Financial Services Bill (HC Bill 2)

CHAPTER 2 Rules: modification, waiver, contravention and procedural provisions

Modification or waiver of rules

138A Modification or waiver of rules

(1) Either regulator may, on the application or with the consent of a person
5who is subject to rules made by that regulator, direct that all or any of
those rules—

(a) are not to apply to that person, or

(b) are to apply to that person with such modifications as may be
specified in the direction.

(2) 10Subsection (1) does not apply to—

(a) rules made by either regulator under section 137M (threshold
condition code);

(b) rules made by the FCA under section 247 (trust scheme rules) or
section 248 (scheme particulars rules).

(3) 15An application must be made in such manner as the regulator may
direct.

(4) A regulator may not give a direction unless it is satisfied that—

(a) compliance by the person with the rules, or with the rules as
unmodified, would be unduly burdensome or would not
20achieve the purpose for which the rules were made, and

(b) the direction would not adversely affect the advancement of
any of the regulator’s objectives.

(5) In subsection (4)(b) “objectives”, in relation to the FCA, means
operational objectives.

(6) 25A direction may be given subject to conditions.

(7) The regulator may—

(a) revoke a direction, or

(b) vary it on the application, or with the consent, of the person to
whom it relates.

(8) 30“Direction” means a direction under this section.

138B Publication of directions under section 138A

(1) Subject to subsection (2), a direction must be published by the regulator
concerned in the way appearing to the regulator to be best calculated
for bringing it to the attention of—

(a) 35persons likely to be affected by it, and

(b) persons who are, in the opinion of the regulator, likely to make
an application for a similar direction.

(2) Subsection (1) does not apply if the regulator is satisfied that it is
inappropriate or unnecessary to publish the direction.

(3) 40In deciding whether it is satisfied as mentioned in subsection (2), the
regulator must—

(a) consider whether the publication of the direction would be
detrimental to the stability of the UK financial system,

(b) take into account whether the direction relates to a rule
contravention of which is actionable in accordance with section
5138D,

(c) consider whether publication of the direction would prejudice,
to an unreasonable degree, the commercial interests of the
person concerned or any other member of the person’s
immediate group, and

(d) 10consider whether its publication would be contrary to an
international obligation of the United Kingdom.

(4) The FCA must consult the PRA before publishing or deciding not to
publish a direction which relates to—

(a) a PRA-authorised person, or

(b) 15an authorised person who has as a member of its immediate
group a PRA-authorised person.

(5) For the purposes of paragraphs (c) and (d) of subsection (3), the
regulator must consider whether it would be possible to publish the
direction without either of the consequences mentioned in those
20paragraphs by publishing it without disclosing the identity of the
person concerned.

(6) “Direction” means a direction under section 138A.

Contravention of rules

138C Evidential provisions

(1) 25If a particular rule made by either regulator so provides, contravention
of the rule does not give rise to any of the consequences provided for
by other provisions of this Act.

(2) A rule made by a regulator which so provides must also provide—

(a) that contravention may be relied on as tending to establish
30contravention of such other rule made by that regulator as may
be specified, or

(b) that compliance may be relied on as tending to establish
compliance with such other rule made by that regulator as may
be specified.

(3) 35A rule may include the provision mentioned in subsection (1) only if
the regulator making the rule considers that it is appropriate for it also
to include the provision required by subsection (2).

(4) In this section “rule” does not include a rule made under—

(a) section 137M (threshold condition code);

(b) 40section 192J (provision of information by parent undertakings).

138D Actions for damages

(1) A rule made by the PRA may provide that contravention of the rule is
actionable at the suit of a private person who suffers loss as a result of
the contravention, subject to the defences and other incidents applying
45to actions for breach of statutory duty.

(2) A contravention by an authorised person of a rule made by the FCA is
actionable at the suit of a private person who suffers loss as a result of
the contravention, subject to the defences and other incidents applying
to actions for breach of statutory duty.

(3) 5If rules made by the FCA so provide, subsection (2) does not apply to a
contravention of a specified provision of the rules.

(4) In prescribed cases, a contravention of a rule which by virtue of
subsection (1) or (2) would be actionable at the suit of a private person
is actionable at the suit of a person who is not a private person, subject
10to the defences and other incidents applying to actions for breach of
statutory duty.

(5) In subsections (1), (2) and (3) “rule” does not include—

(a) Part 6 rules;

(b) rules under section 131B (short selling rules);

(c) 15rules under section 137M (threshold condition code);

(d) rules under section 192J (provision of information by parent
undertakings);

(e) a rule requiring an authorised person to have or maintain
financial resources.

(6) 20“Private person” has such meaning as may be prescribed.

138E Limits on effect of contravening rules

(1) A person is not guilty of an offence by reason of a contravention of a
rule made by either regulator.

(2) No such contravention makes any transaction void or unenforceable.

(3) 25Subsection (2) does not apply in relation to product intervention rules
made by the FCA under section 137C.

Procedural provisions

138F Notification of rules

If either regulator makes, alters or revokes any rules, that regulator
30must without delay give written notice—

(a) to the Treasury, and

(b) to the Bank of England.

138G Rule-making instruments

(1) Any power conferred on either regulator to make rules is exercisable in
35writing.

(2) An instrument by which rules are made by either regulator (“a rule-
making instrument”) must specify the provision under which the rules
are made.

(3) To the extent that a rule-making instrument does not comply with
40subsection (2), it is void.

(4) A rule-making instrument must be published by the regulator making
the rule in the way appearing to that regulator to be best calculated to
bring it to the attention of the public.

(5) The regulator making the rule may charge a reasonable fee for
5providing a person with a copy of a rule-making instrument.

(6) A person is not to be taken to have contravened any rule made by a
regulator if the person shows that at the time of the alleged
contravention the rule-making instrument concerned had not been
made available in accordance with this section.

138H 10Verification of rules

(1) The production of a printed copy of a rule-making instrument
purporting to be made by a regulator—

(a) on which is endorsed a certificate signed by a member of staff of
that regulator who is authorised by the regulator for that
15purpose, and

(b) which contains the required statements,

is evidence (or in Scotland sufficient evidence) of the facts stated in the
certificate.

(2) The required statements are—

(a) 20that the instrument was made by the FCA or the PRA (as the
case may be),

(b) that the copy is a true copy of the instrument, and

(c) that on a specified date the instrument was made available to
the public in accordance with section 138G(4).

(3) 25A certificate purporting to be signed as mentioned in subsection (1) is
to be taken to be have been properly signed (unless the contrary is
shown).

(4) A person who wishes in any legal proceedings to rely on a rule-making
instrument may require the regulator that made the rule to endorse a
30copy of the instrument with a certificate of the kind mentioned in
subsection (1).

138I Consultation by the FCA

(1) Before making any rules, the FCA must—

(a) consult the PRA, and

(b) 35after doing so, publish a draft of the proposed rules in the way
appearing to the FCA to be best calculated to bring them to the
attention of the public.

(2) The draft must be accompanied by—

(a) a cost benefit analysis,

(b) 40an explanation of the purpose of the proposed rules,

(c) any statement prepared under section 138K(2),

(d) an explanation of the FCA’s reasons for believing that making
the proposed rules is compatible with section 1B(1), and

(e) notice that representations about the proposals may be made to
45the FCA within a specified time.

(3) Before making the proposed rules, the FCA must have regard to any
representations made to it in accordance with subsection (2)(e).

(4) If the FCA makes the proposed rules, it must publish an account, in
general terms, of—

(a) 5the representations made to it in accordance with subsection
(2)(e), and

(b) its response to them.

(5) If the rules differ from the draft published under subsection (1)(b) in a
way which is, in the opinion of the FCA, significant the FCA must
10publish—

(a) details of the difference (in addition to complying with
subsection (4)) together with a cost benefit analysis, and

(b) any statement prepared under section 138K(4).

(6) The requirements to carry out a cost benefit analysis under this section
15do not apply in relation to rules made under—

(a) section 136(2);

(b) subsection (1) of section 213 as a result of subsection (4) of that
section;

(c) section 234;

(d) 20paragraph 20 of Schedule 1ZA;

(e) paragraph 12 of Schedule 1A.

(7) “Cost benefit analysis” means—

(a) an analysis of the costs together with an analysis of the benefits
that will arise—

(i) 25if the proposed rules are made, or

(ii) if subsection (5) applies, from the rules that have been
made, and

(b) subject to subsection (8), an estimate of those costs and of those
benefits.

(8) 30If, in the opinion of the FCA—

(a) the costs or benefits referred to in subsection (7) cannot
reasonably be estimated, or

(b) it is not reasonably practicable to produce an estimate,

the cost benefit analysis need not estimate them, but must include a
35statement of the FCA’s opinion and an explanation of it.

(9) The FCA may charge a reasonable fee for providing a person with a
copy of a draft published under subsection (1)(b).

(10) Subsection (1)(a) does not apply to rules made by the FCA in relation to
recognised investment exchanges under Part 18.

(11) 40This section is subject to section 138L.

138J Consultation by the PRA

(1) Before making any rules, the PRA must—

(a) consult the FCA, and

(b) after doing so, publish a draft of the proposed rules in the way
appearing to the PRA to be best calculated to bring them to the
attention of the public.

(2) The draft must be accompanied by—

(a) 5a cost benefit analysis,

(b) an explanation of the purpose of the proposed rules,

(c) any statement prepared under section 138K(2),

(d) an explanation of the PRA’s reasons for believing that making
the proposed rules is compatible with section 2B(1) or, as the
10case requires, section 2C(1) or 2D(3), and

(e) notice that representations about the proposals may be made to
the PRA within a specified time.

(3) Before making the proposed rules, the PRA must have regard to any
representations made to it in accordance with subsection (2)(e).

(4) 15If the PRA makes the proposed rules, it must publish an account, in
general terms, of—

(a) the representations made to it in accordance with subsection
(2)(e), and

(b) its response to them.

(5) 20If the rules differ from the draft published under subsection (1)(b) in a
way which is, in the opinion of the PRA, significant the PRA must
publish—

(a) details of the difference (in addition to complying with
subsection (4)) together with a cost benefit analysis, and

(b) 25any statement prepared under section 138K(4).

(6) The requirements to carry out a cost benefit analysis under this section
do not apply in relation to rules made under—

(a) section 136(2);

(b) subsection (1) of section 213 as a result of subsection (4) of that
30section;

(c) section 234;

(d) paragraph 28 of Schedule 1ZB;

(e) paragraph 12 of Schedule 1A.

(7) “Cost benefit analysis” means—

(a) 35an analysis of the costs together with an analysis of the benefits
that will arise—

(i) if the proposed rules are made, or

(ii) if subsection (5) applies, from the rules that have been
made, and

(b) 40subject to subsection (8), an estimate of those costs and of those
benefits.

(8) If, in the opinion of the PRA—

(a) the costs or benefits referred to in subsection (7) cannot
reasonably be estimated, or

(b) 45it is not reasonably practicable to produce an estimate,

the cost benefit analysis need not estimate them, but must include a
statement of the PRA’s opinion and an explanation of it.

(9) The PRA may charge a reasonable fee for providing a person with a
copy of a draft published under subsection (1)(b).

(10) This section is subject to section 138L.

138K Consultation: mutual societies

(1) 5Subsection (2) applies where a regulator proposes to make a rule (“the
proposed rule”) which would apply both to—

(a) authorised persons which are mutual societies, and

(b) other authorised persons.

(2) The regulator must prepare a statement setting out—

(a) 10its opinion whether or not the impact of the proposed rule on
persons within subsection (1)(a) will be significantly different
from its impact on persons within subsection (1)(b), and

(b) if so, details of the difference.

(3) Subsection (4) applies where a regulator makes a rule which—

(a) 15applies both to—

(i) authorised persons which are mutual societies, and

(ii) other authorised persons, and

(b) differs from the draft of the proposed rule published under
section 138I(1)(b) or section 138J(1)(b) (as the case may be).

(4) 20The regulator must prepare a statement setting out—

(a) its opinion whether or not the impact of the rule is significantly
different from the impact of the proposed rule on—

(i) the persons within subsection (3)(a)(i), and

(ii) those persons as compared with persons within
25subsection (3)(a)(ii), and

(b) if so, details of the difference.

(5) A “mutual society” is—

(a) a building society within the meaning of the Building Societies
Act 1986;

(b) 30a friendly society within the meaning of the Friendly Societies
Act 1992;

(c) a registered society within the meaning of the Industrial and
Provident Societies Act 1965;

(d) an EEA mutual society.

(6) 35An “EEA mutual society” is—

(a) a body which is a European Cooperative Society for the
purposes of Council Regulation (EC) No 1435/2003 (statute for
a European Cooperative Society);

(b) a body which is established as a cooperative under the law of an
40EEA state as mentioned in that Regulation;

(c) a body which is a cooperative or mutual undertaking of such
description as the Treasury specify by order and which is
established or operates in accordance with the laws of an EEA
state.

138L Consultation: general exemptions

(1) Sections 138I(1)(b) and (2) to (5) and 138K do not apply in relation to
rules made by the FCA if the FCA considers that the delay involved in
complying with them would be prejudicial to the interests of
5consumers, as defined in section 425A.

(2) Sections 138J(1)(b) and (2) to (5) and 138K do not apply in relation to
rules made by the PRA if the PRA considers that the delay involved in
complying with them would—

(a) be prejudicial to the safety and soundness of PRA-authorised
10persons, or

(b) in a case where section 2C applies, be prejudicial to securing the
appropriate degree of protection for policy holders.

(3) The exception in subsection (1) does not apply in relation to rules made
by the FCA under section 131B (short selling rules).

(4) 15The provisions listed in subsection (5) do not apply if the regulator
concerned considers that, making the appropriate comparison—

(a) there will be no increase in costs, or

(b) there will be an increase in costs but that increase will be of
minimal significance.

(5) 20Those provisions are—

(a) subsections (2)(a) and (5)(a) of section 138I;

(b) subsections (2)(a) and (5)(a) of section 138J.

(6) The “appropriate comparison” means—

(a) in relation to section 138I(2)(a) or 138J(2)(a), a comparison
25between the overall position if the rules are made and the
overall position if the rules are not made;

(b) in relation to section 138I(5)(a) or 138J(5)(a), a comparison
between the overall position after the making of the rules and
the overall position before they were made.

138M 30Consultation: exemptions for temporary product intervention rules

(1) Sections 138I(1)(b) and (2) to (5) and 138K do not apply in relation to
product intervention rules made by the FCA if it considers that it is
necessary or expedient not to comply with them for the purpose of
advancing—

(a) 35the consumer protection objective or the competition objective,
or

(b) if an order under section 137C(1)(b) is in force, the integrity
objective.

(2) Any rules made as a result of subsection (1) (“temporary product
40intervention rules”) are to cease to have effect at the end of the period
specified in the rules.

(3) The longest period that may be specified is the period of 12 months
beginning with the day on which the rules come into force.

(4) Nothing in subsection (2) prevents the FCA from revoking temporary
45product intervention rules before the end of the period mentioned
there.

(5) If the FCA has made temporary product intervention rules (“the initial
rules”), it may not make further temporary product intervention rules
containing the same, or substantially the same, provision as that
contained in the initial rules until the prohibited period has ended.

(6) 5“The prohibited period” means the period of one year beginning with
the day on which the period mentioned in subsection (2) ends (whether
or not the initial rules have been revoked before the end of the period
mentioned there).

138N Temporary product intervention rules: statement of policy

(1) 10The FCA must prepare and issue a statement of its policy with respect
to the making of temporary product intervention rules.

(2) The FCA may at any time alter or replace a statement issued under this
section.

(3) If a statement issued under this section is altered or replaced, the FCA
15must issue the altered or replaced statement.

(4) The FCA must, without delay, give the Treasury a copy of any
statement which it publishes under this section.

(5) A statement issued under this section must be published by the FCA in
the way appearing to the FCA to be best calculated to bring it to the
20attention of the public.

(6) The FCA may charge a reasonable fee for providing a person with a
copy of the statement.

138O Statement of policy under section 138N: procedure

(1) Before issuing a statement under section 138N, the FCA must publish a
25draft of the proposed statement in the way appearing to the FCA to be
best calculated to bring it to the attention of the public.

(2) The draft must be accompanied by notice that representations about the
proposal may be made to the FCA within a specified time.

(3) Before issuing the proposed statement, the FCA must have regard to
30any representations made to it in accordance with subsection (2).

(4) If the FCA issues the proposed statement it must publish an account, in
general terms, of—

(a) the representations made to it in accordance with subsection (2),
and

(b) 35its response to them.

(5) If the statement differs from the draft published under subsection (1) in
a way which is, in the opinion of the FCA, significant, the FCA must (in
addition to complying with subsection (4)) publish details of the
difference.

(6) 40The FCA may charge a reasonable fee for providing a person with a
copy of a draft published under subsection (1).

(7) This section also applies to a proposal to alter or replace a statement.

CHAPTER 3 Guidance

139A Power of the FCA to give guidance

(1) The FCA may give guidance consisting of such information and advice
as it considers appropriate—

(a) 5with respect to the operation of specified parts of this Act and of
any rules made by the FCA;

(b) with respect to any other matter relating to functions of the
FCA;

(c) with respect to any other matters about which it appears to the
10FCA to be desirable to give information or advice.

(2) The FCA may give financial or other assistance to persons giving
information or advice of a kind which the FCA could give under this
section.

(3) Subsection (5) applies where the FCA proposes to give guidance to
15FCA-regulated persons generally, or to a class of FCA-regulated
persons, in relation to rules to which those persons are subject.

(4) Subsection (5) also applies in relation to guidance which the FCA
proposes to give to persons generally, or to a class of person, in relation
to rules under section 131B (short selling rules) to which those persons
20are subject.

(5) Where this subsection applies, subsections (1), (2)(e) and (3) of section
138I (consultation) apply to the proposed guidance as they apply to
proposed rules, unless the FCA considers that the delay in complying
with those provisions would be prejudicial to the interests of
25consumers.

(6) The FCA may—

(a) publish its guidance,

(b) offer copies of its published guidance for sale at a reasonable
price, and

(c) 30if it gives guidance in response to a request made by any person,
make a reasonable charge for that guidance.

(7) In this Chapter, references to guidance made by the FCA include
references to any recommendations made by the FCA to FCA-
regulated persons generally, or to any class of FCA-regulated person.

(8) 35“Consumers” has the meaning given in section 1G.

(9) “FCA-regulated person” means—

(a) an authorised person, or

(b) any person who is otherwise subject to rules made by the FCA.

139B Notification of FCA guidance to the Treasury

(1) 40On giving any general guidance, the FCA must give written notice to
the Treasury without delay.

(2) If the FCA alters any of its guidance, it must give written notice to the
Treasury without delay.