Financial Services Bill (HL Bill 60)

(p) for the definition of “rule” substitute—

• ““rule” means a rule made by the FCA or the PRA under
  this Act;”,

(q) in the definition of “rule-making instrument” for “section 153”
5substitute “section 138G”,

(r) for the definition of “threshold conditions” substitute—

• ““threshold conditions”, in relation to a regulated activity,
  has the meaning given in section 55B(1);”,

(s) in the definition of “UK authorised person” for “section 178(4)”
10substitute “section 191G(1)”, and

(t) in the definition of “the UK financial system” for “section 3” substitute
“section 1I”.

(2) After section 421 of FSMA 2000 insert—

“421ZA Immediate group

15In this Act “immediate group”, in relation to a person (“A”), means—

(a) A;

(b) a parent undertaking of A;

(c) a subsidiary undertaking of A;

(d) a subsidiary undertaking of a parent undertaking of A;

(e) 20a parent undertaking of a subsidiary undertaking of A.”

(3) After section 425B of FSMA 2000 insert—

425C   Qualifying EU provision”

(1) In this Act “qualifying EU provision” means a provision of—

(a) a directly applicable EU regulation, or

(b) 25an EU decision for whose enforcement the United Kingdom is
required by an EU obligation to make provision.

(2) In subsection (1)(b) “EU decision” means a decision under an EU
directive or EU regulation.”

49 Parliamentary control of statutory instruments

(1) 30Section 429 of FSMA 2000 (Parliamentary control of statutory instruments) is
amended as follows.

(2) In subsection (1) (orders subject to the affirmative resolution procedure)—

(a) in paragraph (a)—

(i) after “section” insert “1J, 3B(4), 3F(6), 55C,”,

(ii) 35after “or (e),” insert “138K(6)(c), 192B(6), 204A(7), 213(1A),”, and

(iii) after “236(5),” insert “285(4), 380(12), 382(15), 384(13),”, and

(b) omit paragraph (b).

(3) In subsection (8)—

(a) after “under section” insert “3G(1), 137C(1)(b),”,

(b) 40after “165A(2)(d)” insert “, 192A(4)”, and

(c) after “which” insert “section 22B or 23A or”.

Part 3 Mutual societies

Transfer of functions

50 Mutual societies: power to transfer functions

(1) 5The Treasury may by order amend the legislation relating to mutual societies
for any of the relevant purposes.

(2) “The legislation relating to mutual societies” means—

(a) the Industrial and Provident Societies Act 1965;

(b) the Industrial and Provident Societies 1967;

(c) 10the Friendly and Industrial and Provident Societies Act 1968;

(d) the Industrial and Provident Societies Act (Northern Ireland) 1969;

(e) the Friendly Societies Act 1974;

(f) the Credit Unions Act 1979;

(g) the Credit Unions (Northern Ireland) Order 1985;

(h) 15the Building Societies Act 1986;

(i) the Friendly Societies Act 1992.

(3) The relevant purposes are—

(a) providing for any function of the FSA to be exercisable by that body
corporate as the FCA;

(b) 20providing for any function of the FSA to be transferred to the PRA;

(c) providing for any function of the FSA to be exercisable by that body
corporate as the FCA and also to be exercisable concurrently by the
PRA;

(d) providing for any function which is exercisable by the FCA or the PRA
25(whether by virtue of a previous order under this section or otherwise)
to be transferred to, or to be exercisable concurrently by, the other
regulator;

(e) providing for any function which is exercisable by the FCA and the
PRA (whether by virtue of a previous order under this section or
30otherwise) to be exercisable only by one of them;

(f) making provision that appears to the Treasury to be necessary or
expedient in consequence of the provisions of this Act.

(4) In relation to the Industrial and Provident Societies Act (Northern Ireland)
1969 and the Credit Unions (Northern Ireland) Order 1985, the relevant
35purposes also include—

(a) providing for any function of a Northern Ireland department or the
Registrar of Credit Unions for Northern Ireland to be transferred to the
FCA or the PRA, or to both the FCA and PRA to be exercised
concurrently;

(b) 40providing for any function of a Northern Ireland department or the
Registrar of Credit Unions for Northern Ireland which relates to the
determination of disputes to be exercisable instead by a court.

51 Further provision that may be included in orders under section 50

(1) In this section a “transfer order” means an order under section 50 making
provision for any of the purposes mentioned in subsection (3)(a) to (e) or (4) of
that section.

(2) 5The additional powers conferred by section 115(2) on a person making an
order under this Act include power for the Treasury, when making a transfer
order, to include—

(a) such consequential provision as the Treasury consider appropriate;

(b) provision for the transfer of any property, rights or liabilities held,
10enjoyed or incurred by any person in connection with transferred
functions;

(c) provision for the application of the Transfer of Undertakings
(Protection of Employment) Regulations 2006 in connection with any
transfer of staff;

(d) 15provision for the carrying on and completion by or under the authority
of the person to whom the functions are transferred of any proceedings,
investigations or other matters commenced, before the order takes
effect, by or under the authority of the person from whom the functions
are transferred;

(e) 20provision amending any enactment relating to transferred functions in
connection with their exercise by, or under the authority of, the person
to whom they are transferred;

(f) provision requiring either regulator to consult the other, notify the
other or obtain the consent of the other in connection with the exercise
25of transferred functions;

(g) provision for the substitution of the person to whom functions are
transferred for the person from whom they are transferred, in any
instrument, contract or legal proceedings made or begun before the
order takes effect.

(3) 30For the purposes of subsection (2) a transfer order is to be taken to transfer
functions to any person by whom any function becomes exercisable by virtue
of the order.

(4) On or after the making of a transfer order (“the original order”) the Treasury
may by order make any incidental, supplemental, consequential or transitional
35provision or provision by virtue of subsection (2) which they had power to
include in the original order.

(5) The provisions of this section do not limit—

(a) the powers conferred by section 118 or 119(3), or

(b) the powers exercisable under Schedule 21 in connection with a transfer
40order that transfers functions to the PRA or to the FCA and the PRA.

52 Power to apply or disapply provision made by or under FSMA 2000

(1) The Treasury may by order provide—

(a) for any relevant provision that would not otherwise apply in relation to
transferred functions to apply in relation to those functions with such
45modifications as may be specified;

(b) for any relevant provision that would otherwise apply in relation to
transferred functions not to apply in relation to them or to apply with
such modifications as may be specified.

(2) “Relevant provision” means a provision of, or made under, FSMA 2000.

(3) “Transferred function” means a function that has been or is being transferred
by an order under section 50; and section 51(3) applies for the purpose of this
subsection.

53 5Evidence

(1) A certificate issued by the Treasury that property vested in a person
immediately before a transfer order takes effect has been transferred as a result
of the order is conclusive evidence of the transfer.

(2) “Transfer order” means—

(a) 10an order under section 50,

(b) an order under section 51(4), or

(c) an order under Part 21 of FSMA 2000 (mutual societies).

54 Repeals in Part 21 of FSMA 2000

(1) The following provisions of Part 21 of FSMA 2000 are repealed—

(a) 15in section 334 (the Friendly Societies Commission), subsections (1) and
(2);

(b) section 335 (the Registry of Friendly Societies);

(c) section 336 (the Building Societies Commission);

(d) section 337 (the Building Societies Investor Protection Board);

(e) 20section 338 (industrial and provident societies and credit unions);

(f) section 339 (supplemental provisions).

(2) The repeals in subsection (1) do not have the effect of revoking any order made
under any provision of Part 21 of FSMA 2000 before the commencement of this
section.

25Building societies: miscellaneous

55 Building societies: creation of floating charges

(1) Section 9B of the Building Societies Act 1986 (restriction on creation of floating
charges) is amended as follows.

(2) In subsection (1), at the end insert “unless it complies with the requirements in
30subsection (1A)”.

(3) After that subsection insert—

“(1A) The requirements are that the floating charge—

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

(b) is created for the purpose of securing any rights and obligations
35that may arise in connection with participation in that system.”

(4) After subsection (2) insert—

“(3) In 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).”

56 Power to direct transfer of building society’s business

(1) Section 42B of the Building Societies Act 1986 (power to direct transfers of
5engagements or business) is amended as follows.

(2) In subsection (1)—

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

“(aa) direct the society, within a specified period, to transfer
its business under section 97  to an existing or specially
10formed 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
of other mutuals) applies;”, and

(b) in paragraph (b), for “to an existing company under section 97”
15substitute “under section 97 to an existing company that is not a
subsidiary of another mutual society”.

(3) After subsection (1) insert—

“(1A) In this section—

(a) “the 2007 Act” means the Building Societies (Funding) and
20Mutual Societies (Transfers) Act 2007;

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

(4) In subsection (4)—

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

(b) 25in 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),
for “section 42B(1)(b)” substitute “section 42B(1)(aa) or (b)”.

Interpretation

57 30Interpretation 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
reference to the person’s functions under any other enactment as applied by
that enactment.

35Part 4 Collaboration between Treasury and Bank of England, FCA or PRA

58 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
circumstances within any of the following cases arising, the Bank must
40immediately notify the Treasury.

(2) A notification under subsection (1) or section 59(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
be expected to regard it as appropriate to provide financial assistance to or in
5respect 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
exercise any of their respective powers under Parts 1 to 3 of the Banking
10Act 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
Secretary of State).

(5) 15The 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) financial assistance from the Treasury,

20for 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) A public funds notification must be given or confirmed in writing.

59 25Duty 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
gave rise to the notification, the Bank must notify the Treasury.

(3) 30If 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) A notification under subsection (3) must be given or confirmed in writing.

60 35Circumstances 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 61 is exercisable, subject to the provisions of
that section.

(2) Where a public funds notification has been given, the power of direction is
40exercisable by reference to the notification unless the notification has been
superseded by a notification under section 59(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
appears to the Treasury that the assistance has been recovered.

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

(a) 5whether 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
with it.

(5) For the purposes of this Part qualifying financial assistance is provided if, and
10only if—

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

(b) the 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
15their 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
Compensation Scheme under section 223B of FSMA 2000, or

(d) the Treasury provide financial assistance to the scheme manager of that
20scheme 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
assistance 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
25and 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
indemnity,

(c) where, in a case involving the issue or transfer of shares to the Treasury
30in connection with the provision of qualifying financial assistance, the
shares are no longer held by the Treasury.

61 Treasury power of direction

(1) Subsection (2) applies where—

(a) the power of direction is exercisable by virtue of section 60(2) by
35reference 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 60(3) by
reference to the provision of qualifying financial assistance and the
Treasury are satisfied that Condition A or Condition B is met.

(2) 40The 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
the Bank on its usual terms,

(b) 45the 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) Condition 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
5funds notification relates;

(b) in 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
10resolving or reducing a serious threat to the stability of the financial
system 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
15accordance with section 60(5).

(6) This section is subject to section 62.

(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).

62 Directions under section 61: supplementary provisions

(1) 20References in this section to a direction are to a direction under section 61.

(2) Before 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) 25The Treasury may at any time by notice to the Bank revoke a direction.

(5) The 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 60(2) by
reference to a public funds notification, the direction remains in force (unless
30revoked under subsection (4)) even if the public funds notification is
subsequently superseded by a notification under section 59(3).

(7) Where Treasury’s power of direction is exercised by virtue of section 60(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
35Treasury that the qualifying financial assistance has subsequently been
recovered.

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

(a) a direction,

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

(c) 40a notice revoking a direction.

63 Duty to lay direction etc before Parliament

(1) As soon as practicable after giving or revoking a direction under section 61 or
receiving a report under section 62(3), the Treasury must lay before Parliament
a copy of the direction, notice of revocation or report.

(2) 5But 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
or report would be against the public interest, they must from time to time
10review that decision and if they subsequently decide that publication is no
longer against the public interest they must comply with subsection (1).

64 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
other) must arrange to co-ordinate the discharge of their respective functions
15so 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
have regard in particular to the importance of co-ordination in circumstances
20where the Bank has given, or is considering the giving of, a public funds
notification.

65 Memorandum of understanding: crisis management

(1) The Treasury (on the one hand) and the Bank of England and the PRA (on the
other) must prepare and maintain a memorandum describing in general terms
25how they intend to comply with section 64 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
purposes of section 58(1);

(b) 30steps 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
reduce, threats to the stability of the UK financial system;

(d) 35how 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 61;

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

(g) 40the obtaining and sharing of information.

(3) The memorandum may make provision about such other matters as may be
agreed 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
45financial services, and

(b) affect the public interest.

(4) The 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
5body falling within subsection (6), include in the memorandum provisions
relating to co-operation between any of them and that body in relation to
matters falling within subsection (3)(a) and (b).

(6) The bodies falling within this subsection are—

(a) the FCA;

(b) 10the scheme manager of the Financial Services Compensation Scheme;

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

(7) The Treasury must—

(a) lay before Parliament a copy of the memorandum and any revised
15memorandum, and

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

66 Memorandum of understanding: international organisations

(1) The Treasury, the Bank of England, the FCA and the PRA (“the UK
20authorities”) must prepare and maintain a memorandum describing how they
intend to co-ordinate the exercise of their relevant functions so far as they relate
to 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,
25the European Insurance and Occupational Pensions Authority and the
European Securities and Markets Authority.

(3) “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
30to the stability of the UK financial system or the regulation of financial
services;

(c) in 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) 35that, 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
40effective.

(5) The 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
45functions;