(a) is created in favour of a participant in a system, and

(b) is created for the purpose of securing any rights and obligations
that may arise in connection with participation in that system.”

(4) After subsection (2) insert—

“(3) 5In this section “participant” and “system” have the meaning given by
Article 2 of Directive 98/26/EC of the European Parliament and of the
Council of 19th May 1998 on settlement finality in payment and
securities settlement systems (as amended by Directives 2009/44/EC
and 2010/78/EU).”

55 10Power to direct transfer of building society’s business

(1) Section 42B of the Building Societies Act 1986 (power to direct transfers of
engagements or business) is amended as follows.

(2) In subsection (1)—

(a) before the “or” at the end of paragraph (a) insert—

“(aa) 15direct the society, within a specified period, to transfer
its business under section 97  to an existing or specially
formed company that is a subsidiary of another mutual
society by a transfer to which provision made by order
under section 3 of the 2007 Act (transfers to subsidiaries
20of other mutuals) applies;”, and

(b) in paragraph (b), for “to an existing company under section 97”
substitute “under section 97 to an existing company that is not a
subsidiary of another mutual society”.

(3) After subsection (1) insert—

“(1A) 25In this section—

(a) “the 2007 Act” means the Building Societies (Funding) and
Mutual Societies (Transfers) Act 2007;

(b) “mutual society” has the same meaning as in section 3 of that
Act.”

(4) 30In subsection (4)—

(a) in paragraph (a), for “(1)(b)” substitute “(1)(aa) or (b)”, and

(b) in paragraph (b), after “existing company” insert “, or to a specially
formed company that is a subsidiary of another mutual society,”.

(5) In Schedule 8A to that Act (directions under section 42B(4)), in paragraph 9(3),
35for “section 42B(1)(b)” substitute “section 42B(1)(aa) or (b)”.

Interpretation

56 Interpretation of Part 3

(1) In this Part “regulator” means the FCA or the PRA.

(2) In this Part a reference to a person’s functions under an enactment includes a
40reference to the person’s functions under any other enactment as applied by
that enactment.

Part 4 Collaboration between Treasury and Bank of England, FCA or PRA

57 Duty of Bank to notify Treasury of possible need for public funds

(1) Where it appears to the Bank of England that there is a material risk of
5circumstances within any of the following cases arising, the Bank must
immediately notify the Treasury.

(2) A notification under subsection (1) or section 58(2) is referred to in this Part as
a “public funds notification”.

(3) The first case is where the Treasury or the Secretary of State might reasonably
10be expected to regard it as appropriate to provide financial assistance to or in
respect of a financial institution.

(4) The second case is where—

(a) the Treasury, the Bank of England, the PRA, the FCA or the Secretary
of State might reasonably be expected to regard it as appropriate to
15exercise any of their respective powers under Parts 1 to 3 of the Banking
Act 2009, and

(b) the Treasury might reasonably be expected to regard it as appropriate
to incur expenditure in connection with the exercise of any of those
powers (whether by the Treasury, the Bank, the PRA, the FCA or the
20Secretary of State).

(5) The third case is where the scheme manager of the Financial Services
Compensation Scheme might reasonably be expected to request—

(a) a loan from the National Loans Fund under section 223B of FSMA 2000,
or

(b) 25financial assistance from the Treasury,

for the purpose of funding expenses incurred or expected to be incurred under
the Financial Services Compensation Scheme.

(6) A public funds notification must give a general indication of the matters giving
rise to the notification.

(7) 30A public funds notification must be given or confirmed in writing.

58 Duty of Bank to notify Treasury of changes

(1) This section applies where a public funds notification has been given.

(2) If the Bank of England is of the opinion that the risk to which the notification
relates continues but that there is a substantial change in the matters which
35gave rise to the notification, the Bank must notify the Treasury.

(3) If the Bank of England is of the opinion that the risk to which the notification
relates has ceased, it must notify the Treasury.

(4) Before giving a notification under subsection (3), the Bank must consult the
Treasury.

(5) 40A notification under subsection (3) must be given or confirmed in writing.

59 Circumstances in which Treasury power of direction exercisable

(1) This section makes provision about the circumstances in which the Treasury’s
power of direction under section 60 is exercisable, subject to the provisions of
that section.

(2) 5Where a public funds notification has been given, the power of direction is
exercisable by reference to the notification unless the notification has been
superseded by a notification under section 58(3).

(3) Where qualifying financial assistance has been provided, the power of
direction is exercisable by reference to the provision of the assistance unless it
10appears to the Treasury that the assistance has been recovered.

(4) It is immaterial for the purposes of subsection (3)—

(a) whether the qualifying financial assistance was provided before or
after the commencement of this section, and

(b) whether or not a public funds notification had been given in connection
15with it.

(5) For the purposes of this Part qualifying financial assistance is provided if, and
only if—

(a) the Treasury or the Secretary of State provide financial assistance to or
in respect of a financial institution,

(b) 20the Treasury incur expenditure in connection with the exercise by the
Treasury, the Bank, the PRA, the FCA or the Secretary of State of any of
their powers under Parts 1 to 3 of the Banking Act 2009,

(c) the Treasury arrange a loan from the National Loans Fund in
pursuance of a request by the scheme manager of the Financial Services
25Compensation Scheme under section 223B of FSMA 2000, or

(d) the Treasury provide financial assistance to the scheme manager of that
scheme for the purpose of funding expenses incurred or expected to be
incurred under it.

(6) For the purposes of this section the circumstances in which qualifying financial
30assistance is to be taken to have been recovered include the following—

(a) where, in the case of a loan, the principal of the loan has been repaid
and all interest due under the terms of the loan has been paid,

(b) where, in the case of a guarantee or indemnity, the Treasury or the
Secretary of State will not become liable under the guarantee or
35indemnity,

(c) where, in a case involving the issue or transfer of shares to the Treasury
in connection with the provision of qualifying financial assistance, the
shares are no longer held by the Treasury.

60 Treasury power of direction

(1) 40Subsection (2) applies where—

(a) the power of direction is exercisable by virtue of section 59(2) by
reference to a public funds notification and the Treasury are satisfied
that Condition A is met, or

(b) the power of direction is exercisable by virtue of section 59(3) by
45reference to the provision of qualifying financial assistance and the
Treasury are satisfied that Condition A or Condition B is met.

(2) The Treasury may give a direction to the Bank of England relating to one or
more of the following—

(a) the provision by the Bank to one or more financial institutions of
financial assistance other than ordinary market assistance offered by
5the Bank on its usual terms,

(b) the exercise by the Bank of any of the stabilisation powers, as defined
by section 1(4) of the Banking Act 2009, or

(c) the exercise by the Bank of its powers under Part 3 of that Act (bank
administration).

(3) 10Condition A is that the giving of the direction is necessary to resolve or reduce
a serious threat to the stability of the financial system of the United Kingdom
which is connected—

(a) in case within subsection (1)(a), with the matters to which the public
funds notification relates;

(b) 15in a case within subsection (1)(b), with the matters that gave rise to the
provision of the qualifying financial assistance.

(4) Condition B is that—

(a) the qualifying financial assistance was provided for the purpose of
resolving or reducing a serious threat to the stability of the financial
20system of the United Kingdom, and

(b) the giving of the direction is necessary to protect the public interest in
connection with the provision of that assistance.

(5) References to the provision of qualifying financial assistance are to be read in
accordance with section 59(5).

(6) 25This section is subject to section 61.

(7) Nothing in this section limits the powers conferred by section 4(1) of the Bank
of England Act 1946 (Treasury directions to the Bank).

61 Directions under section 60: supplementary provisions

(1) References in this section to a direction are to a direction under section 60.

(2) 30Before giving a direction, the Treasury must consult the Bank of England.

(3) On being given a direction, the Bank must give the Treasury one or more
reports on how it is complying or intends to comply with the direction, and on
such other matters relating to the direction as it considers appropriate.

(4) The Treasury may at any time by notice to the Bank revoke a direction.

(5) 35The revocation of a direction does not affect the validity of anything previously
done in accordance with it.

(6) Where Treasury’s power of direction is exercised by virtue of section 59(2) by
reference to a public funds notification, the direction remains in force (unless
revoked under subsection (4)) even if the public funds notification is
40subsequently superseded by a notification under section 58(3).

(7) Where Treasury’s power of direction is exercised by virtue of section 59(3) by
reference to the provision of qualifying financial assistance, the direction
remains in force (unless revoked under subsection (4)) even if it appears to the

Treasury that the qualifying financial assistance has subsequently been
recovered.

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

(a) a direction,

(b) 5a report under subsection (3), and

(c) a notice revoking a direction.

62 Duty to lay direction etc before Parliament

(1) As soon as practicable after giving or revoking a direction under section 60 or
receiving a report under section 61(3), the Treasury must lay before Parliament
10a copy of the direction, notice of revocation or report.

(2) But subsection (1) does not apply in a case where the Treasury consider that the
publication of the direction, notice of revocation or report would be against the
public interest.

(3) Where the Treasury decide that publication of a direction, notice of revocation
15or report would be against the public interest, they must from time to time
review that decision and if they subsequently decide that publication is no
longer against the public interest they must comply with subsection (1).

63 Duty of Treasury, Bank and PRA to co-ordinate discharge of functions

(1) The Treasury (on the one hand) and the Bank of England and the PRA (on the
20other) must arrange to co-ordinate the discharge of their respective functions
so far as they—

(a) relate to the stability of the UK financial system, and

(b) affect the public interest.

(2) In complying with subsection (1), the Treasury, the Bank and the PRA must
25have regard in particular to the importance of co-ordination in circumstances
where the Bank has given, or is considering the giving of, a public funds
notification.

64 Memorandum of understanding: crisis management

(1) The Treasury (on the one hand) and the Bank of England and the PRA (on the
30other) must prepare and maintain a memorandum describing in general terms
how they intend to comply with section 63 in relation to the circumstances
mentioned in subsection (2) of that section.

(2) The memorandum must, in particular, make provision about—

(a) what the Treasury and the Bank regard as a material risk for the
35purposes of section 57(1);

(b) steps to be taken when the Bank has given a public funds notification;

(c) the respective roles of the Treasury, the Bank and the PRA, in cases
where the Bank has given a public funds notification, in relation to the
consideration and assessment of, and taking of, steps to resolve or
40reduce, threats to the stability of the UK financial system;

(d) how the Treasury, the Bank and the PRA will co-operate in fulfilling
those roles;

(e) the use by the Treasury of their power under section 60;

(f) matters connected with the Bank’s compliance with a direction under
that section;

(g) the obtaining and sharing of information.

(3) The memorandum may make provision about such other matters as may be
5agreed between the Treasury, the Bank and the PRA, which must be matters
that—

(a) relate to the stability of the UK financial system or the regulation of
financial services, and

(b) affect the public interest.

(4) 10The memorandum need not make provision about the relationship between
the Bank and the PRA.

(5) The Treasury, the Bank of England and the PRA may, with the agreement of a
body falling within subsection (6), include in the memorandum provisions
relating to co-operation between any of them and that body in relation to
15matters falling within subsection (3)(a) and (b).

(6) The bodies falling within this subsection are—

(a) the FCA;

(b) the scheme manager of the Financial Services Compensation Scheme;

(c) any other body exercising functions that relate to the stability of the UK
20financial system or the regulation of financial services.

(7) The Treasury must—

(a) lay before Parliament a copy of the memorandum and any revised
memorandum, and

(b) publish the memorandum as currently in force in such manner as they
25think fit.

65 Memorandum of understanding: international organisations

(1) The Treasury, the Bank of England, the FCA and the PRA (“the UK
authorities”) must prepare and maintain a memorandum describing how they
intend to co-ordinate the exercise of their relevant functions so far as they relate
30to membership of, or relations with, the European Supervisory Authorities, EU
institutions and other international organisations.

(2) The “European Supervisory Authorities” are the European Banking Authority,
the European Insurance and Occupational Pensions Authority and the
European Securities and Markets Authority.

(3) 35“Relevant function”—

(a) in relation to the FCA or the PRA, means any of its functions;

(b) in relation to the Bank of England, means any of its functions relating
to the stability of the UK financial system or the regulation of financial
services;

(c) 40in relation to the Treasury, means any of their functions relating to the
matters mentioned in paragraph (b).

(4) The memorandum is to be made with a view to ensuring—

(a) that, to the extent that it is appropriate to do so, the UK authorities
agree consistent objectives in relation to matters of common interest;

(b) that, to the extent that it is appropriate to do so, they exercise their
relevant functions in a way that is likely to advance those objectives;

(c) that they exercise their relevant functions in a way that is consistent and
effective.

(5) 5The memorandum must, in particular, make provision—

(a) stating, in relation to each of the UK authorities, those international
organisations of which it is a member or with which it has relations and
which are concerned with matters that are related to its relevant
functions;

(b) 10for there to be a committee for the purposes of the co-ordination
mentioned in subsection (1);

(c) for that committee to include representatives of the UK authorities and
to be chaired by a representative of the Treasury;

(d) about the procedures to be followed by the UK authorities in agreeing
15consistent objectives in relation to matters that materially affect 2 or
more of them;

(e) about how the UK authorities will consult each other about the
discharge of their relevant functions relating to international
organisations.

(6) 20The memorandum need not make provision about co-ordination between the
FCA and the PRA in relation to membership of, or relations with, the European
Supervisory Authorities (as to which, see section 3E of FSMA 2000).

(7) The UK authorities may, with the agreement of a body exercising functions
relating to the stability of the UK financial system or the regulation of financial
25services, include in the memorandum provisions relating to co-operation
between any of them and that body in relation to membership of, or relations
with, the European Supervisory Authorities, EU institutions and other
international organisations.

(8) The Treasury must—

(a) 30lay before Parliament a copy of the memorandum and any revised
memorandum, and

(b) publish the memorandum as currently in force in such manner as they
think fit.

66 Interpretation of Part 4

(1) 35This section has effect for the interpretation of this Part.

(2) “Public funds notification” is to be read in accordance with section 57(2).

(3) “Financial assistance” includes giving guarantees or indemnities and any other
kind of financial assistance (actual or contingent).

(4) The Treasury may by order provide that a specified activity or transaction, or
40class of activity or transaction, is to be or not to be treated as financial assistance
for the purposes of this Part; and subsection (3) is subject to this subsection.

(5) “Qualifying financial assistance” is to be read in accordance with section 59(5).

Part 5 Inquiries and investigations

Inquiries

67 Cases in which Treasury may arrange independent inquiries

(1) 5This section applies in two cases.

(2) The first case is where it appears to the Treasury that—

(a) events have occurred in relation to—

(i) a collective investment scheme,

(ii) a person who is, or was at the time of the events, carrying on a
10regulated activity (whether or not as an authorised person), or

(iii) listed securities or an issuer of listed securities,

which posed or could have posed a serious threat to the stability of the
UK financial system or caused or risked causing significant damage to
the interests of consumers, and

(b) 15those events might not have occurred, or the threat or damage might
have been reduced, but for a serious failure in—

(i) the system established by FSMA 2000, or by any previous
statutory provision, for the regulation of such schemes, or of
such persons and their activities, or the listing of securities, or

(ii) 20the operation of that system.

(3) The second case is where it appears to the Treasury that—

(a) events have occurred in relation to a recognised clearing house or a
recognised inter-bank payment system which—

(i) posed or could have posed a serious threat to the stability of or
25confidence in the UK financial system, or

(ii) caused or risked causing significant damage to business or
other interests throughout the United Kingdom, and

(b) those events might not have occurred, or the threat or damage might
have been reduced, but for a serious failure in—

(i) 30the system established by Part 18 of FSMA 2000, or by any
previous statutory provision, for the regulation of clearing
houses,

(ii) the system established by Part 5 of the Banking Act 2009 for the
regulation of inter-bank payment systems, or

(iii) 35the operation of either of those systems.

(4) If the Treasury consider that it is in the public interest that there should be an
independent inquiry into the events and the circumstances surrounding them,
they may arrange for an inquiry to be held under section 68.

(5) In this section—

• 40“event” does not include any event occurring before 1 December 2001 (but
  no such limitation applies to the reference in subsection (4) to
  surrounding circumstances);

• “recognised inter-bank payment system” means an inter-bank payment
  system, as defined by section 182 of the Banking Act 2009, that is a
  45recognised system for the purposes of Part 5 of that Act.

Financial Services BillPage 148

68 Power to appoint person to hold an inquiry

(1) If the Treasury decide to arrange for an inquiry to be held under this section,
they may appoint such person as they consider appropriate to hold the inquiry.

(2) The Treasury may, by a direction to the appointed person, control—

(a) 5the scope of the inquiry;

(b) the period during which the inquiry is to be held;

(c) the conduct of the inquiry;

(d) the making of reports.

(3) A direction may, in particular—

(a) 10confine the inquiry to particular matters;

(b) extend the inquiry to additional matters;

(c) require the appointed person to postpone the start of, or suspend, an
inquiry until a specified time or until a further direction;

(d) require the appointed person to discontinue the inquiry or to take only
15such steps as are specified in the direction;

(e) require the appointed person to make such interim reports as are so
specified.

69 Powers of appointed person and procedure

(1) The person appointed to hold an inquiry under section 68 (“A”) may—

(a) 20obtain such information from such persons and in such manner as A
thinks fit,

(b) make such inquiries as A thinks fit, and

(c) determine the procedure to be followed in connection with the inquiry.

(2) A may require any person who, in A’s opinion, is able to provide any
25information, or produce any document, which is relevant to the inquiry to
provide any such information or produce any such document.

(3) For the purposes of an inquiry, A has the same powers as the court in respect
of the attendance and examination of witnesses (including the examination of
witnesses abroad) and in respect of the production of documents.

(4) 30“The court” means—

(a) the High Court, or

(b) in Scotland, the Court of Session.

70 Conclusion of inquiry

(1) On completion of an inquiry under section 68, the person holding the inquiry
35must make a written report to the Treasury—

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

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

(2) Any expenses reasonably incurred in holding an inquiry under section 68 are
40to be met by the Treasury out of money provided by Parliament.

71 Obstruction and contempt

(1) If a person (“P”)—

(a) fails to comply with a requirement imposed on P by a person holding
an inquiry under section 68, or

(b) 5otherwise obstructs such an inquiry,

the person holding the inquiry may certify the matter to the High Court (or, in
Scotland, the Court of Session).

(2) The court may enquire into the matter.

(3) If, after hearing—

(a) 10any witnesses who may be produced against or on behalf of P, and

(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.

15Investigations

72 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) 20indicated a significant failure to secure an appropriate degree of
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) 25had or could have had a significant adverse effect on effective
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
30might have been reduced, but for a serious failure in—

(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) 35the operation of that system, so far as it relates to those
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) 40The FCA must carry out an investigation into the events and the circumstances
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) 45“Regulated person” means—