Financial Services Bill (HL Bill 60)

Part 1 Bank of England

1 Deputy Governors

(1) In section 1 of the Bank of England Act 1998 (court of directors), for subsections
5(2) and (2A) substitute—

“(2) The court shall consist of the following directors appointed by Her
Majesty—

(a) a Governor,

(b) a Deputy Governor for financial stability,

(c) 10a Deputy Governor for monetary policy,

(d) a Deputy Governor for prudential regulation, and

(e) not more than 9 non-executive directors.”

(2) In section 13 of that Act (Monetary Policy Committee), in subsection (2), for
paragraph (a) substitute—

“(a) 15the Governor of the Bank,

(aa) the Deputy Governor for financial stability,

(ab) the Deputy Governor for monetary policy,”.

2 The Bank’s financial stability objective

(1) Section 2A of the Bank of England Act 1998 (Financial Stability Objective) is
5amended as follows.

(2) In subsection (1)—

(a) for “contribute to protecting and enhancing” substitute “protect and
enhance”, and

(b) for “systems” substitute “system”.

(3) 10In subsection (2), for “and the Financial Services Authority)” substitute “, the
Financial Conduct Authority and the Prudential Regulation Authority)”.

(4) Omit subsection (3) (which is superseded by the amendments made by section
4 of this Act).

3 Oversight Committee

(1) 15The Bank of England Act 1998 is amended as follows.

(2) For section 3 substitute—

“3A Oversight Committee

(1) There is to be a sub-committee of the court of directors of the Bank (“the
Oversight Committee”) consisting of the non-executive directors of the
20Bank.

(2) The functions of the Oversight Committee are—

(a) keeping under review the Bank’s performance in relation to—

(i) the Bank’s objectives (that is, the objectives specified in
relation to it in this Act and the other objectives for the
25time being determined by the court of directors of the
Bank),

(ii) the duty of the Financial Policy Committee under
section 9C, and

(iii) the Bank’s strategy as for the time being determined by
30the court of directors of the Bank (including its financial
stability strategy);

(b) monitoring the extent to which the objectives set by the court of
directors of the Bank in relation to the Bank’s financial
management have been met;

(c) 35keeping under review the internal financial controls of the Bank
with a view to securing the proper conduct of its financial
affairs;

(d) the functions conferred on the Oversight Committee by the
provisions listed in subsection (4).

(3) 40The Bank may arrange for specified functions of the Bank to be
discharged by the Oversight Committee.

(4) The provisions referred to in subsection (2)(d) are—

(a) section 9B (review of procedures followed by Financial Policy
Committee);

(b) section 16 (review of procedures followed by Monetary Policy
Committee);

(c) 5paragraph 14 of Schedule 1 (remuneration of Governor and
Deputy Governors);

(d) paragraph 5 of Schedule 2A (terms and conditions of office of
members of Financial Policy Committee appointed under
section 9B(1)(e));

(e) 10paragraph 9 of that Schedule (removal of members of Financial
Policy Committee appointed under section 9B(1)(e));

(f) paragraph 4(2) of Schedule 3 (terms and conditions of office of
members of Monetary Policy Committee appointed under
section 13(2)(c));

(g) 15paragraph 9 of that Schedule (removal of members of Monetary
Policy Committee appointed under section 13(2)(c));

(h) paragraph 15 of Schedule 1ZB to the Financial Services and
Markets Act 2000 (terms of service and remuneration of
members of the governing body of the Prudential Regulation
20Authority).

3B Oversight Committee: procedure

(1) The chair of the court (designated under paragraph 13 of Schedule 1) is
to chair meetings of the Oversight Committee (when present).

(2) The Committee is to determine its own procedure, but this is subject to
25subsection (1) and subsection (5).

(3) The Committee may invite other persons to attend, or to attend and
speak at, any meeting of the Committee.

(4) The Committee may delegate any of its functions to two or more of its
members.

(5) 30If a member of the Committee (“M”) has any direct or indirect interest
(including any reasonably likely future interest) in any dealing or
business which falls to be considered by the Committee—

(a) M must disclose that interest to the Committee when it
considers that dealing or business, and

(b) 35the Committee must decide whether M is to be permitted to
participate in any proceedings of the Committee relating to any
question arising from its consideration of the dealing or
business, and if so to what extent and subject to what conditions
(if any).

3C 40Reviews

(1) In the discharge of any of its functions, the Oversight Committee may
arrange—

(a) for a review to be conducted under this section in relation to any
matter by a person appointed by the Committee, and

(b) 45for the person conducting the review to make one or more
reports to the Committee.

(2) The persons who may be appointed to conduct a review include an
officer or employee of the Bank.

(3) A review under this section is a “performance review” if it—

(a) is arranged by the Committee in the discharge of any of its
5functions under section 3A(2)(a) and (b), and

(b) relates to past events.

(4) If the person to be appointed to conduct a performance review is an
officer or employee of the Bank, the appointment requires the consent
of the Governor of the Bank.

(5) 10In the case of a performance review, the Committee must have regard
to the desirability of ensuring that sufficient time has elapsed—

(a) for the review to be effective, and

(b) to avoid the review having a material adverse effect on the
exercise by the Bank of its functions.

3D 15Publication of reports of performance reviews

(1) The Bank must give the Treasury a copy of any report made to the
Oversight Committee by a person appointed under section 3C to
conduct a performance review (as defined by subsection (3) of that
section).

(2) 20Subject to subsection (3), the Bank must also publish the report.

(3) Subsection (2) does not require the publication of information whose
publication at the time when the report is made would in the opinion
of the Bank be against the public interest.

(4) Where the Bank decides under subsection (3) that publication of
25information at the time when the report is made would be against the
public interest, it must keep under consideration the question of
whether publication of the information would still be against the public
interest.

(5) Where the Bank decides that publication of any information is no
30longer against the public interest, it must publish the information.

(6) The Treasury must lay before Parliament a copy of any report or other
information published by the Bank under this section.

3E Recommendations resulting from review

(1) This section applies where a report made by a person appointed under
35section 3C to conduct a review makes recommendations to the Bank as
to steps to be taken by it.

(2) The Oversight Committee must—

(a) monitor the Bank’s response to the report, and

(b) if or to the extent that the Bank accepts the recommendations,
40monitor the implementation of the recommendations.

3F Oversight Committee: further provisions

(1) The documents to which the Oversight Committee is to have access in
the discharge of its functions include documents considered, or to be

considered, by the Financial Policy Committee or the Monetary Policy
Committee.

(2) One or two members of the Oversight Committee may attend any
meeting of the Financial Policy Committee or the Monetary Policy
5Committee, but a person attending by virtue of this subsection may not
speak unless invited to do so by the person chairing the meeting.

(3) Subsection (2) does not affect—

(a) anything done in relation to the Financial Policy Committee by
a member of that Committee who is also a member of the
10Oversight Committee,

(b) the powers of the Financial Policy Committee under paragraph
13 of Schedule 2A, or

(c) the powers of the Monetary Policy Committee under paragraph
13A of Schedule 3.”

(3) 15In section 4 (annual report by the Bank), in subsection (2), for paragraph (a)
substitute—

“(a) a report by the Oversight Committee on the matters for which it
is responsible, and”.

(4) In section 16 (functions of court of directors)—

(a) 20in subsection (1), for “court of directors of the Bank” substitute
“Oversight Committee”,

(b) in subsection (2)—

(i) for “the court’s function” substitute “the function of the
Oversight Committee”, and

(ii) 25for “the Committee” substitute “the Monetary Policy
Committee”,

(c) omit subsection (3), and

(d) accordingly, in the heading, for “court of directors” substitute
“Oversight Committee”.

4 30Financial stability strategy and Financial Policy Committee

(1) After Part 1 of the Bank of England Act 1998 insert—

“ Part 1A Financial Stability

Financial stability strategy of the Bank

9A 35Financial stability strategy

(1) The court of directors must—

(a) determine the Bank’s strategy in relation to the Financial
Stability Objective (its “financial stability strategy”), and

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

(2) 40Before determining or revising the Bank’s financial stability strategy,
the court of directors must consult about a draft of the strategy or of the
revisions—

(a) the Financial Policy Committee, and

(b) the Treasury.

(3) The Financial Policy Committee may at any time make
recommendations to the court of directors as to the provisions of the
Bank’s financial stability strategy.

(4) 5The court of directors must determine the financial stability strategy of
the Bank within 6 months of the coming into force of this section.

(5) The court of directors must carry out and complete a review of the
Bank’s financial stability strategy before the end of each relevant
period.

(6) 10The relevant period is 3 years beginning with the date on which the
previous review was completed, except that in the case of the first
review the relevant period is the period of 3 years beginning with the
date on which the strategy was determined under subsection (4).

(7) The Bank must publish its financial stability strategy.

(8) 15If the financial stability strategy is revised, the Bank must publish the
revised strategy.

(9) Publication under subsection (7) or (8) is to be in such manner as the
Bank thinks fit.

Financial Policy Committee of the Bank

9B 20Financial Policy Committee

(1) There is to be a sub-committee of the court of directors of the Bank (the
“Financial Policy Committee”) consisting of—

(a) the Governor of the Bank,

(b) the Deputy Governors of the Bank,

(c) 25the Chief Executive of the FCA,

(d) 2 members appointed by the Governor of the Bank after
consultation with the Chancellor of the Exchequer,

(e) 4 members appointed by the Chancellor of the Exchequer, and

(f) a representative of the Treasury.

(2) 30Of the 2 members appointed under subsection (1)(d)—

(a) one is to be a person who has executive responsibility within the
Bank for the analysis of threats to financial stability, and

(b) the other is to be a person who has executive responsibility
within the Bank for the analysis of markets.

(3) 35Before appointing a person under subsection (1)(e), the Chancellor of
the Exchequer must—

(a) be satisfied that the person has knowledge or experience which
is likely to be relevant to the Committee’s functions, and

(b) consider whether the person has any financial or other interests
40that could substantially affect the functions as member that it
would be proper for the person to discharge.

(4) The Oversight Committee must keep the procedures followed by the
Financial Policy Committee under review.

(5) Schedule 2A has effect with respect to the Financial Policy Committee.

9C Objectives of the Financial Policy Committee

(1) The Financial Policy Committee is to exercise its functions with a view
to—

(a) 5contributing to the achievement by the Bank of the Financial
Stability Objective, and

(b) subject to that, supporting the economic policy of Her Majesty’s
Government, including its objectives for growth and
employment.

(2) 10The responsibility of the Committee in relation to the achievement by
the Bank of the Financial Stability Objective relates primarily to the
identification of, monitoring of, and taking of action to remove or
reduce, systemic risks with a view to protecting and enhancing the
resilience of the UK financial system.

(3) 15Those systemic risks include, in particular—

(a) systemic risks attributable to structural features of financial
markets, such as connections between financial institutions,

(b) systemic risks attributable to the distribution of risk within the
financial sector, and

(c) 20unsustainable levels of leverage, debt or credit growth.

(4) Subsections (1)(a) and (2) do not require or authorise the Committee to
exercise its functions in a way that would in its opinion be likely to have
a significant adverse effect on the capacity of the financial sector to
contribute to the growth of the UK economy in the medium or long
25term.

(5) In this Part “systemic risk” means a risk to the stability of the UK
financial system as a whole or of a significant part of that system.

(6) For the purposes of subsection (5) it is immaterial whether the risk
arises in the United Kingdom or elsewhere.

(7) 30In subsection (3)(c)—

• “credit growth” means the growth in lending by the financial
  sector to individuals in the United Kingdom and businesses
  carried on in the United Kingdom;

• “debt” means debt owed to the financial sector by individuals in
  35the United Kingdom and businesses carried on in the United
  Kingdom;

• “leverage” means the leverage of the financial sector in the United
  Kingdom.

9D Specification of matters relevant to economic policy

(1) 40The Treasury may by notice in writing to the Financial Policy
Committee specify for the purposes of section 9C(1)(b) what the
economic policy of Her Majesty’s Government is to be taken to be.

(2) The Treasury must specify under subsection (1) the matter mentioned
there—

(a) 45before the end of the period of 30 days beginning with the day
on which section 9C comes into force, and

(b) at least once in every calendar year following that in which the
first notice under that subsection is given.

(3) Where the Treasury give notice under this section they must—

(a) publish the notice in such manner as they think fit, and

(b) 5lay a copy of it before Parliament.

9E Recommendations by Treasury

(1) The Treasury may at any time by notice in writing to the Financial
Policy Committee make recommendations to the Committee about—

(a) matters that the Committee should regard as relevant to the
10Committee’s understanding of the Bank’s Financial Stability
Objective;

(b) the responsibility of the Committee in relation to the
achievement of that objective;

(c) the responsibility of the Committee in relation to support for the
15economic policy of Her Majesty’s Government, including its
objectives for growth and employment;

(d) matters to which the Committee should have regard in
exercising its functions.

(2) The Treasury must make recommendations under subsection (1)(a) or
20(b) (“recommendations about the objective”)—

(a) before the end of the period of 30 days beginning with the day
on which this section comes into force, and

(b) at least once in every calendar year following that in which the
first recommendations about the objective are made.

(3) 25The Committee must respond to any recommendations made to it
under subsection (1) by notifying the Treasury, in relation to each
recommendation, of one or more of the following—

(a) action that the Committee has taken in accordance with the
recommendation;

(b) 30if or to the extent that the recommendation does not relate to
immediate action, the Committee’s intention to act in
accordance with it;

(c) whether or not the recommendation relates to immediate
action, the Committee’s reasons for not intending to act in
35accordance with it.

(4) Notification under subsection (3) must be given or confirmed in
writing.

(5) The Treasury must—

(a) publish in such manner as they think fit any notice given under
40subsection (1) or notification received under subsection (3), and

(b) lay a copy of it before Parliament.

9F Other general duties

(1) In the exercise of its functions, other than its functions under section
9A(2) or (3), the Financial Policy Committee must have regard to the
45Bank’s financial stability strategy.

(2) In working with the FCA or the PRA or exercising functions in relation
to either of them, the Committee must, so far as it is possible to do so
while complying with section 9C(1), seek to avoid exercising the
Committee’s functions in a way that would prejudice—

(a) 5the advancement by the FCA of any of its operational objectives,
or

(b) the advancement by the PRA of any of its objectives.

(3) In the exercise of its functions, the Committee must also have regard
to—

(a) 10the 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
or restriction;

(b) 15the contribution to the achievement by the Bank of the Financial
Stability Objective that the Committee can make by disclosing
its views about possible systemic risks or disclosing other
information about possible systemic risks;

(c) the international obligations of the United Kingdom,
20particularly where relevant to the exercise of the powers of the
Committee in relation to the FCA or the PRA.

9G Functions of the Financial Policy Committee

(1) The functions of the Financial Policy Committee are—

(a) monitoring the stability of the UK financial system with a view
25to identifying and assessing systemic risks;

(b) giving directions under section 9H;

(c) making recommendations under sections 9O to 9R;

(d) preparing financial stability reports under section 9W.

(2) The court of directors may, with the consent of the Treasury, arrange
30for specified functions of the Bank to be discharged by the Financial
Policy Committee.

Directions by Financial Policy Committee

9H Directions to FCA or PRA requiring macro-prudential measures

(1) The Financial Policy Committee may give a direction to the FCA or the
35PRA (“the regulator”) requiring the regulator to exercise its functions so
as to ensure the implementation, by or in relation to a specified class of
regulated persons, of a macro-prudential measure described in the
direction.

(2) “Regulated person” means—

(a) 40in relation to the FCA—

(i) an authorised person within the meaning of FSMA 2000,

(ii) a recognised investment exchange within the meaning
of that Act, or

(iii) an EEA market operator as defined by section 312D of
45that Act;

(b) in relation to the PRA, a PRA-authorised person within the
meaning of that Act.