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Financial Services Bill (HL Bill 48)

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(4) The FCA must comply with the requirements as to its constitution set
out in Schedule 1ZA.

(5) Schedule 1ZA also makes provision about the status of the FCA and the
exercise of certain of its functions.

(6) 5References in this Act or any other enactment to functions conferred on
the FCA by or under this Act include references to functions conferred
on the FCA by or under—

(a) the Insolvency Act 1986,

(b) the Banking Act 2009,

(c) 10the Financial Services Act 2012, or

(d) a qualifying EU provision that is specified, or of a description
specified, for the purposes of this subsection by the Treasury by
order.

The FCA’s general duties
1B 15The FCA’s general duties

(1) In discharging its general functions the FCA must, so far as is
reasonably possible, act in a way which—

(a) is compatible with its strategic objective, and

(b) advances one or more of its operational objectives.

(2) 20The FCA’s strategic objective is: ensuring that the relevant markets (see
section 1F) function well.

(3) The FCA’s operational objectives are—

(a) the consumer protection objective (see section 1C);

(b) the integrity objective (see section 1D);

(c) 25the competition objective (see section 1E).

(4) The FCA must, so far as is compatible with acting in a way which
advances the consumer protection objective or the integrity objective,
discharge its general functions in a way which promotes effective
competition in the interests of consumers.

(5) 30In discharging its general functions the FCA must have regard to—

(a) the regulatory principles in section 3B, and

(b) the importance of taking action intended to minimise the extent
to which it is possible for a business carried on—

(i) by an authorised person or a recognised investment
35exchange, or

(ii) in contravention of the general prohibition,

to be used for a purpose connected with financial crime.

(6) For the purposes of this Chapter, the FCA’s general functions are—

(a) its function of making rules under this Act (considered as a
40whole),

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

(c) its functions in relation to the giving of general guidance under
this Act (considered as a whole), and

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

(7) Except to the extent that an order under section 49 of the Financial
5Services Act 2012 (orders relating to mutual societies functions) so
provides, the FCA’s general functions do not include functions that are
transferred functions within the meaning of section 51 of that Act.

(8) “General guidance” has the meaning given in section 139B(5).

1C The consumer protection objective

(1) 10The consumer protection objective is: securing an appropriate degree of
protection for consumers.

(2) In considering what degree of protection for consumers may be
appropriate, the FCA must have regard to—

(a) the differing degrees of risk involved in different kinds of
15investment or other transaction;

(b) the differing degrees of experience and expertise that different
consumers may have;

(c) the needs that consumers may have for the timely provision of
information and advice that is accurate and fit for purpose;

(d) 20the general principle that consumers should take responsibility
for their decisions;

(e) the general principle that those providing regulated financial
services should be expected to provide consumers with a level
of care that is appropriate having regard to the degree of risk
25involved in relation to the investment or other transaction and
the capabilities of the consumers in question;

(f) any information which the consumer financial education body
has provided to the FCA in the exercise of the consumer
financial education function;

(g) 30any information which the scheme operator of the ombudsman
scheme has provided to the FCA pursuant to section 232A.

1D The integrity objective

(1) The integrity objective is: protecting and enhancing the integrity of the
UK financial system.

(2) 35The “integrity” of the UK financial system includes—

(a) its soundness, stability and resilience,

(b) its not being used for a purpose connected with financial crime,

(c) its not being affected by behaviour that amounts to market
abuse,

(d) 40the orderly operation of the financial markets, and

(e) the transparency of the price formation process in those
markets.

1E The competition objective

(1) The competition objective is: promoting effective competition in the
45interests of consumers in the markets for—

(a) regulated financial services, or

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(b) services provided by a recognised investment exchange in
carrying on regulated activities in respect of which it is by virtue
of section 285(2) exempt from the general prohibition.

(2) The matters to which the FCA may have regard in considering the
5effectiveness of competition in the market for any services mentioned
in subsection (1) include—

(a) the needs of different consumers who use or may use those
services, including their need for information that enables them
to make informed choices,

(b) 10the ease with which consumers who obtain those services can
change the person from whom they obtain them,

(c) the ease with which new entrants can enter the market, and

(d) how far competition is encouraging innovation.

Interpretation of terms used in relation to FCA’s general duties
1F 15Meaning of “relevant markets” in strategic objective

In section 1B(2) “the relevant markets” means—

(a) the financial markets,

(b) the markets for regulated financial services (see section 1H(2)),
and

(c) 20the markets for services that are provided by persons other than
authorised persons in carrying on regulated activities but are
provided without contravening the general prohibition.

1G Meaning of “consumer”

(1) In sections 1B to 1E “consumers” means persons who—

(a) 25use, have used or may use—

(i) regulated financial services, or

(ii) services that are provided by persons other than
authorised persons but are provided in carrying on
regulated activities,

(b) 30have relevant rights or interests in relation to any of those
services,

(c) have invested, or may invest, in financial instruments, or

(d) have relevant rights or interests in relation to financial
instruments.

(2) 35A person (“P”) has a “relevant right or interest” in relation to any
services within subsection (1)(a) if P has a right or interest—

(a) which is derived from, or is otherwise attributable to, the use of
the services by others, or

(b) which may be adversely affected by the use of the services by
40persons acting on P’s behalf or in a fiduciary capacity in relation
to P.

(3) If a person is providing a service within subsection (1)(a) as trustee, the
persons who are, have been or may be beneficiaries of the trust are to
be treated as persons who use, have used or may use the service.

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(4) A person who deals with another person (“B”) in the course of B
providing a service within subsection (1)(a) is to be treated as using the
service.

(5) A person (“P”) has a “relevant right or interest” in relation to any
5financial instrument if P has—

(a) a right or interest which is derived from, or is otherwise
attributable to, investment in the instrument by others, or

(b) a right or interest which may be adversely affected by the
investment in the instrument by persons acting on P’s behalf or
10in a fiduciary capacity in relation to P.

1H Further interpretative provisions for sections 1B to 1G

(1) The following provisions have effect for the interpretation of sections
1B to 1G.

(2) “Regulated financial services” means services provided—

(a) 15by authorised persons in carrying on regulated activities;

(b) by authorised persons in carrying on a consumer credit
business in connection with the accepting of deposits;

(c) by authorised persons in communicating, or approving the
communication by others of, invitations to engage in
20investment activity;

(d) by authorised persons who are investment firms, or credit
institutions, in providing relevant ancillary services;

(e) by persons acting as appointed representatives;

(f) by payment service providers in providing payment services;

(g) 25by electronic money issuers in issuing electronic money;

(h) by sponsors to issuers of securities;

(i) by primary information providers to persons who issue
financial instruments.

(3) “Financial crime” includes any offence involving—

(a) 30fraud or dishonesty,

(b) misconduct in, or misuse of information relating to, a financial
market, or

(c) handling the proceeds of crime.

(4) “Offence” includes an act or omission which would be an offence if it
35had taken place in the United Kingdom.

(5) “Issuer”, except in the expression “electronic money issuer”, has the
meaning given in section 102A(6).

(6) “Financial instrument” has the meaning given in section 102A(4).

(7) “Securities” has the meaning given in section 102A(2).

(8) 40In this section—

  • “accepting”, in relation to deposits, includes agreeing to accept;

  • “consumer credit business” has the same meaning as in the
    Consumer Credit Act 1974;

  • “credit institution” means—

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    (a)

    a credit institution authorised under the banking
    consolidation directive, or

    (b)

    an institution which would satisfy the requirements for
    authorisation as a credit institution under that directive
    5if it had its registered office (or if it does not have a
    registered office, its head office) in an EEA State;

  • “electronic money” has the same meaning as in the Electronic
    Money Regulations 2011;

  • “electronic money issuer” means a person who is an electronic
    10money issuer as defined in regulation 2(1) of the Electronic
    Money Regulations 2011 other than a person falling within
    paragraph (f), (g) or (j) of the definition;

  • “engage in investment activity” has the meaning given in section
    21;

  • 15“financial instrument” has the meaning given in section 102A(4);

  • “payment services” has the same meaning as in the Payment
    Services Regulations 2009;

  • “payment service provider” means a person who is a payment
    service provider as defined in regulation 2(1) of the Payment
    20Services Regulations 2009 other than a person falling within
    paragraph (g) or (h) of the definition;

  • “primary information provider” has the meaning given in section
    89P(2);

  • “relevant ancillary service” means any service of a kind mentioned
    25in Section B of Annex I to the markets in financial instruments
    directive the provision of which does not involve the carrying
    on of a regulated activity;

  • “sponsor” has the meaning given in section 88(2).

1I Meaning of “the UK financial system”

30In this Act “the UK financial system” means the financial system
operating in the United Kingdom and includes—

(a) financial markets and exchanges,

(b) regulated activities, and

(c) other activities connected with financial markets and
35exchanges.

Power to amend objectives
1J Power to amend objectives

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

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

(b) 40section 1G, and

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

Guidance about objectives
1K Guidance about objectives

(1) The general guidance given by the FCA under section 139A must
45include guidance about how it intends to advance its operational

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objectives in discharging its general functions in relation to different
categories of authorised person or regulated activity.

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

5Supervision, monitoring and enforcement
1L Supervision, monitoring and enforcement

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

(2) The FCA must maintain arrangements designed to enable it to
10determine whether persons other than authorised persons are
complying—

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

(b) 15with 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) The FCA must also maintain arrangements for enforcing compliance by
persons other than authorised persons with relevant requirements,
20within the meaning of Part 14, in cases where the FCA is the
appropriate regulator for the purposes of any provision of that Part.

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

The FCA must make and maintain effective arrangements for
25consulting practitioners and consumers on the extent to which its
general 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
30maintenance of a panel of persons (to be known as “the Practitioner
Panel”) 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
35of the chair.

(4) The 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) 40The FCA may appoint to the Practitioner Panel such other persons as it
considers appropriate.

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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
5practitioners.

(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) 10The 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)15persons 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
20desirability 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).

(9) The FCA must—

(a) give the Treasury a copy of the statement or revised statement
25without delay, and

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

1P The Markets Practitioner Panel

(1) Arrangements under section 1M must include the establishment and
30maintenance of a panel of persons (to be known as “the Markets
Practitioner Panel”) to represent the interests of practitioners who are
likely 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
35Panel to be its chair.

(3) The Treasury’s approval is required for the appointment or dismissal
of 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
40appropriate.

(5) The persons within this subsection are—

(a) authorised persons,

(b) persons who issue financial instruments,

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

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(d) recognised investment exchanges, and

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

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

1Q 5The Consumer Panel

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

(2) The FCA must appoint one of the members of the Consumer Panel to
10be its chair.

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

(4) The FCA may appoint to the Consumer Panel such consumers, or
persons representing the interests of consumers, as it considers
15appropriate.

(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
or may be contemplating using, services otherwise than in connection
with businesses carried on by them.

(6) 20Sections 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.

1R Duty to consider representations made by the Panels

(1) The FCA must consider representations that are made to it in
25accordance with arrangements made under section 1M.

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

Reviews
1S Reviews

(1) 30The Treasury may appoint an independent person to conduct a review
of the economy, efficiency and effectiveness with which the FCA has
used 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
35person to conduct it.

(3) A review is not to be concerned with the merits of the FCA’s general
policy 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
40written report to the Treasury—

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

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

(5) A copy of the report must be—

(a) laid before Parliament, and

(b) 5published in such manner as the Treasury consider appropriate.

(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 FCA.

1T 10Right to obtain documents and information

(1) A 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) 15may 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 FCA.

(3) 20An 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 2 The Prudential Regulation Authority
25The Prudential Regulation Authority
2A The Prudential Regulation Authority

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

(2) 30The 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) The PRA must comply with the requirements as to its constitution set
out in Schedule 1ZB.

(5) 35Schedule 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) References in this Act or any other enactment to functions conferred on
the PRA by or under this Act include references to functions conferred
40on the PRA by or under—

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(a) the Insolvency Act 1986,

(b) the Banking Act 2009,

(c) the Financial Services Act 2012, or

(d) a qualifying EU provision that is specified, or of a description
5specified, for the purposes of this subsection by the Treasury by
order.

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

(1) In discharging its general functions the PRA must, so far as is
10reasonably possible, act in a way which advances its general objective.

(2) The 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
15is carried on in a way which avoids any adverse effect on the
stability 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) 20The adverse effects mentioned in subsection (3) may, in particular,
result 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) 25resulting from any other provision of this Act,

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) 30In 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
35objective, 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
40policyholders.

(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.