Financial Services Bill (HL Bill 60)

referred to as “FSMA 2000”) substitute—

“ Part 1A The Regulators

CHAPTER 1 The Financial Conduct Authority

5The Financial Conduct Authority

1A The Financial Conduct Authority

(1) The body corporate previously known as the Financial Services
Authority is renamed as the Financial Conduct Authority.

(2) The Financial Conduct Authority is in this Act referred to as “the FCA”.

(3) 10The FCA is to have the functions conferred on it by or under this Act.

(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) 15References 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) 20the 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 25The 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) 30The 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) 35the 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) In discharging its general functions the FCA must have regard to—

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

(b) 5the 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
exchange, or

(ii) in contravention of the general prohibition,

10to 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
whole),

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

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

(d) its function of determining the general policy and principles by
reference to which it performs particular functions under this
20Act.

(7) Except to the extent that an order under section 50 of the Financial
Services 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 52 of that Act.

(8) 25“General guidance” has the meaning given in section 139B(5).

1C The consumer protection objective

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

(2) In considering what degree of protection for consumers may be
30appropriate, the FCA must have regard to—

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

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

(c) 35the needs that consumers may have for the timely provision of
information and advice that is accurate and fit for purpose;

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

(e) the general principle that those providing regulated financial
40services should be expected to provide consumers with a level
of care that is appropriate having regard to the degree of risk
involved in relation to the investment or other transaction and
the capabilities of the consumers in question;

(f) the differing expectations that consumers may have in relation
45to different kinds of investment or other transaction;

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

(h) any 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
5UK financial system.

(2) The “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
10abuse,

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

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

1E The competition objective

(1) 15The competition objective is: promoting effective competition in the
interests of consumers in the markets for—

(a) regulated financial services, or

(b) services provided by a recognised investment exchange in
carrying on regulated activities in respect of which it is by virtue
20of section 285(2) exempt from the general prohibition.

(2) The matters to which the FCA may have regard in considering the
effectiveness 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
25services, including their need for information that enables them
to make informed choices,

(b) the ease with which consumers who may wish to use those
services, including consumers in areas affected by social or
economic deprivation, can access them,

(c) 30the ease with which consumers who obtain those services can
change the person from whom they obtain them,

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

(e) how far competition is encouraging innovation.

Interpretation of terms used in relation to FCA’s general duties

1F 35Meaning 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) 40the 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) use, 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
5regulated activities,

(b) have 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
10instruments.

(2) A 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) 15which may be adversely affected by the use of the services by
persons 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
20be treated as persons who use, have used or may use the service.

(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
25financial 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
30in 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) 35by 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
40investment 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) 45by 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) fraud or dishonesty,

(b) 5misconduct in, or misuse of information relating to, a financial
market,

(c) handling the proceeds of crime, or

(d) the financing of terrorism.

(4) “Offence” includes an act or omission which would be an offence if it
10had 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) 15In 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—

  (a)

  20a 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
  if it had its registered office (or if it does not have a
  25registered 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
  money issuer as defined in regulation 2(1) of the Electronic
  30Money 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;

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

• 35“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
  Services Regulations 2009 other than a person falling within
  40paragraph (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
  in Section B of Annex I to the markets in financial instruments
  45directive 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”

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

(a) financial markets and exchanges,

(b) 5regulated activities, and

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

Power to amend objectives

1J Power to amend objectives

10The Treasury may by order amend any of the following provisions—

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

(b) section 1G, and

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

Guidance about objectives

1K 15Guidance about objectives

(1) The general guidance given by the FCA under section 139A must
include guidance about how it intends to advance its operational
objectives in discharging its general functions in relation to different
categories of authorised person or regulated activity.

(2) 20Before giving or altering any guidance complying with subsection (1),
the FCA must consult the PRA.

Supervision, monitoring and enforcement

1L Supervision, monitoring and enforcement

(1) The FCA must maintain arrangements for supervising authorised
25persons.

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

(a) with requirements imposed on them by or under this Act, in
30cases where the FCA is the appropriate regulator for the
purposes of Part 14 (disciplinary measures), or

(b) with 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) 35The FCA must also maintain arrangements for enforcing compliance by
persons other than authorised persons with relevant requirements,
within 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
consulting practitioners and consumers on the extent to which its
5general policies and practices are consistent with its general duties
under section 1B.

1N The FCA Practitioner Panel

(1) Arrangements under section 1M must include the establishment and
maintenance of a panel of persons (to be known as “the FCA
10Practitioner Panel”) to represent the interests of practitioners.

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

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

(4) 15The FCA must appoint to the FCA Practitioner Panel such—

(a) persons representing authorised persons, and

(b) persons representing recognised investment exchanges,

as it considers appropriate.

(5) The FCA may appoint to the FCA Practitioner Panel such other persons
20as it considers appropriate.

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
25practitioners.

(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) 30The 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)35persons 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
40desirability 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
without delay, and

(b) publish the statement as for the time being in force in such
5manner as it thinks fit.

1P The Markets Practitioner Panel

(1) Arrangements under section 1M must include the establishment and
maintenance of a panel of persons (to be known as “the Markets
Practitioner Panel”) to represent the interests of practitioners who are
10likely 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
Panel to be its chair.

(3) The Treasury’s approval is required for the appointment or dismissal
15of 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
appropriate.

(5) The persons within this subsection are—

(a) 20authorised persons,

(b) persons who issue financial instruments,

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

(d) recognised investment exchanges, and

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

(6) 25The FCA may appoint to the Markets Practitioner Panel such other
persons as it considers appropriate.

1Q The Consumer Panel

(1) Arrangements under section 1M must include the establishment and
maintenance of a panel of persons (to be known as “the Consumer
30Panel”) to represent the interests of consumers.

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

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

(4) 35The FCA may appoint to the Consumer Panel such consumers, or
persons representing the interests of consumers, as it considers
appropriate.

(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
40or may be contemplating using, services otherwise than in connection
with businesses carried on by them.

(6) Sections 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
accordance with arrangements made under section 1M.

(2) The FCA must from time to time publish in such manner as it thinks fit
5responses to the representations.

Reviews

1S Reviews

(1) The Treasury may appoint an independent person to conduct a review
of the economy, efficiency and effectiveness with which the FCA has
10used 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
person to conduct it.

(3) A review is not to be concerned with the merits of the FCA’s general
15policy 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
written report to the Treasury—

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

(b) 20making such recommendations (if any) as the person considers
appropriate.

(5) A copy of the report must be—

(a) laid before Parliament, and

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

(6) 25Any 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 Right to obtain documents and information

(1) 30A 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) may require any person holding or accountable for any such
35document 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) An obligation imposed on a person as a result of the exercise of the
40powers 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

The Prudential Regulation Authority

2A The Prudential Regulation Authority

(1) The body corporate originally incorporated as the Prudential
5Regulation Authority Limited is renamed as the Prudential Regulation
Authority.

(2) The 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) 10The PRA must comply with the requirements as to its constitution set
out in Schedule 1ZB.

(5) Schedule 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) 15References in this Act or any other enactment to functions conferred on
the PRA by or under this Act include references to functions conferred
on the PRA by or under—

(a) the Insolvency Act 1986,

(b) the Banking Act 2009,

(c) 20the 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 PRA’s general duties

2B 25The PRA’s general objective

(1) In discharging its general functions the PRA must, so far as is
reasonably 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) 30That objective is to be advanced primarily by—

(a) seeking to ensure that the business of PRA-authorised persons
is 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-
35authorised person could be expected to have on the stability of
the UK financial system.

(4) The 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
40has permission—