Financial Services Bill (HC Bill 2)

Part 1 Bank of England

1 Deputy Governors

(1) In section 1 of the Bank of England Act 1998 (court of directors), for subsections
5(2) and (2A) substitute—

“(2) The court shall consist of the following members appointed by Her
Majesty—

(a) a Governor,

(b) a Deputy Governor for financial stability,

(c) 10a Deputy Governor for monetary policy,

(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) 15the Governor of the Bank,

(aa) the Deputy Governor for financial stability,

(ab) the Deputy Governor for monetary policy,”.

2 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) 5for “contribute to protecting and enhancing” substitute “protect and
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(4) 10Omit subsection (3) (which is superseded by the amendments made by section
3 of this Act).

3 Financial stability strategy and Financial Policy Committee

(1) After Part 1 of the Bank of England Act 1998 insert—

“ Part 1A 15Financial Stability

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
20Stability Objective (its “financial stability strategy”), and

(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) 25the Financial Policy Committee, and

(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) 30The court of directors must determine the financial stability strategy of
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) 35The relevant period is 3 years beginning with the date on which the
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.

(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.

5Financial Policy Committee of the Bank

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) 10the Deputy Governors of the Bank,

(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) 15a representative of the Treasury.

(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
20within the Bank for the analysis of markets.

(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) 25consider whether the person has any financial or other interests
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) 30The court’s function under subsection (4) is to stand delegated to the
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
35to contributing to the achievement by the Bank of the Financial Stability
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
40protecting and enhancing the resilience of the UK financial system.

(3) Those systemic risks include, in particular—

(a) systemic risks attributable to structural features of financial
markets, such as connections between financial institutions,

(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
5exercise its functions in a way that would in its opinion be likely to have
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
10financial system as a whole or to a significant part of that system.

(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
  15sector to individuals in the United Kingdom and businesses
  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;

• 20“leverage” means the leverage of the financial sector in the United
  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) 25matters that the Committee should regard as relevant to the
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) 30matters to which the Committee should have regard in
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
35on which this section comes into force, and

(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
40recommendation, of one or more of the following—

(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
45accordance with it;

(c) whether or not the recommendation relates to immediate
action, the Committee’s reasons for not intending to act in
accordance with it.

(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
5subsection (1) or notification received under subsection (3), and

(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
10Bank’s financial stability strategy.

(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
15in a way that would prejudice—

(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
20to—

(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
25or restriction;

(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) 30the international obligations of the United Kingdom,
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) 35monitoring the stability of the UK financial system with a view
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) 40The court of directors may, with the consent of the Treasury, arrange
for specified functions of the Bank to be discharged by the Financial
Policy Committee.

Directions by Financial Policy Committee

9G Directions to FCA or PRA requiring macro-prudential measures

(1) The Financial Policy Committee may give a direction to the FCA or the
PRA (“the regulator”) requiring the regulator to exercise its functions so
5as to ensure the implementation, by or in relation to a specified class of
regulated persons, of a macro-prudential measure described in the
direction.

(2) “Regulated person” means—

(a) in relation to the FCA—

(i) 10an authorised person within the meaning of FSMA 2000,

(ii) a recognised investment exchange within the meaning
of that Act, or

(iii) an EEA market operator as defined by section 312D of
that Act;

(b) 15in relation to the PRA, a PRA-authorised person within the
meaning of that Act.

(3) “Macro-prudential measure” is to be read in accordance with section
9K.

(4) The direction may relate to all regulated persons or to regulated
20persons of a specified description, but may not relate to a specified
regulated person.

(5) The direction—

(a) may refer to the opinion of the regulator or require or authorise
the exercise of a discretion by the regulator;

(b) 25may be expressed to remain in force for a specified period or
until revoked.

(6) The direction may not require its provisions to be implemented by
specified means or within a specified period, but may include
recommendations as to the means to be used and the timing of
30implementation.

(7) A recommendation made under subsection (6) may be expressed to be
one to which section 9P(3) (duty to comply or explain) applies.

(8) The direction may not require the regulator to do anything that it has
no power to do, but the existence of the direction is relevant to the
35exercise of any discretion conferred on the regulator.

(9) The direction may specify particular matters to which the regulator is
or is not to have regard in complying with the direction, but those
matters must be specified in relation to all regulated persons or a class
of regulated person rather than a specified regulated person.

(10) 40The direction may refer to a publication issued by the FCA, the PRA,
another body in the United Kingdom or an international organisation,
as the publication has effect from time to time.

9H Compliance with directions under section 9G

(1) The regulator must comply with a direction given to it under section 9G
45as soon as reasonably practicable.

(2) An order under section 9K may, in relation to cases where the regulator
is complying with a direction under section 9G, exclude or modify any
procedural requirement that would otherwise apply under FSMA 2000
in relation to the exercise by the regulator of its functions in pursuance
5of the direction.

(3) The regulator to which a direction under section 9G is given must give
the Financial Policy Committee one or more reports on how it is
complying or has complied with the direction.

(4) The Financial Policy Committee may give directions to the regulator
10specifying the times by which reports required by subsection (3) must
be given to the Committee.

(5) “Regulator” has the same meaning as in section 9G.

9I Revocation of directions under section 9G

(1) The Financial Policy Committee may at any time by notice to the
15regulator revoke a direction under section 9G.

(2) A direction under section 9G is to be taken to be revoked if the measure
to which it relates ceases to be a macro-prudential measure, but this is
subject to any provision made under section 9K(4)(e).

(3) The revocation of a direction under section 9G does not affect the
20validity of anything previously done in accordance with it.

(4) “Regulator” has the same meaning as in section 9G.

9J Further provisions about directions under section 9G

(1) Each of the following must be in writing—

(a) a direction under section 9G;

(b) 25a notice revoking such a direction;

(c) a report under section 9H(3).

(2) The Financial Policy Committee must give the Treasury a copy of any
direction under section 9G or any notice revoking such a direction.

(3) The Treasury may, if they think fit, lay before Parliament a copy of a
30direction under section 9G or a notice revoking such a direction.

(4) Where a direction under section 9G, or a notice revoking such a
direction, is included in a record published under section 9R, the
Treasury must, if they have not already done so, lay before Parliament
a copy of the direction or notice in the form in which it is published in
35the record.

9K Macro-prudential measures

(1) For the purposes of section 9G a “macro-prudential measure” is a
measure prescribed by the Treasury by order.

(2) Before making an order under this section, the Treasury must—

(a) 40consult the Financial Policy Committee, or

(b) if the Treasury considers that the delay involved in consulting
the Committee would be prejudicial to the stability of the UK
financial system, consult the Governor of the Bank.

(3) In prescribing a measure, the order must specify whether the measure
is prescribed in relation to the FCA, the PRA, or both.

(4) An order under this section—

(a) may make different provision for different cases;

(b) 5may confer a discretion on the Financial Policy Committee, the
FCA or the PRA;

(c) may refer to rules made by the FCA or the PRA;

(d) may refer to a publication issued by the FCA, the PRA, another
body in the United Kingdom or an international organisation,
10as the publication has effect from time to time;

(e) may contain transitional provisions and savings relating to the
coming into force of any provision of the order or to the ceasing
to be in force of any temporary provision made by the order.

(e)(e)may contain transitional provisions and savings relating to the
15coming into force of any provision of the order or to the ceasing
to be in force of any temporary provision made by the order.

9L Statements of policy by Financial Policy Committee

(1) In relation to each macro-prudential measure prescribed under section
9K, the Financial Policy Committee must prepare and maintain a
20written statement of the general policy that it proposes to follow in
relation to the exercise of its power of direction under section 9G so far
as it relates to that measure.

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

(3) 25The Bank must publish each statement maintained under this section.

(4) Publication is to be in such manner as the Bank thinks fit.

(5) Nothing in this section is to be regarded as preventing the Financial
Policy Committee from exercising its power of direction under section
9G in relation to a macro-prudential measure, where it considers it
30necessary to do so by reason of urgency, before it has prepared a
statement under this section in relation to that measure.

9M Parliamentary control of orders under section 9K

(1) Except as provided by subsection (2), an order under section 9K is not
to be made unless a draft of the order has been laid before and
35approved by resolution of each House of Parliament.

(2) An order under section 9K may be made without a draft having been
laid and approved as mentioned in subsection (1) if the order contains
a statement that the Treasury are of the opinion that, by reason of
urgency, it is necessary to make the order without a draft being so laid
40and approved.

(3) An order under section 9K made in accordance with subsection (2)—

(a) must be laid before Parliament after being made, and

(b) ceases to have effect at the end of the relevant period unless
before the end of that period the order is approved by a
45resolution of each House of Parliament (but without affecting
anything done under the order or the power to make a new
order).

(4) The “relevant period” is a period of 28 days beginning with the day on
which the order is made.

(5) In reckoning the relevant period no account is to be taken of any time
during which Parliament is dissolved or prorogued or during which
either House is adjourned for more than 4 days.

Recommendations by Financial Policy Committee

9N 5Making of recommendations within the Bank

(1) The Financial Policy Committee may make recommendations within
the Bank.

(2) The recommendations may, in particular, relate to—

(a) the provision by the Bank of financial assistance to financial
10institutions;

(b) the exercise by the Bank of its functions in relation to payment
systems, settlement systems and clearing houses.

(3) The Committee may not make recommendations about—

(a) the provision by the Bank of financial assistance in relation to a
15particular financial institution, or

(b) the exercise by the Bank of its powers under Parts 1 to 3 of the
Banking Act 2009 in relation to a particular institution.

(4) The recommendations must be made or confirmed in writing.

9O Recommendations to Treasury

(1) 20The Financial Policy Committee may make recommendations to the
Treasury.

(2) The recommendations may, in particular, relate to the exercise by the
Treasury of their power to make orders under—

(a) section 9K (macro-prudential measures),

(b) 25section 22(1) or (1A) of FSMA 2000 (regulated activities),

(c) section 22A(1) of that Act (designation of activities requiring
prudential regulation by PRA),

(d) section 137C(1)(b) of that Act (purposes for which FCA may
make product intervention rules), or

(e) 30section 165A(2)(d) of that Act (additional persons who may be
required by PRA to provide information).

(3) The recommendations must be made or confirmed in writing.

(4) The Committee may make a recommendation under subsection (2)(e)
only if it considers that the exercise by the Treasury of their power to
35make an order under section 165A(2)(d) of FSMA 2000 in the manner
proposed is desirable for the purposes of the exercise by the Committee
of its functions.

(5) Before giving a recommendation under subsection (2)(e), the
Committee must consult the Treasury.

9P 40Recommendations to FCA and PRA

(1) The Financial Policy Committee may make recommendations to the
FCA and the PRA about the exercise of their respective functions.