Financial Services Bill (HL Bill 60)

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(a) given under Part 4A, or

(b) resulting 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) 5Subsection (1) is subject to sections 2C and 2D.

2C Insurance objective

(1) In 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
10must, so far as is reasonably possible, act in a way—

(a) which is compatible with its general objective and its insurance
objective, and

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

(2) 15The PRA’s insurance objective is: contributing to the securing of an
appropriate degree of protection for those who are or may become
policyholders.

(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.

2D 20Power 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) contains a statement by the Treasury that, in their opinion, the
25effect (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
that become PRA-regulated activities by virtue of the order (“the
30additional 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) which is compatible with its general objective and the specified
35objective, and

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

2E Strategy

(1) The PRA must—

(a) 40determine 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) The PRA must determine its strategy within 12 months of the coming
45into force of this section.

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(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
previous review was completed, except that in the case of the first
5review 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) Publication under subsection (6) or (7) is to be in such manner as the
10PRA 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) so far as the function is exercisable in relation to the activity of
15effecting 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)
20relates, or PRA-authorised persons carrying on that activity, is
a reference to its general objective and the objective specified by
the 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
25ensure that no PRA-authorised person fails.

2H Duty to have regard to regulatory principles

(1) In discharging its general functions, the PRA must also have regard
to—

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

(b) 30the need to minimise any adverse effect on competition in the
relevant markets that may result from the manner in which the
PRA discharges those functions.

(2) In subsection (1)(b) “the relevant markets” means the markets for
services provided by PRA-authorised persons in carrying on regulated
35activities.

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
in relation to different categories of PRA-authorised person or PRA-
40regulated 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.

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2J Interpretation 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) 5its function of preparing and issuing codes under this Act
(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) 10Except to the extent that an order under section 50 of the Financial
Services 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 52 of that Act.

(3) For the purposes of this Chapter, the cases in which a PRA-authorised
15person (“P”) is to be regarded as failing include those where—

(a) P 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
20to be unable, or likely to be unable, to satisfy claims against P.

(4) In subsection (3)(a) “insolvency” includes—

(a) bankruptcy,

(b) liquidation,

(c) bank insolvency,

(d) 25administration,

(e) bank administration,

(f) receivership,

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

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

30Supervision
2K Arrangements for supervision of PRA-authorised persons

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

Arrangements for consulting practitioners
2L 35The PRA’s general duty to consult

The 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
40general duties under sections 2B to 2H.

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2M The PRA Practitioner Panel

(1) Arrangements under section 2L must include the establishment and
maintenance of a panel of persons (to be known as “the PRA
Practitioner Panel”) to represent the interests of practitioners.

(2) 5The PRA must appoint one of the members of the PRA Practitioner
Panel to be its chair.

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

(4) The PRA must appoint to the PRA Practitioner Panel such persons
10representing PRA-authorised persons as it considers appropriate.

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

2N Duty to consider representations

(1) The PRA must consider representations that are made to it in
15accordance 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
2O Reviews

(1) 20The 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
(however described) as the Treasury may specify in appointing the
25person 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
written report to the Treasury—

(a) 30setting 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) laid before Parliament, and

(b) 35published 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 PRA.

2P 40Right to obtain documents and information

(1) A person conducting a review under section 2O

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(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
5document 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 PRA.

(3) An obligation imposed on a person as a result of the exercise of the
10powers 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 Further provisions relating to FCA and PRA
Introductory
3A 15Meaning 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
regulator are to be read accordingly.

(3) Subsection (2) does not affect—

(a) 20the meaning of the following expressions—

  • “home state regulator”;

  • “host state regulator”;

  • “overseas regulator”; or

(b) the meaning of “the appropriate regulator” in Part 18
25(recognised investment exchanges and clearing houses).

Regulatory principles
3B Regulatory principles to be applied by both regulators

(1) In relation to the regulators, the regulatory principles referred to in
section 1B(5)(a) and 2H(1)(a) are as follows—

(a) 30the 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,
35which are expected to result from the imposition of that burden
or restriction;

(c) the desirability of sustainable growth in the economy of the
United Kingdom in the medium or long term;

(d) the general principle that consumers should take responsibility
40for their decisions;

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

(f) 5the desirability where appropriate of each regulator exercising
its functions in a way that recognises differences in the nature
of, and objectives of, businesses carried on by different persons
subject to requirements imposed by or under this Act;

(g) the desirability in appropriate cases of each regulator
10publishing information relating to persons on whom
requirements are imposed by or under this Act, or requiring
such persons to publish information, as a means of contributing
to the advancement by each regulator of its objectives;

(h) the principle that the regulators should exercise their functions
15as transparently as possible.

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

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

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

Corporate governance
3C 20Duty to follow principles of good governance

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

Relationship between FCA and PRA
3D 25Duty of FCA and PRA to ensure co-ordinated exercise of functions

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

(b) that where appropriate each regulator obtains information and
advice from the other regulator in connection with the exercise
35of its functions in relation to matters of common regulatory
interest in cases where the other regulator may be expected to
have relevant information or relevant expertise;

(c) that where either regulator exercises functions in relation to
matters of common regulatory interest, both regulators comply
40with their respective duties under section 1B(5)(a) or 2H(1)(a),
so far as relating to the regulatory principles in section 3B(1)(a)
and (b).

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

(a) 45is compatible with the advancement by each regulator of any of
its objectives, and

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(b) does 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) 5the other regulator exercises similar or related functions in
relation 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
10of any of its objectives.

(4) “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) 15the role of each regulator in relation to the exercise of functions
conferred 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) 20The memorandum may in particular contain provisions about how the
regulators 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) 25the obtaining and disclosure of information;

(e) cases 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
304 (Treaty rights);

(g) the 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
35investigations on their behalf;

(j) functions 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) 40functions under section 347 (record of authorised persons etc.);

(n) functions 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) 45the exercise of their functions relating to membership of, and
their relations with, the European Supervisory Authorities
(namely, the European Banking Authority, the European

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Insurance and Occupational Pensions Authority and the
European Securities and Markets Authority),

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

(c) 5the 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
10any 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
15it 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) 20that 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) 25The 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
conferred by or under this Act so far as they relate to with-
profits insurers, and

(b) 30how the regulators intend to comply with section 3D in relation
to the exercise of those functions so far as they relate to the
effecting or carrying out of with-profits policies by with-profits
insurers.

(2) The memorandum required by this section may be combined with the
35memorandum required by section 3E.

(3) If the memorandum required by this section is contained in a separate
document, the PRA and the FCA must publish the memorandum as
currently in force in such manner as they think fit.

(4) Subsections (1) to (3) apply only if the effecting or carrying out of with-
40profits policies is a PRA-regulated activity.

(5) For the purposes of this section—

(a) a “with-profits policy” is a contract of insurance under which
the policyholder is eligible to receive a financial benefit at the
discretion of the insurer;

(b) 45a “with-profits insurer” is a PRA-authorised person who has a
Part 4A permission, or permission resulting from any other

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provision of this Act, relating to the effecting or carrying out of
with-profits policies (whether or not the permission also relates
to contracts of insurance of other kinds).

(6) The Treasury may by order amend the definition of “with-profits
5policy” applying for the purposes of this section.

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
persons, are to be, or are to be primarily, the responsibility of one
10regulator 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) require one regulator to consult the other.

3H 15Parliamentary 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
approved by a resolution of each House, or

(b) subsection (3) applies.

(2) 20Subsection (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
approved.

(3) Where this subsection applies the order—

(a) 25must 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
resolution of each House of Parliament (but without that
affecting anything done under the order or the power to make
30a new order).

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

(5) In calculating the relevant period no account is to be taken of any time
during which Parliament is dissolved or prorogued or during which
35both 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) 40The 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—

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(i) a 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
5contravention of the general prohibition.

(3) In 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
1055I or its powers under Part 24;

(b) “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) 15threaten the stability of the UK financial system, or

(b) result 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
20falling within subsection (4).

(6) A 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) 25The FCA is not required to comply with a direction under this section
if 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
30person is to be read in accordance with section 2J(3) and (4).

3J Power of PRA in relation to with-profits policies

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

(2) The first condition is that the FCA is proposing to exercise any of its
35regulatory powers in relation to with-profits insurers, a class of with-
profits insurers or a particular with-profits insurer.

(3) In subsection (2) “regulatory powers”, in relation to the FCA, means its
powers in relation to the regulation of authorised persons, including its
powers under Part 24 (insolvency) but not its powers in relation to
40consent for the purposes of section 55F or 55I.

(4) The second condition is that the proposed exercise of the power relates
to the provision of financial benefits under with-profits policies at the
discretion of the insurer, or affects or may affect the amount, timing or
distribution of financial benefits that are so provided or the entitlement
45to future benefits that are so provided.