occurred, or the failure or adverse effect
might have been reduced, but for a serious failure in—
20
(i)
the system established by FSMA 2000 for the regulation of
authorised persons and their activities, for the listing of
securities or for the regulation of collective investment schemes,
so far as it relates to the functions of the FCA, or
(ii)
the operation of that system, so far as it relates to those
25
functions.
(2)
Subsection (3) also applies where the Treasury direct the FCA that it appears to
the Treasury that the conditions in subsection (1) are met in relation to
specified events.
(3)
The FCA must carry out an investigation into the events and the circumstances
30
surrounding them and report to the Treasury on the result of the investigation.
(4)
Subsection (3) does not apply by virtue of subsection (1) if the Treasury direct
the FCA that it is not required to carry out an investigation into the events
concerned.
(5)
“Regulated person” means—
35
(a)
an authorised person,
(b)
a recognised investment exchange,
(c)
any other person lawfully carrying on a regulated activity,
(d)
a person carrying on business in contravention of the general
prohibition in section 19 of FSMA 2000, or
40
(e)
an issuer of listed securities.
70
Duty of PRA to investigate and report on possible regulatory failure
(1)
Subsection (4) applies where it appears to the PRA that—

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Part 5 — Inquiries and investigations
143

(a)
relevant public expenditure has been incurred in respect of a PRA-
authorised person, and
(b)
that expenditure might not have been incurred but for a serious failure
in—
(i)
the system established by FSMA 2000 for the regulation of PRA-
5
authorised persons and their activities, so far as it relates to the
functions of the PRA, or
(ii)
the operation of that system, so far as it relates to those
functions.
(2)
Subsection (4) also applies where it appears to the PRA that—
10
(a)
events have occurred which—
(i)
had or could have had a significant adverse effect on the safety
or soundness of one or more PRA-authorised persons, or
(ii)
if the effecting and carrying out of contracts of insurance is a
PRA-regulated activity for the purposes of FSMA 2000, related
15
to a PRA-authorised person carrying on that activity and
indicated a significant failure to secure an appropriate degree of
protection for policyholders, and
(b)
those events might not have occurred, or the adverse effect or failure
might have been reduced, but for a serious failure in—
20
(i)
the system established by FSMA 2000 for the regulation of PRA-
authorised persons and their activities, so far as it relates to the
functions of the PRA, or
(ii)
the operation of that system, so far as it relates to those
functions.
25
(3)
Subsection (4) also applies where the Treasury direct the PRA that it appears to
the Treasury—
(a)
that the conditions in subsection (1)(a) and (b) are met in relation to a
specified person, or
(b)
that the conditions in subsection (2)(a) and (b) are met in relation to
30
specified events.
(4)
The PRA must—
(a)
carry out an investigation into—
(i)
the events that gave rise to the incurring of the public
expenditure mentioned in subsection (1)(a) and the
35
circumstances surrounding them, or
(ii)
the events mentioned in subsection (2)(a) and the circumstances
surrounding them, and
(b)
report to the Treasury on the result of the investigation.
(5)
Subsection (4) does not apply by virtue of subsection (1) if the Treasury direct
40
the PRA that it is not required to carry out an investigation into the events
concerned.
71
Interpretation of section 70
(1)
This section has effect for the interpretation of section 70.
(2)
“Policyholder” has the same meaning as in FSMA 2000.
45

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Part 5 — Inquiries and investigations
144

(3)
Relevant public expenditure has been incurred in respect of a PRA-authorised
person (“P”) in each of the following cases (but no others)—
(a)
where the Treasury or the Secretary of State have provided financial
assistance to or in respect of P for the purposes of resolving or reducing
a threat to the stability of the UK financial system;
5
(b)
where the Treasury have incurred expenditure in connection with the
exercise by the Treasury, the Secretary of State or the Bank of England
of any power under Parts 1 to 3 of the Banking Act 2009 in relation to P;
(c)
where the scheme manager of the Financial Services Compensation
Scheme has received a loan from the National Loans Fund, or financial
10
assistance from the Treasury, for the purpose of funding expenses
incurred or expected to be incurred under the Financial Services
Compensation Scheme by reason of events relating to P.
(4)
In subsection (3)(a) and (c) “financial assistance” includes giving guarantees or
indemnities and any other kind of financial assistance (actual or contingent),
15
but does not include the giving by the Treasury of an indemnity or guarantee
in respect of the provision of financial assistance by the Bank of England.
(5)
The Treasury may by order made by statutory instrument provide that a
specified activity or transaction, or class of activity or transaction, is to be or is
not to be treated as financial assistance for the purposes of subsection (3)(a),
20
and subsection (4) is subject to this subsection.
72
Modification of section 70 in relation to Lloyd’s
(1)
This section applies only if PRA-authorised persons include—
(a)
the Society, or
(b)
other persons who carry on regulated activities in relation to anything
25
done at Lloyd’s.
(2)
Section 70 has effect as if—
(a)
in subsection (1)(a) (and section 71(3)), the reference to a PRA-
authorised person included a reference to a member of the Society,
(b)
in subsection (2)(a)(i), the reference to one or more PRA-authorised
30
persons included a reference to the Society, and the members of the
Society, taken together, and
(c)
in subsection (2)(a)(ii), the reference to a PRA-authorised person
carrying on the activity of effecting and carrying out contracts of
insurance included a reference to—
35
(i)
the Society, or
(ii)
any other person who carries on PRA-regulated activities in
relation to anything done at Lloyd’s.
(3)
In this section—
(a)
“PRA-regulated activity” is to be read in accordance with section 22A
40
of FSMA 2000, and
(b)
terms which are defined in Lloyd’s Act 1982 have the same meaning as
in that Act.
73
Power of Treasury to require FCA or PRA to undertake investigation
(1)
If the Treasury considers that it is in the public interest that either regulator
45
should undertake an investigation into any relevant events, it may give the

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145

regulator a direction specifying the relevant events and requiring the regulator
to undertake an investigation into those events and the circumstances
surrounding them and to report to the Treasury on the result of the
investigation.
(2)
“Relevant events” means events that have occurred in relation to—
5
(a)
a collective investment scheme,
(b)
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
(c)
listed securities or an issuer of listed securities.
(3)
“Relevant events” do not include any events occurring before 1 December 2001
10
(but no such limitation applies to the reference in subsection (1) to surrounding
circumstances).
74
Conduct of investigation
(1)
Where a regulator is required by section 69 or 70 or under section 73 to carry
out an investigation, it is for the regulator to decide how it is to be carried out,
15
but this is subject to the following provisions.
(2)
In carrying out such an investigation, the regulator must have regard to the
desirability of minimising any adverse effect that the carrying out of the
investigation may have on the exercise by the regulator of any of its other
functions.
20
(3)
The regulator may postpone the start of, or suspend, an investigation if it
considers it necessary to do so to avoid a material adverse effect on the exercise
by it of any of its other functions.
(4)
The regulator must notify the Treasury if it postpones the start of, or suspends,
an investigation under subsection (3), and the notification must specify when
25
the investigation will begin or resume.
(5)
The Treasury may, by a direction to the regulator, control—
(a)
the scope of the investigation;
(b)
the period during which the investigation is to be carried out;
(c)
the conduct of the investigation;
30
(d)
the making of reports.
(6)
A direction may, in particular—
(a)
confine the investigation to particular matters;
(b)
extend the investigation to additional matters;
(c)
require the regulator to postpone the start of, or suspend, an
35
investigation until a specified time or until a further direction;
(d)
where a notification has been received under subsection (3), require the
regulator to begin or resume the investigation immediately or at a
specified time;
(e)
require the regulator to discontinue the investigation or to take only
40
such steps as are specified in the direction;
(f)
require the regulator to make such interim reports as are so specified.
(7)
In exercising the power conferred on them by this section, the Treasury must
have regard to the desirability of minimising any adverse effect that the

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146

carrying out of the investigation may have on the exercise by the regulator of
any of its other functions.
75
Conclusion of investigation
On completion of an investigation required by section 69 or 70 or under section
73, the regulator must make a written report to the Treasury—
5
(a)
setting out the result of the investigation,
(b)
setting out the lessons (if any) that the regulator considers that it should
learn from the investigation, and
(c)
making such recommendations (if any) as the regulator considers
appropriate.
10
76
Statements of policy
(1)
Each regulator must prepare and issue a statement of its policy with respect to
the exercise of its functions under sections 69 to 75 (“the relevant sections”)
and, in particular—
(a)
the matters it will take into account in determining whether the
15
conditions which give rise to its duty to carry out an investigation
under section 69 or 70 (as the case may be) are met, and
(b)
how it will carry out investigations under the relevant sections.
(2)
A regulator may at any time alter or replace a statement issued by it under this
section.
20
(3)
If a statement issued under this section is altered or replaced by a regulator, the
regulator must issue the altered or replaced statement.
(4)
A regulator must obtain the consent of the Treasury before issuing a statement
under this section.
(5)
A statement issued under this section by a regulator must be published by the
25
regulator in the way appearing to the regulator to be best calculated to bring it
to the attention of the public.
(6)
A regulator must, without delay, give the Treasury a copy of any statement
which it publishes under this section.
(7)
In exercising, or deciding whether to exercise, its functions under the relevant
30
sections a regulator must have regard to any statement published by it under
this section and for the time being in force.
(8)
A regulator may charge a reasonable fee for providing a person with a copy of
a statement issued by it.
Publication of reports
35
77
Publication of reports of inquiries and investigations
(1)
This section applies where a report is made to the Treasury under section 67 or
75.
(2)
Subject to subsection (3), the Treasury must publish the report in full.

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(3)
The Treasury may withhold material in the report from publication to such
extent—
(a)
as is required by any statutory provision, enforceable EU obligation or
rule of law, or
(b)
as the Treasury consider to be necessary in the public interest, having
5
regard in particular to the matters mentioned in subsection (4).
(4)
Those matters are—
(a)
the extent to which withholding material might inhibit the allaying of
public concern;
(b)
the risk of harm or damage that could be avoided or reduced by
10
withholding any material;
(c)
any conditions of confidentiality subject to which any person acquired
information that was given to the inquiry or used in the investigation.
(5)
In subsection (4)(b) “harm or damage” includes in particular—
(a)
damage to national security or international relations;
15
(b)
damage to the economic interests of the United Kingdom or a part of
the United Kingdom;
(c)
damage caused by disclosure of commercially sensitive information.
(6)
The Treasury must lay before Parliament whatever is published under
subsection (2).
20
(7)
If the Treasury receive a report under section 67 or 75, but withhold all or part
of the material in the report from publication, they must publish and lay before
Parliament a statement of their reasons for not publishing the report in full.
(8)
Publication under subsection (2) or (7) is to be in such manner as the Treasury
think fit.
25
(9)
References to a report under section 67 or 75 include references to an interim
report required under section 65 or 74.
Supplementary
78
Interpretation and supplementary provision
(1)
In this Part—
30
“authorised person” has the same meaning as in FSMA 2000;
“collective investment scheme” has the same meaning as in FSMA 2000;
“consumer” has the meaning given in section 1G of FSMA 2000;
“listed securities” means anything which has been admitted to the official
list under Part 6 of FSMA 2000;
35
“PRA-authorised person” has the same meaning as in FSMA 2000;
“recognised clearing house” has the same meaning as in FSMA 2000;
“recognised investment exchange” has the same meaning as in FSMA
2000;
“regulated activity” has the same meaning as in FSMA 2000;
40
“regulator” means the FCA or the PRA.
(2)
A direction by the Treasury under this Part must be given in writing.

Financial Services Bill
Part 6 — Investigation of complaints against regulators
148

Part 6
Investigation of complaints against regulators
79
Arrangements for the investigation of complaints
(1)
The regulators must—
(a)
make arrangements (“the complaints scheme”) for the investigation of
5
complaints arising in connection with the exercise of, or failure to
exercise, any of their relevant functions (see section 80), and
(b)
appoint an independent person (“the investigator”) to be responsible
for the conduct of investigations in accordance with the complaints
scheme.
10
(2)
For the purposes of this Part “the regulators” are the FCA, the PRA and the
Bank of England, and references to a regulator are to be read accordingly.
(3)
The complaints scheme must be designed so that, as far as reasonably
practicable, complaints are investigated quickly.
(4)
The Treasury’s approval is required for the appointment or dismissal of the
15
investigator.
(5)
The terms and conditions on which the investigator is appointed must be such
as, in the opinion of the regulators, are reasonably designed to secure—
(a)
that the investigator will be free at all times to act independently of the
regulators, and
20
(b)
that complaints will be investigated under the complaints scheme
without favouring the regulators.
80
Relevant functions in relation to complaints scheme
(1)
This section has effect for the interpretation of the reference in section 79(1)(a)
to the relevant functions of the regulators.
25
(2)
The relevant functions of the FCA or the PRA are its functions other than its
legislative functions.
(3)
The relevant functions of the Bank of England are its functions under Part 18 of
FSMA 2000 (recognised clearing houses) or under Part 5 of the Banking Act
2009 (inter-bank payment systems), other than its legislative functions.
30
(4)
For the purposes of subsection (2), the following are the FCA’s legislative
functions—
(a)
making rules under FSMA 2000;
(b)
issuing codes under section 64 or 119 of FSMA 2000;
(c)
issuing statements under—
35
(i)
section 63C, 64, 69, 88C, 89S, 93, 124, 131J, 138N, 192H, 192N,
210 or 312J of FSMA 2000,
(ii)
section 345D of FSMA 2000 (whether as a result of section 345(2)
or 345A(3) or section 249(1) of that Act), or
(iii)
section 76 of the Financial Services Act 2012;
40
(d)
giving directions under section 316, 318 or 328 of FSMA 2000;
(e)
issuing general guidance, as defined in section 139B(5) of FSMA 2000.