Financial Services Bill (HL Bill 48)

2D Power to provide for additional objectives

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

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

(b) 5contains 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) An order to which this subsection applies may specify an additional
objective (“the specified objective”) in relation to specified activities
10that become PRA-regulated activities by virtue of the order (“the
additional activities”).

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

(a) 15which is compatible with its general objective and the specified
objective, and

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

2E Strategy

(1) 20The PRA must—

(a) determine its strategy in relation to its objectives, and

(b) from time to time review, and if necessary revise, the strategy.

(2) Before determining or revising its strategy, the PRA must consult the
Bank of England about a draft of the strategy or of the revisions.

(3) 25The PRA must determine its strategy within 12 months of the coming
into force of this section.

(4) The PRA must carry out and complete a review of its strategy before the
end of each relevant period.

(5) The relevant period is 12 months beginning with the date on which the
30previous review was completed, except that in the case of the first
review the relevant period is the period of 12 months beginning with
the date on which the strategy was determined under subsection (3).

(6) The PRA must publish its strategy.

(7) If the strategy is revised the PRA must publish the revised strategy.

(8) 35Publication under subsection (6) or (7) is to be in such manner as the
PRA thinks fit.

2F 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) 40so far as the function is exercisable in relation to the activity of
effecting 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)
relates, or PRA-authorised persons carrying on that activity, is
a reference to its general objective and the objective specified by
5the order.

2G Limit on effect of sections 2B to 2D

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

2H Duty to have regard to regulatory principles

10In discharging its general functions, the PRA must also have regard to
the regulatory principles in section 3B.

2I Guidance about objectives

(1) The PRA must give, and from time to time review, guidance about how
it intends to advance its objectives in discharging its general functions
15in relation to different categories of PRA-authorised person or PRA-
regulated activity.

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

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

2J 20Interpretation 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
whole),

(b) its function of preparing and issuing codes under this Act
25(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
Act.

(2) Except to the extent that an order under section 49 of the Financial
30Services 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 51 of that Act.

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

(a) 35P enters insolvency,

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

(c) P 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) 40In subsection (3)(a) “insolvency” includes—

(a) bankruptcy,

(b) liquidation,

(c) bank insolvency,

(d) administration,

(e) 45bank administration,

(f) receivership,

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

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

Supervision

2K 5Arrangements for supervision of PRA-authorised persons

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

Arrangements for consulting practitioners

2L The PRA’s general duty to consult

(1) 10The PRA must make and maintain effective arrangements for
consulting PRA-authorised persons or, where appropriate, persons
appearing 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 2H.

(2) 15Those arrangements may include the establishment of such panels as
the PRA thinks fit.

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

2M Duty to consider representations

(1) 20The PRA must consider representations that are made to it in
accordance with arrangements made under section 2L.

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

Reviews

2N 25Reviews

(1) The Treasury may appoint an independent person to conduct a review
of 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
30(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 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
35written report to the Treasury—

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

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

(5) A copy of the report must be—

(a) 40laid before Parliament, and

(b) published 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
5the PRA.

2O Right to obtain documents and information

(1) A person conducting a review under section 2N—

(a) has a right of access at any reasonable time to all such
documents as the person may reasonably require for the
10purposes of the review, and

(b) may 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
15control of the PRA.

(3) An 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 20Further provisions relating to FCA and PRA

Introductory

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
25regulator are to be read accordingly.

(3) Subsection (2) does not affect—

(a) the meaning of the following expressions—

• “home state regulator”;

• “host state regulator”;

• 30“overseas regulator”; or

(b) the 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) 35In relation to the regulators, the regulatory principles referred to in
section 1B(5)(a) and 2H 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
proportionate to the benefits, considered in general terms,
which are expected to result from the imposition of that burden
5or restriction;

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

(d) the responsibilities of the senior management of persons subject
to requirements imposed by or under this Act, including those
10affecting consumers, in relation to compliance with those
requirements;

(e) the desirability in appropriate cases of each regulator
publishing information relating to persons on whom
requirements are imposed by or under this Act, or requiring
15such 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
as transparently as possible.

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

(3) 20“Objectives”, in relation to the FCA, means operational objectives.

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

Corporate governance

3C Duty to follow principles of good governance

In managing its affairs, each regulator must have regard to such
25generally accepted principles of good corporate governance as it is
reasonable to regard as applicable to it.

Relationship between FCA and PRA

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

(1) The regulators must co-ordinate the exercise of their respective
30functions 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
exercise of a function in a way that may have a material adverse
effect on the advancement by the other regulator of any of its
35objectives;

(b) that where appropriate each regulator obtains information and
advice from the other regulator in connection with the exercise
of its functions in relation to matters of common regulatory
interest in cases where the other regulator may be expected to
40have relevant information or relevant expertise;

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

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

(a) is compatible with the advancement by each regulator of any of
its objectives, and

(b) 5does not impose a burden on the regulators that is
disproportionate to the benefits of compliance.

(3) A function conferred on either regulator by or under this Act relates to
matters of common regulatory interest if—

(a) the other regulator exercises similar or related functions in
10relation to the same persons,

(b) the other regulator exercises functions which relate to different
persons but relate to similar subject-matter, or

(c) its exercise could affect the advancement by the other regulator
of any of its objectives.

(4) 15“Objectives”, in relation to the FCA, means operational objectives.

3E Memorandum of understanding

(1) The regulators must prepare and maintain a memorandum which
describes in general terms—

(a) the role of each regulator in relation to the exercise of functions
20conferred by or under this Act which relate to matters of
common regulatory interest, and

(b) how the regulators intend to comply with section 3D in relation
to the exercise of such functions.

(2) The memorandum may in particular contain provisions about how the
25regulators intend to comply with section 3D in relation to—

(a) applications for Part 4A permission;

(b) the variation of permission;

(c) the imposition of requirements;

(d) the obtaining and disclosure of information;

(e) 30cases where a PRA-authorised person is a member of a group
whose other members include one or more other authorised
persons (whether or not PRA-authorised persons);

(f) functions under Schedule 3 (EEA passport rights) and Schedule
4 (Treaty rights);

(g) 35the making of rules;

(h) directions under section 138A (modification or waiver of rules);

(i) powers to appoint competent persons under Part 11
(information gathering and investigations) to conduct
investigations on their behalf;

(j) 40functions under Part 12 (control over authorised persons);

(k) functions under Part 13 (incoming firms: intervention by
regulator);

(l) functions under Part 19 (Lloyd’s);

(m) functions under section 347 (record of authorised persons etc.);

(n) 45functions under Part 24 (insolvency);

(o) fees payable to either regulator.

(3) The memorandum must contain provision about the co-ordination by
the regulators of—

(a) the exercise of their functions relating to membership of, and
their relations with, the European Supervisory Authorities
5(namely, the European Banking Authority, the European
Insurance and Occupational Pensions Authority and the
European Securities and Markets Authority),

(b) their relations with regulatory bodies outside the United
Kingdom, and

(c) 10the exercise of their functions in relation to the compensation
scheme.

(4) The regulators must review the memorandum at least once in each
calendar year.

(5) The regulators must give the Treasury a copy of the memorandum and
15any revised memorandum.

(6) The Treasury must lay before Parliament a copy of any document
received by them under this section.

(7) The regulators must ensure that the memorandum as currently in force
is published in the way appearing to them to be best calculated to bring
20it to the attention of the public.

(8) The memorandum need not relate to any aspect of compliance with
section 3D if the regulators consider—

(a) that publication of information about that aspect would be
against the public interest, or

(b) 25that that aspect is a technical or operational matter not affecting
the public.

(9) The reference in subsection (1)(a) to matters of common regulatory
interest is to be read in accordance with section 3D(3).

3F With-profits insurance policies

(1) 30In relation to PRA-authorised persons carrying on the activity of
effecting or carrying out contracts of insurance (“insurers”), the
responsibility for measures designed, in relation to with-profits
policies, for the purpose in subsection (2) belongs to the PRA rather
than the FCA.

(2) 35That purpose is the securing of an appropriate degree of protection for
those who are or may become policyholders in relation to decisions by
insurers relating to the making of payments under with-profits policies
at the discretion of the insurer (including decisions affecting the
amount, timing or distribution of such payments or the entitlement to
40future payments).

(3) Accordingly, the PRA’s insurance objective (see section 2C(2)) is to be
read, in relation to measures designed for the purpose mentioned in
subsection (2), as if for the words “contributing to the securing of” there
were substituted “securing”.

(4) 45A “with-profits policy” is a contract of insurance under which the
policyholder is eligible to receive payments at the discretion of the
insurer.

(5) The PRA and the FCA must enter into and maintain arrangements for
the provision by the FCA to the PRA of information and advice in
relation to matters which relate to the regulation by the PRA of insurers
who effect or carry out with-profits policies, but in relation to which the
5FCA may be expected to have particular expertise.

(6) The arrangements may be described in the memorandum under section
3E or in a separate document.

(7) If the arrangements are in a separate document, the PRA and the FCA
must publish the document in such manner as they think fit.

(8) 10This section applies only if the effecting or carrying out of with-profits
policies is a PRA-regulated activity.

3G Power to establish boundary between FCA and PRA responsibilities

(1) The Treasury may by order specify matters that, in relation to the
exercise by either regulator of its functions relating to PRA-authorised
15persons, are to be, or are to be primarily, the responsibility of one
regulator rather than the other.

(2) The order may—

(a) provide that one regulator is or is not to have regard to specified
matters when exercising specified functions;

(b) 20require one regulator to consult the other.

(3) An order under this section may amend or repeal section 3F.

3H Parliamentary control of orders under section 3G

(1) No order may be made under section 3G unless—

(a) a draft of the order has been laid before Parliament and
25approved by a resolution of each House, or

(b) subsection (3) applies.

(2) Subsection (3) applies if an order under section 3G contains a statement
that the Treasury are of the opinion that, by reason of urgency, it is
necessary to make the order without a draft being so laid and
30approved.

(3) Where this subsection applies the order—

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

(b) ceases to have effect at the end of the relevant period unless
before the end of that period the order is approved by a
35resolution of each House of Parliament (but without that
affecting anything done under the order or the power to make
a new order).

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

(5) 40In 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.

Power of PRA to restrain proposed action by FCA

3I Power of PRA to require FCA to refrain from specified action

(1) Where the first, second and third conditions are met, the PRA may give
a direction under this section to the FCA.

(2) 5The first condition is that the FCA is proposing—

(a) to exercise any of its regulatory powers in relation to PRA-
authorised persons generally, a class of PRA-authorised
persons or a particular PRA-authorised person, or

(b) to exercise any of its insolvency powers in relation to—

(i) 10a PRA-authorised person,

(ii) an appointed representative whose principal, or one of
whose principals, is a PRA-authorised person, or

(iii) a person who is carrying on a PRA-regulated activity in
contravention of the general prohibition.

(3) 15In subsection (2)—

(a) “regulatory powers”, in relation to the FCA, means its powers
in relation to the regulation of authorised persons, other than its
powers in relation to consent for the purposes of section 55F or
55I or its powers under Part 24;

(b) 20“insolvency powers”, in relation to the FCA, means its powers
under Part 24.

(4) The second condition is that the PRA is of the opinion that the exercise
of the power in the manner proposed may—

(a) threaten the stability of the UK financial system, or

(b) 25result in the failure of a PRA-authorised person in a way that
would adversely affect the UK financial system.

(5) The third condition is that the PRA is of the opinion that the giving of
the direction is necessary in order to avoid the possible consequence
falling within subsection (4).

(6) 30A direction under this section is a direction requiring the FCA not to
exercise the power or not to exercise it in a specified manner.

(7) The direction may be expressed to have effect during a specified period
or until revoked.

(8) The FCA is not required to comply with a direction under this section
35if or to the extent that in the opinion of the FCA compliance would be
incompatible with any EU obligation or any other international
obligation of the United Kingdom.

(9) The reference in subsection (4)(b) to the “failure” of a PRA-authorised
person is to be read in accordance with section 2J(3) and (4).

3J 40Revocation of directions under section 3I

(1) The PRA may at any time by notice to the FCA revoke a direction under
section 3I.

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

3K Further provisions about directions under section 3I

(1) Before giving a direction under section 3I, the PRA must consult the
FCA.

(2) A direction under section 3I must be given or confirmed in writing, and
5must be accompanied by a statement of the reasons for giving it.

(3) A notice revoking a direction under section 3I must be given or
confirmed in writing.

(4) The PRA must give the Treasury a copy of—

(a) a direction under section 3I;

(b) 10a statement relating to such a direction;

(c) a notice revoking such a direction.

(5) The Treasury must lay before Parliament any document received by
them under subsection (4).

(6) The PRA must also—

(a) 15publish the direction and statement, or the notice, in such
manner as it thinks fit, and

(b) where the direction or notice relates to a particular authorised
person, give a copy of the direction and statement, or the notice,
to that person.

(7) 20But subsections (5) and (6) do not apply in a case where the PRA, after
consulting the Treasury, decides that compliance with those
subsections would be against the public interest.

(8) Where the PRA decides that compliance with subsections (5) and (6)
would be against the public interest, it must from time to time review
25that decision and if it subsequently decides that compliance is no longer
against the public interest it must—

(a) notify the Treasury for the purposes of subsection (5), and

(b) comply with subsection (6).

Directions relating to consolidated supervision

3L 30Directions relating to consolidated supervision of groups

(1) This section applies where one of the regulators (“the supervising
regulator”), but not the other, is the competent authority for the
purpose of consolidated supervision that is required in relation to some
or all of the members of a group (“the relevant group”) in pursuance of
35any of the relevant directives.

(2) “Consolidated supervision” includes supplementary supervision.

(3) The “relevant directives” are—

(a) the banking consolidation directive;

(b) Directive 2002/87/EC of the European Parliament and of the
40Council on the supplementary supervision of credit
institutions, insurance undertakings and investment firms in a
financial conglomerate;

(c) Directive 2006/49/EC on the capital adequacy of investment
firms and credit institutions;