Financial Services Bill (HL Bill 48)

24 Short selling rules

(1) In every provision of Part 8A of FSMA 2000 (short selling) for “Authority”, in
each place, substitute “FCA”.

(2) In section 131D of FSMA 2000 (procedure in urgent cases)—

(a) 5in subsection (1)—

(i) for “section 155 (consultation in relation to proposed rules)”
substitute “subsections (1)(b) and (2) to (5) of section 138I
(public consultation in relation to proposed rules)”, and

(ii) for paragraphs (a) and (b) substitute “advance one or more of its
10operational objectives.”, and

(b) in subsection (4), for paragraphs (a) and (b) substitute “advance one or
more of its operational objectives.”.

Control over authorised persons

25 Control over authorised persons

(1) 15FSMA 2000 is amended as follows.

(2) In every provision of Part 12 (control over authorised persons), for “Authority”
or “Authority’s”, in each place (where not expressly amended by the following
provisions), substitute “appropriate regulator” or “appropriate regulator’s”.

(3) In section 178 (obligation to notify an acquisition of control), after subsection
20(2) insert—

“(2A) In this Part, “the appropriate regulator” means—

(a) where the UK authorised person is a PRA-authorised person,
the PRA;

(b) in any other case, the FCA.”

(4) 25In section 179 (requirements for section 178 notices) in subsection (2), for “The
Authority” substitute “Each regulator”.

(5) In section 187 (approval with conditions), for subsection (2) substitute—

“(2) The appropriate regulator may only impose conditions where—

(a) if it did not impose those conditions, it would propose to object
30to the acquisition, or

(b) it is required to do so by a direction under section 187A(3)(b) or
section 187B(3).”

(6) After section 187 insert—

“187A Assessment: consultation by PRA with FCA

(1) 35The PRA must consult the FCA before acting under section 185.

(2) The FCA may make representations to the PRA in relation to any of the
matters set out in sections 185(2) and 186.

(3) If the FCA considers that on the basis of the matters set out in section
186(f) there are reasonable grounds to object to the acquisition, the FCA
40may—

(a) direct the PRA to object to the acquisition, or

(b) direct the PRA not to approve the acquisition unless it does so
subject to conditions specified in the direction (with or without
other conditions).

(4) Before giving a direction under subsection (3), the FCA must notify the
5PRA of its proposal to do so.

(5) In order to comply with the obligation under subsection (1), the PRA
must provide the FCA with—

(a) copies of—

(i) the section 178 notice, and

(ii) 10any document included with that notice,

(b)
any further information provided pursuant to section 190, and

(c) any other information in the possession of the PRA which—

(i) in the opinion of the PRA, is relevant to the application,
or

(ii) 15is reasonably requested by the FCA.

(c)(c)any other information in the possession of the PRA which—

(i) in the opinion of the PRA, is relevant to the application,
or

(ii) is reasonably requested by the FCA.

(6) 20If the PRA acts under section 185(1)(b), it must indicate to the section
178 notice-giver any representations or directions received from the
FCA.

(7) Directions given by the FCA under this section are subject to any
directions given to the FCA under section 3I.

187B 25Assessment: consultation by FCA with PRA

(1) The FCA must consult the PRA before acting under section 185 if—

(a) the UK authorised person to which the section 178 notice relates
has as a member of its immediate group a PRA-authorised
person, or

(b) 30the section 178 notice-giver is a PRA-authorised person.

(2) The PRA may make representations to the FCA in relation to any of the
matters set out in sections 185(2) and 186.

(3) If the PRA considers that on the basis of relevant matters there are
reasonable grounds to object to the acquisition, the PRA may direct the
35FCA not to approve the acquisition unless it does so subject to
conditions specified in the direction (with or without other conditions).

(4) In subsection (3) “relevant matters”—

(a) means the matters in paragraphs (d) and (e)(i) of section 186,
and

(b) 40in a case falling within subsection (1)(b) of this section, also
includes the matter in paragraph (c) of section 186.

(5) In order to comply with the obligation under subsection (1), the FCA
must provide the PRA with—

(a) copies of—

(i) 45the section 178 notice, and

(ii) any document included with that notice,

(b)
any further information provided pursuant to section 190, and

(c) any other information in the possession of the FCA which—

(i) in the opinion of the FCA, is relevant to the application,
50or

(ii) is reasonably requested by the PRA.

(6) If the FCA acts under section 185(1)(b), it must indicate to the section
178 notice-giver any representations or directions received from the
PRA.

187C 5Variation etc of conditions

(1) Where the PRA has imposed conditions required by a direction given
by the FCA under section 187A(3)—

(a) the FCA may direct the PRA to exercise its power under section
187(4) to vary or cancel any of those conditions;

(b) 10the PRA must consult the FCA before it exercises that power in
relation to those conditions otherwise than in accordance with
a direction under paragraph (a).

(2) Where the FCA has imposed conditions required by a direction given
by the PRA under section 187B(3)—

(a) 15the PRA may direct the FCA to exercise its power under section
187(4) to vary or cancel any of those conditions;

(b) the FCA must consult the PRA before it exercises that power in
relation to those conditions otherwise than in accordance with
a direction under paragraph (a).”

(7) 20In section 191A (objection to control), after subsection (4) insert—

“(4A) Where the appropriate regulator is the PRA, it must consult the FCA
before giving a warning notice under this section.

(4B) Where the appropriate regulator is the FCA, it must consult the PRA
before giving a warning notice under this section if—

(a) 25the UK authorised person has as a member of its immediate
group a PRA-authorised person, or

(b) the person to whom the warning notice is to be given is a PRA-
authorised person.”

(8) In section 191B (restriction notices), after subsection (2) insert—

“(2A) 30Where the appropriate regulator is the PRA, it must consult the FCA
before giving a restriction notice under this section.

(2B) Where the appropriate regulator is the FCA, it must consult the PRA
before giving a restriction notice under this section if—

(a) the UK authorised person has as a member of its immediate
35group a PRA-authorised person, or

(b) the person to whom the restriction notice is to be given is a PRA-
authorised person.”

(9) In section 191C (orders for the sale of shares), after subsection (2) insert—

“(2A) Where the appropriate regulator is the PRA, it must consult the FCA
40before making an application to the court under this section.

(2B) Where the appropriate regulator is the FCA, it must consult the PRA
before making an application to the court under this section if—

(a) the UK authorised person has as a member of its immediate
group a PRA-authorised person, or

(b) the person holding the shares or voting power is a PRA-
authorised person.”

(10) In section 191D (obligation to notify of disposition of control), after subsection
(1) insert—

“(1A) 5The PRA must give the FCA a copy of any notice it receives under this
section.

(1B) The FCA must give the PRA a copy of any notice it receives under this
section which—

(a) relates to a UK authorised person who has as a member of its
10immediate group a PRA-authorised person, or

(b) is given by a PRA-authorised person.”

(11) In section 191E (requirements for notices under section 191D), in subsection (2),
for “The Authority” substitute “Each regulator”.

(12) In section 191G (interpretation), in subsection (1), after the definition of
15“acquisition” insert—

• ““the appropriate regulator” is to be read in accordance with
  section 178(2A);”.

26 Powers of regulators in relation to parent undertakings

After section 192 of FSMA 2000 insert—

20“ Part 12A Powers exercisable in relation to parent undertakings

Introductory

192A Meaning of “qualifying authorised person”

(1) In this Part “qualifying authorised person” means an authorised person
25satisfying the following conditions.

(2) Condition A is that the authorised person is a body corporate
incorporated in the United Kingdom.

(3) Condition B is that the authorised person is—

(a) a PRA-authorised person, or

(b) 30an investment firm.

(4) The Treasury may by order—

(a) amend subsection (3) so as to add to or restrict the descriptions
of authorised person who can be qualifying authorised persons,
or

(b) 35provide that while the order is in force subsection (3) is not to
have effect.

(5) Except as provided by subsection (6), an order under subsection (4) is
not to be made unless a draft of the order has been laid before
Parliament and approved by a resolution of each House.

(6) An order under subsection (4) may be made without a draft having
been laid and approved as mentioned in subsection (5) 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
5laid and approved.

(7) An order under subsection (4) made in accordance with subsection
(6)—

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

(b) ceases to have effect at the end of the relevant period unless
10before the end of that period the order is approved by a
resolution of each House of Parliament (but without affecting
anything done under the order or the power to make a new
order).

(8) The “relevant period” is a period of 28 days beginning with the day on
15which the order is made.

(9) In calculating the relevant period no account is to be taken of any time
during which Parliament is dissolved or prorogued or during which
both Houses are adjourned for more than 4 days.

192B Meaning of “qualifying parent undertaking”

(1) 20The parent undertaking of a qualifying authorised person or
recognised UK investment exchange is for the purposes of this Part a
“qualifying parent undertaking” if the following conditions are
satisfied in relation to it.

(2) Condition A is that the parent undertaking is a body corporate which—

(a) 25is incorporated in the United Kingdom, or

(b) has a place of business in the United Kingdom.

(3) Condition B is that the parent undertaking is not itself an authorised
person, a recognised investment exchange or a recognised clearing
house.

(4) 30Condition C is that the parent undertaking is a financial institution of a
kind prescribed by the Treasury by order.

(5) “Recognised UK investment exchange” means a recognised investment
exchange that is not an overseas investment exchange as defined in
section 313(1).

(6) 35The Treasury may by order—

(a) amend subsection (4) by omitting the words “a financial
institution”, and

(b) make any amendment of subsection (2) that they consider
desirable in connection with an amendment made under
40paragraph (a).

Power of direction

192C Power to direct qualifying parent undertaking

(1) The appropriate regulator may give a direction under this section to a
qualifying parent undertaking if either the general condition or the
45consolidated supervision condition is satisfied.

(2) The general condition is that the appropriate regulator considers that
the acts or omissions of the qualifying parent undertaking are having
or may have a material adverse effect on the regulation by the regulator
of one or more qualifying authorised persons or recognised investment
5exchanges in pursuance of any of the regulator’s objectives.

(3) The consolidated supervision condition is that—

(a) the appropriate regulator is the competent authority for the
purpose of consolidated supervision that is required, in relation
to some or all of the members of the group of a qualifying
10authorised person, in pursuance of any of the directives
mentioned in section 3L(3), and

(b) the appropriate regulator considers that the acts or omissions of
the qualifying parent undertaking are having or may have a
material adverse effect on the effectiveness of that consolidated
15supervision.

(4) In subsection (3)(a) “consolidated supervision” includes supplemental
supervision.

(5) In deciding whether to give a direction under this section, a regulator
must have regard—

(a) 20to the desirability where practicable of exercising its powers in
relation to authorised persons or recognised investment
exchanges rather than its powers under this section, and

(b) to the principle that a burden or restriction which is imposed on
a person should be proportionate to the benefits, considered in
25general terms, which are expected to result from its imposition.

(6) “The appropriate regulator” means—

(a) where a direction relates to a qualifying authorised person or
recognised investment exchange who is a PRA-authorised
person, the FCA or the PRA;

(b) 30in any other case, the FCA.

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

192D Requirements that may be imposed

(1) A direction under section 192C may require the parent undertaking—

(a) to take specified action, or

(b) 35to refrain from taking specified action.

(2) A requirement may be imposed by reference to the parent
undertaking’s relationship with—

(a) its group, or

(b) other members of its group.

(3) 40A requirement may refer to the past conduct of the parent undertaking
(for example, by requiring the parent undertaking to review or take
remedial action in respect of past conduct).

(4) The direction must specify the period during which each requirement
remains in force.

192E Direction: procedure

(1) If a regulator proposes to give a direction under section 192C, or gives
such a direction with immediate effect, it must give written notice to—

(a) the parent undertaking to which the direction is given (or to be
5given) (“P”), and

(b) any authorised person or recognised investment exchange who
will, in the opinion of the regulator, be significantly affected by
the direction.

(2) In the following provisions of this section “notified person” means a
10person to whom notice under subsection (1) is given.

(3) A direction under section 192C takes effect—

(a) immediately, if the notice under subsection (1) states that that is
the case,

(b) on such other date as may be specified in the notice, or

(c) 15if no date is specified in the notice, when the matter to which the
notice relates is no longer open to review.

(4) A direction may be expressed to take effect immediately (or on a
specified date) only if the regulator reasonably considers that it is
necessary for the direction to take effect immediately (or on that date).

(5) 20The notice under subsection (1) must—

(a) give details of the direction,

(b) state the regulator’s reasons for the direction and for its
determination as to when the direction takes effect,

(c) inform the notified person that the person may make
25representations to the regulator within such period as may be
specified in the notice (whether or not the notified person has
referred the matter to the Tribunal), and

(d) inform the notified person of the person’s right to refer the
matter to the Tribunal.

(6) 30The regulator may extend the period allowed under the notice for
making representations.

(7) If, having considered any representations made by any notified person,
the regulator decides—

(a) to give the direction proposed, or

(b) 35if the direction has been given, not to revoke the direction,

it must give each of the notified persons written notice.

(8) If, having considered any representations made by any notified person,
the regulator decides—

(a) not to give the direction proposed,

(b) 40to give a different direction, or

(c) to revoke a direction which has effect,

it must give each of the notified persons written notice.

(9) A notice given under subsection (7) must inform the notified person of
the person’s right to refer the matter to the Tribunal.

(10) 45A notice under subsection (8)(b) must comply with subsection (5).

(11) If a notice informs the notified person of the person’s right to refer a
matter to the Tribunal, it must give an indication of the procedure on
such a reference.

(12) For the purposes of subsection (3)(c), whether a matter is open to
5review is to be determined in accordance with section 391(8).

192F Consultation between regulators

(1) Before the PRA gives a notice under section 192E(1) or (8)(b), it must
consult the FCA.

(2) Before the FCA gives a notice under section 192E(1) or (8)(b) in relation
10to the parent undertaking of a PRA-authorised person, the FCA must
consult the PRA.

(3) Before either regulator gives a notice under section 192E(1) or (8)(b) in
relation to the parent undertaking of a recognised clearing house, the
regulator must consult the Bank of England.

192G 15References to Tribunal

(1) A notified person who is aggrieved by the exercise by either regulator
of its powers in relation to directions under section 192C may refer the
matter to the Tribunal.

(2) “Notified person” is to be read in accordance with subsection (2) of
20section 192E, except that it includes a person to whom a notice under
subsection (1) of that section ought to have been given.

192H Statement of policy: directions under section 192C

(1) Each regulator must prepare and issue a statement of policy with
respect to the giving of directions under section 192C.

(2) 25A regulator 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
regulator must issue the altered or replacement statement.

(4) In exercising or deciding whether to exercise its power under section
30192C in any particular case, a regulator must have regard to any
statement published under this section and for the time being in force.

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

(6) 35A regulator may charge a reasonable fee for providing a person with a
copy of a statement published under this section.

(7) A regulator must, without delay, give the Treasury a copy of any
statement which the regulator publishes under this section.

192I Statement of policy relating to directions: procedure

(1) 40Before issuing a statement of policy under section 192H, a regulator
(“the issuing regulator”) must—

(a) consult the other regulator and the Bank of England, and

(b) publish a draft of the proposed statement in the way appearing
to the issuing regulator 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
5proposal may be made to the issuing regulator within a specified time.

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

(4) If the issuing regulator issues the proposed statement it must publish
10an account, in general terms, of—

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

(b) its response to them.

(5) If the statement differs from the draft published under subsection (2) in
15a way which is, in the opinion of the issuing regulator, significant, the
issuing regulator—

(a) must before issuing it consult the other regulator again, and

(b) must (in addition to complying with subsection (4)), publish
details of the difference.

(6) 20The issuing regulator may charge a reasonable fee for providing a
person with a draft published under subsection (1)(b).

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

Rules requiring provision of information by parent undertakings

192J Rules requiring provision of information by parent undertakings

(1) 25The appropriate regulator may make rules requiring qualifying parent
undertakings—

(a) to provide to the regulator information of a specified
description;

(b) to produce to the regulator documents of a specified
30description.

(2) The rules may only specify a description of information or documents
that is relevant to the exercise by the regulator of its functions.

(3) The rules may make provision—

(a) as to the time within which information must be provided or
35documents produced;

(b) about the form in which any information is to provided;

(c) about the place where any documents are to be produced;

(d) requiring information provided to be verified in a specified
manner;

(e) 40requiring documents produced to be authenticated in a
specified manner.

(4) “The appropriate regulator” means—

(a) in relation to the parent undertaking of a qualifying authorised
person who is a PRA-authorised person, the FCA or the PRA;

(b) in any other case, the FCA.

Failure to comply with direction or breach of rules

192K Power to impose penalty or issue censure

(1) This section applies if a regulator is satisfied that a person who is or has
5been a qualifying parent undertaking (“P”) has contravened—

(a) a requirement of a direction given to P by that regulator under
section 192C, or

(b) a provision of rules made by that regulator under section 192J.

(2) The regulator may impose a penalty of such amount as it considers
10appropriate on—

(a) P, or

(b) any person who was knowingly concerned in the
contravention.

(3) The regulator may, instead of imposing a penalty on a person, publish
15a statement censuring the person.

(4) The regulator may not take action against a person under this section
after the end of the limitation period unless, before the end of that
period, it has given a warning notice to the person under section 192L.

(5) “The limitation period” means the period of 3 years beginning with the
20first day on which the regulator knew of the contravention.

(6) For this purpose a regulator is to be treated as knowing of a
contravention if it has information from which the contravention can
reasonably be inferred.

192L Procedure and right to refer to Tribunal

(1) 25If a regulator proposes to take action against a person under section
192K, it must give the person a warning notice.

(2) A warning notice about a proposal to impose a penalty must state the
amount of the penalty.

(3) A warning notice about a proposal to publish a statement must set out
30the terms of the statement.

(4) If the regulator decides to take action against a person under section
192K, it must give the person a decision notice.

(5) A decision notice about the imposition of a penalty must state the
amount of the penalty.

(6) 35A decision notice about the publication of a statement must set out the
terms of the statement.

(7) If the regulator decides to take action against a person under section
192K, the person may refer the matter to the Tribunal.

192M Duty on publication of statement

40After a statement under section 192K(3) is published, the regulator
must send a copy of the statement to—