Financial Services Bill (HC Bill 2)

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1I Meaning of “the UK financial system”

In this Act “the UK financial system” means the financial system
operating in the United Kingdom and includes—

(a) financial markets and exchanges,

(b) 5regulated activities, and

(c) other activities connected with financial markets and
exchanges.

Power to amend objectives
1J Power to amend objectives

10The Treasury may by order amend any of the following provisions—

(a) in section 1E(1), paragraphs (a) and (b),

(b) section 1G, and

(c) section 1H(2) and (5) to (8).

Guidance about objectives
1K 15Guidance about objectives

(1) The general guidance given by the FCA under section 139A must
include guidance about how it intends to advance its operational
objectives in discharging its general functions in relation to different
categories of authorised person or regulated activity.

(2) 20Before giving or altering any guidance complying with subsection (1),
the FCA must consult the PRA.

Supervision, monitoring and enforcement
1L Supervision, monitoring and enforcement

(1) The FCA must maintain arrangements for supervising authorised
25persons.

(2) The FCA must maintain arrangements designed to enable it to
determine whether persons other than authorised persons are
complying—

(a) with requirements imposed on them by or under this Act, in
30cases where the FCA is the appropriate regulator for the
purposes of Part 14 (disciplinary measures), or

(b) with requirements imposed on them by any qualifying EU
provision that is specified, or of a description specified, for the
purposes of this subsection by the Treasury by order.

(3) 35The FCA must also maintain arrangements for enforcing compliance by
persons other than authorised persons with relevant requirements,
within the meaning of Part 14, in cases where the FCA is the
appropriate regulator for the purposes of any provision of that Part.

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Arrangements for consulting practitioners and consumers
1M The FCA’s general duty to consult

The FCA must make and maintain effective arrangements for
consulting practitioners and consumers on the extent to which its
5general policies and practices are consistent with its general duties
under section 1B.

1N The Practitioner Panel

(1) Arrangements under section 1M must include the establishment and
maintenance of a panel of persons (to be known as “the Practitioner
10Panel”) to represent the interests of practitioners.

(2) The FCA must appoint one of the members of the Practitioner Panel to
be its chair.

(3) The Treasury’s approval is required for the appointment or dismissal
of the chair.

(4) 15The FCA must appoint to the Practitioner Panel such—

(a) persons representing authorised persons, and

(b) persons representing recognised investment exchanges,

as it considers appropriate.

(5) The FCA may appoint to the Practitioner Panel such other persons as it
20considers appropriate.

1O The Smaller Business Practitioner Panel

(1) Arrangements under section 1M must include the establishment and
maintenance of a panel of persons (to be known as “the Smaller
Business Practitioner Panel”) to represent the interests of eligible
25practitioners.

(2) “Eligible practitioners” means authorised persons of a description
specified in a statement maintained by the FCA.

(3) The FCA must appoint one of the members of the Smaller Business
Practitioner Panel to be its chair.

(4) 30The Treasury’s approval is required for the appointment or dismissal
of the chair.

(5) The FCA must appoint to the Smaller Business Practitioner Panel
such—

(a) individuals who are eligible practitioners, and

(b)(b)35persons representing eligible practitioners,

as it considers appropriate.

(6) The FCA may appoint to the Smaller Business Practitioner Panel such
other persons as it considers appropriate.

(7) In making the appointments, the FCA must have regard to the
40desirability of ensuring the representation of eligible practitioners
carrying on a range of regulated activities.

(8) The FCA may revise the statement maintained under subsection (2).

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(9) The FCA must—

(a) give the Treasury a copy of the statement or revised statement
without delay, and

(b) publish the statement as for the time being in force in such
5manner as it thinks fit.

1P The Markets Practitioner Panel

(1) Arrangements under section 1M must include the establishment and
maintenance of a panel of persons (to be known as “the Markets
Practitioner Panel”) to represent the interests of practitioners who are
10likely to be affected by the exercise by the FCA of its functions relating
to markets, including its functions under Parts 6, 8A and 18.

(2) The FCA must appoint one of the members of the Markets Practitioner
Panel to be its chair.

(3) The Treasury’s approval is required for the appointment or dismissal
15of the chair.

(4) The FCA must appoint to the Markets Practitioner Panel such persons
to represent the interests of persons within subsection (5) as it considers
appropriate.

(5) The persons within this subsection are—

(a) 20authorised persons,

(b) persons who issue financial instruments,

(c) sponsors, as defined in section 88(2),

(d) recognised investment exchanges, and

(e) primary information providers, as defined in section 89P(2).

(6) 25The FCA may appoint to the Markets Practitioner Panel such other
persons as it considers appropriate.

1Q The Consumer Panel

(1) Arrangements under section 1M must include the establishment and
maintenance of a panel of persons (to be known as “the Consumer
30Panel”) to represent the interests of consumers.

(2) The FCA must appoint one of the members of the Consumer Panel to
be its chair.

(3) The Treasury’s approval is required for the appointment or dismissal
of the chair.

(4) 35The FCA may appoint to the Consumer Panel such consumers, or
persons representing the interests of consumers, as it considers
appropriate.

(5) The FCA must secure that membership of the Consumer Panel is such
as to give a fair degree of representation to those who are using, or are
40or may be contemplating using, services otherwise than in connection
with businesses carried on by them.

(6) Sections 425A and 425B (meaning of “consumers”) apply for the
purposes of this section, but the references to consumers in this section
do not include consumers who are authorised persons.

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1R Duty to consider representations made by the Panels

(1) The FCA must consider representations that are made to it in
accordance with arrangements made under section 1M.

(2) The FCA must from time to time publish in such manner as it thinks fit
5responses to the representations.

Reviews
1S Reviews

(1) The Treasury may appoint an independent person to conduct a review
of the economy, efficiency and effectiveness with which the FCA has
10used its resources in discharging its functions.

(2) A review may be limited by the Treasury to such functions of the FCA
(however described) as the Treasury may specify in appointing the
person to conduct it.

(3) A review is not to be concerned with the merits of the FCA’s general
15policy or principles in complying with its general duties under section
1B(1) and (4).

(4) On completion of a review, the person conducting it must make a
written report to the Treasury—

(a) setting out the result of the review, and

(b) 20making such recommendations (if any) as the person considers
appropriate.

(5) A copy of the report must be—

(a) laid before Parliament, and

(b) published in such manner as the Treasury consider appropriate.

(6) 25Any expenses reasonably incurred in the conduct of the review are to
be met by the Treasury out of money provided by Parliament.

(7) “Independent” means appearing to the Treasury to be independent of
the FCA.

1T Right to obtain documents and information

(1) 30A person conducting a review under section 1S

(a) has a right of access at any reasonable time to all such
documents as the person may reasonably require for the
purposes of the review, and

(b) may require any person holding or accountable for any such
35document to provide such information and explanation as are
reasonably necessary for that purpose.

(2) Subsection (1) applies only to documents in the custody of or under the
control of the FCA.

(3) An obligation imposed on a person as a result of the exercise of the
40powers conferred by subsection (1) is enforceable by injunction or, in
Scotland, by an order for specific performance under section 45 of the
Court of Session Act 1988.

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CHAPTER 2 The Prudential Regulation Authority
The Prudential Regulation Authority
2A The Prudential Regulation Authority

(1) The body corporate originally incorporated as the Prudential
5Regulation Authority Limited is renamed as the Prudential Regulation
Authority.

(2) The Prudential Regulation Authority is in this Act referred to as “the
PRA”.

(3) The PRA is to have the functions conferred on it by or under this Act.

(4) 10The PRA must comply with the requirements as to its constitution set
out in Schedule 1ZB.

(5) Schedule 1ZB also confers on the Bank of England functions in relation
to the PRA and makes provision about the status of the PRA and the
exercise of certain of its functions.

(6) 15References in this Act or any other enactment to functions conferred on
the PRA by or under this Act include references to functions conferred
on the PRA by or under—

(a) the Insolvency Act 1986,

(b) the Banking Act 2009, or

(c) 20the Financial Services Act 2012.

The PRA’s general duties
2B The PRA’s general objective

(1) In discharging its general functions the PRA must, so far as is
reasonably possible, act in a way which advances its general objective.

(2) 25The PRA’s general objective is: promoting the safety and soundness of
PRA-authorised persons.

(3) That objective is to be advanced primarily by—

(a) seeking to ensure that the business of PRA-authorised persons
is carried on in a way which avoids any adverse effect on the
30stability of the UK financial system, and

(b) seeking to minimise the adverse effect that the failure of a PRA-
authorised person could be expected to have on the stability of
the UK financial system.

(4) The adverse effects mentioned in subsection (3) may, in particular,
35result from the disruption of the continuity of financial services.

(5) In this Act “PRA-authorised person” means an authorised person who
has permission—

(a) given under Part 4A, or

(b) resulting from any other provision of this Act,

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to carry on regulated activities that consist of or include one or more
PRA-regulated activities (see section 22A).

(6) Subsection (1) is subject to sections 2C and 2D.

2C Insurance objective

(1) 5In discharging its general functions so far as relating to a PRA-
regulated activity relating to the effecting or carrying out of contracts of
insurance or PRA-authorised persons carrying on that activity, the PRA
must, so far as is reasonably possible, act in a way—

(a) which is compatible with its general objective and its insurance
10objective, and

(b) which the PRA considers most appropriate for the purpose of
advancing those objectives.

(2) The PRA’s insurance objective is: contributing to the securing of an
appropriate degree of protection for those who are or may become
15policyholders.

(3) This section applies only if the effecting or carrying out of contracts of
insurance as principal is to any extent a PRA-regulated activity.

2D Power to provide for additional objectives

(1) Subsection (2) applies to an order under section 22A which—

(a) 20is made at any time after the coming into force of the first order
under that section, and

(b) contains a statement by the Treasury that, in their opinion, the
effect (or one of the effects) of the proposed order is that an
activity would become a PRA-regulated activity.

(2) 25An order to which this subsection applies may specify an additional
objective (“the specified objective”) in relation to specified activities
that become PRA-regulated activities by virtue of the order (“the
additional activities”).

(3) In discharging its general functions so far as relating the additional
30activities or PRA-authorised persons carrying on those activities, the
PRA must, so far as is reasonably possible, act in a way—

(a) which is compatible with its general objective and the specified
objective, and

(b) which the PRA considers most appropriate for the purpose of
35advancing those objectives.

2E Interpretation of references to objectives

In this Act, a reference, in relation to any function of the PRA, to the
objectives of the PRA, is a reference to its general objective but—

(a) so far as the function is exercisable in relation to the activity of
40effecting or carrying out contracts of insurance, or PRA-
authorised persons carrying on that activity, is a reference to its
general objective and its insurance objective;

(b) so far as the function is exercisable in relation to an activity to
which an objective specified by order by virtue of section 2D(2)
45relates, or PRA-authorised persons carrying on that activity, is

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a reference to its general objective and the objective specified by
the order.

2F Limit on effect of section 2B to 2D

Nothing in section 2B to 2D is to be regarded as requiring the PRA to
5ensure that no PRA-authorised person fails.

2G Duty to have regard to regulatory principles

In discharging its general functions, the PRA must also have regard to
the regulatory principles in section 3B.

2H Guidance about objectives

(1) 10The PRA must give, and from time to time review, guidance about how
it intends to advance its objectives in discharging its general functions
in relation to different categories of PRA-authorised person or PRA-
regulated activity.

(2) Before giving or altering any guidance complying with subsection (1),
15the PRA must consult the FCA.

(3) The PRA must publish the guidance as for the time being in force.

2I Interpretation of Chapter 2

(1) For the purposes of this Chapter, the PRA’s general functions are—

(a) its function of making rules under this Act (considered as a
20whole),

(b) its function of preparing and issuing codes under this Act
(considered as a whole), and

(c) its function of determining the general policy and principles by
reference to which it performs particular functions under this
25Act.

(2) Except to the extent that an order under section 47 of the Financial
Services Act 2012 (orders relating to mutual societies functions) so
provides, the PRA’s general functions do not include functions that are
transferred functions within the meaning of section 48 of that Act.

(3) 30For the purposes of this Chapter, the cases in which a PRA-authorised
person (“P”) is to be regarded as failing include those where—

(a) P enters insolvency,

(b) any of the stabilisation options in Part 1 of the Banking Act 2009
is achieved in relation to P, or

(c) 35P falls to be taken for the purposes of the compensation scheme
to be unable, or likely to be unable, to satisfy claims against P.

(4) In subsection (3)(a) “insolvency” includes—

(a) bankruptcy,

(b) liquidation,

(c) 40bank insolvency,

(d) administration,

(e) bank administration,

(f) receivership,

(g) a composition between P and P’s creditors, and

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(h) a scheme of arrangement of P’s affairs.

Supervision
2J Arrangements for supervision of PRA-authorised persons

The PRA must maintain arrangements for supervising PRA-authorised
5persons.

Arrangements for consulting practitioners
2K The PRA’s general duty to consult

(1) The PRA must make and maintain effective arrangements for
consulting PRA-authorised persons or, where appropriate, persons
10appearing to the PRA to represent the interests of such persons on the
extent to which its general policies and practices are consistent with its
general duties under sections 2B to 2G.

(2) Those arrangements may include the establishment of such panels as
the PRA thinks fit.

(3) 15The PRA must publish details of any arrangements made under this
section.

2L Duty to consider representations

(1) The PRA must consider representations that are made to it in
accordance with arrangements made under section 2K.

(2) 20The PRA must from time to time publish in such manner as it thinks fit
responses to the representations.

Reviews
2M Reviews

(1) The Treasury may appoint an independent person to conduct a review
25of the economy, efficiency and effectiveness with which the PRA has
used its resources in discharging its functions.

(2) A review may be limited by the Treasury to such functions of the PRA
(however described) as the Treasury may specify in appointing the
person to conduct it.

(3) 30A review is not to be concerned with the merits of the PRA’s general
policy or principles in pursuing the PRA’s objectives.

(4) On completion of a review, the person conducting it must make a
written report to the Treasury—

(a) setting out the result of the review, and

(b) 35making such recommendations (if any) as the person considers
appropriate.

(5) A copy of the report must be—

(a) laid before Parliament, and

(b) published in such manner as the Treasury consider appropriate.

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(6) Any expenses reasonably incurred in the conduct of the review are to
be met by the Treasury out of money provided by Parliament.

(7) “Independent” means appearing to the Treasury to be independent of
the PRA.

2N 5Right to obtain documents and information

(1) A person conducting a review under section 2M

(a) has a right of access at any reasonable time to all such
documents as the person may reasonably require for the
purposes of the review, and

(b) 10may require any person holding or accountable for any such
document to provide such information and explanation as are
reasonably necessary for that purpose.

(2) Subsection (1) applies only to documents in the custody of or under the
control of the PRA.

(3) 15An obligation imposed on a person as a result of the exercise of the
powers conferred by subsection (1) is enforceable by injunction or, in
Scotland, by an order for specific performance under section 45 of the
Court of Session Act 1988.

CHAPTER 3 Further provisions relating to FCA and PRA
20Introductory
3A Meaning of “regulator”

(1) This section has effect for the interpretation of this Act.

(2) The FCA and the PRA are the “regulators”, and references to a
regulator are to be read accordingly.

(3) 25Subsection (2) does not affect—

(a) the meaning of the following expressions—

  • “home state regulator”;

  • “host state regulator”;

  • “overseas regulator”, or

(b) 30the meaning of “the appropriate regulator” in Part 18
(recognised investment exchanges and clearing houses).

Regulatory principles
3B Regulatory principles to be applied by both regulators

(1) In relation to the regulators, the regulatory principles referred to in
35section 1B(5)(a) and 2G are as follows—

(a) the need to use the resources of each regulator in the most
efficient and economic way;

(b) the principle that a burden or restriction which is imposed on a
person, or on the carrying on of an activity, should be
40proportionate to the benefits, considered in general terms,

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which are expected to result from the imposition of that burden
or restriction;

(c) the general principle that consumers should take responsibility
for their decisions;

(d) 5the responsibilities of the senior management of persons subject
to requirements imposed by or under this Act, including those
affecting consumers, in relation to compliance with those
requirements;

(e) the desirability in appropriate cases of each regulator
10publishing information relating to persons on whom
requirements are imposed by or under this Act, or requiring
such persons to publish information, as a means of contributing
to the advancement by each regulator of its objectives;

(f) the principle that the regulators should exercise their functions
15as transparently as possible.

(2) “Consumer” has the meaning given in section 1G.

(3) “Objectives”, in relation to the FCA, means operational objectives.

(4) The Treasury may by order amend subsection (2).

Corporate governance
3C 20Duty to follow principles of good governance

In managing its affairs, each regulator must have regard to such
generally accepted principles of good corporate governance as it is
reasonable to regard as applicable to it.

Relationship between FCA and PRA
3D 25Duty of FCA and PRA to ensure co-ordinated exercise of functions

(1) The regulators must co-ordinate the exercise of their respective
functions conferred by or under this Act with a view to ensuring—

(a) that each regulator consults the other regulator (where not
otherwise required to do so) in connection with any proposed
30exercise of a function in a way that may have a material adverse
effect on the advancement by the other regulator of any of its
objectives;

(b) that where appropriate each regulator obtains information and
advice from the other regulator in connection with the exercise
35of its functions in relation to matters of common regulatory
interest in cases where the other regulator may be expected to
have relevant information or relevant expertise;

(c) that where either regulator exercises functions in relation to
matters of common regulatory interest, both regulators comply
40with their respective duties under section 1B(5)(a) or 2G, so far
as relating to the regulatory principles in section 3B(1)(a) and
(b).

(2) The duty in subsection (1) applies only to the extent that compliance
with the duty—