Financial Services (Banking Reform) Bill (HL Bill 38)

Group restructuring powers

142K   Cases in which group restructuring powers become exercisable

(1) The appropriate regulator may exercise the group restructuring
powers only if it is satisfied that one or more of Conditions A to D is met
5in relation to a ring-fenced body that is a member of a group.

(2) Condition A is that the carrying on of core activities by the ring-fenced
body is being adversely affected by the acts or omissions of other
members of its group.

(3) Condition B is that in carrying on its business the ring-fenced body—

(a) 10is unable to take decisions independently of other members of
its group, or

(b) depends on resources which are provided by a member of its
group and which would cease to be available in the event of the
insolvency of the other member.

(4) 15Condition C is that in the event of the insolvency of one or more other
members of its group the ring-fenced body would be unable to
continue to carry on the core activities carried on by it.

(5) Condition D is that the ring-fenced body or another member of its
group has engaged, or is engaged, in conduct which is having, or
20would apart from this section be likely to have, an adverse effect on the
advancement by the appropriate regulator—

(a) in the case of the PRA, of the objective in section 2B(3)(c), or

(b) in the case of the FCA, of the continuity objective.

(6) The appropriate regulator may not exercise the group restructuring
25powers in relation to any person if—

(a) either regulator has previously exercised the group
restructuring powers in relation to that person, and

(b) the decision notice in relation to the current exercise is given
before the second anniversary of the day on which the decision
30notice in relation to the previous exercise was given.

(7) In this section and sections 142L to 142Q “the appropriate regulator”
means—

(a) where the ring-fenced body is a PRA-authorised person, the
PRA;

(b) 35where it is not, the FCA.

142L   Group restructuring powers

(1) In this Part “the group restructuring powers” means one or more of the
powers conferred by this section.

(2) Where the appropriate regulator is the PRA, the powers conferred by
40this section are as follows—

(a) in relation to the ring-fenced body, power to impose a
requirement on the ring-fenced body requiring it to take any of
the steps mentioned in subsection (5),

(b) in relation to any member of the ring-fenced body’s group
45which is a PRA-authorised person, power to impose a

requirement on the PRA-authorised person requiring it to take
any of the steps mentioned in subsection (6),

(c) in relation to any member of the ring-fenced body’s group
which is an authorised person but not a PRA-authorised
5person, power to direct the FCA to impose a requirement on the
authorised person requiring it to take any of the steps
mentioned in subsection (6), and

(d) in relation to a qualifying parent undertaking, power to give a
direction under this paragraph to the parent undertaking
10requiring it to take any of the steps mentioned in subsection (6).

(3) Where the appropriate regulator is the FCA, the powers conferred by
this section are as follows—

(a) in relation to the ring-fenced body, power to impose a
requirement on the ring-fenced body requiring it to take any of
15the steps mentioned in subsection (5),

(b) in relation to any member of the ring-fenced body’s group
which is an authorised person but not a PRA-authorised
person, power to impose a requirement on the authorised
person requiring it to take any of the steps mentioned in
20subsection (6),

(c) in relation to any member of the ring-fenced body’s group
which is a PRA-authorised person, power to direct the PRA to
impose a requirement on the authorised person requiring it to
take any of the steps mentioned in subsection (6), and

(d) 25in relation to a qualifying parent undertaking, power to give a
direction under this paragraph to the parent undertaking
requiring it to take any of the steps mentioned in subsection (6).

(4) A parent undertaking of a ring-fenced body by reference to which the
group restructuring powers are exercisable is for the purposes of this
30Part a “qualifying parent undertaking” if —

(a) it is a body corporate which is incorporated in the United
Kingdom and has a place of business in the United Kingdom,
and

(b) it is not itself an authorised person.

(5) 35The steps that the ring-fenced body may be required to take are—

(a) to dispose of specified property or rights to an outside person;

(b) to apply to the court under Part 7 for an order sanctioning a
ring-fencing transfer scheme relating to the transfer of the
whole or part of the business of the ring-fenced body to an
40outside person;

(c) otherwise to make arrangements discharging the ring-fenced
body from specified liabilities.

(6) The steps that another authorised person or a qualifying parent
undertaking may be required to take are—

(a) 45to dispose of any shares in, or securities of, the ring-fenced body
to an outside person;

(b) to dispose of any interest in any other body corporate that is a
member of the ring-fenced body’s group to an outside person;

(c) to dispose of other specified property or rights to an outside
50person;

(d) to apply to the court under Part 7 for an order sanctioning a
ring-fencing transfer scheme relating to the transfer of the
whole or part of the business of the authorised person or
qualifying parent undertaking to an outside person.

(7) 5In subsections (5) and (6) “outside person” means a person who, after
the implementation of the disposal or scheme in question, will not be a
member of the group of the ring-fenced body by reference to which the
powers are exercised (whether or not that body is to remain a ring-
fenced body after the implementation of the disposal or scheme in
10question).

(8) It is immaterial whether a requirement to be imposed on an authorised
person by the appropriate regulator, or by the other regulator at the
direction of the appropriate regulator, is one that the regulator
imposing it could impose under section 55L or 55M.

142M 15  Procedure: preliminary notices

(1) If the appropriate regulator proposes to exercise the group
restructuring powers in relation to any authorised person or qualifying
parent undertaking (“the person concerned”), the regulator must give
each of the relevant persons a first preliminary notice stating—

(a) 20that the regulator is of the opinion that the group ring-fencing
powers have become exercisable in relation to the person
concerned, and

(b) its reasons for being satisfied as to the matters mentioned in
section 142K(1).

(2) 25Before giving a first preliminary notice, the regulator must—

(a) give the Treasury a draft of the notice,

(b) provide the Treasury with any information that the Treasury
may require in order to decide whether to give their consent,
and

(c) 30obtain the consent of the Treasury.

(3) The first preliminary notice must specify a reasonable period (which
may not be less than 14 days) within which any of the relevant persons
may make representations to the regulator.

(4) The relevant persons are—

(a) 35the person concerned,

(b) the ring-fenced body, if not the person concerned, and

(c) any other authorised person who will, in the opinion of the
appropriate regulator, be significantly affected by the exercise
of the group restructuring powers.

(5) 40After considering any representations made by any of the relevant
persons, the regulator must either—

(a) with the consent of the Treasury, give each of the persons a
second preliminary notice, or

(b) give each of them a notice stating that it has decided not to
45exercise its group restructuring powers.

(6)
A second preliminary notice is a notice stating—

(a) that the regulator proposes to exercise the group restructuring
powers, and

(b) the manner in which it proposes to do so.

(7) The second preliminary notice must specify a reasonable period (which
5may not be less than 14 days) within which any of the relevant persons
may make representations to the regulator about the proposals.

(8) The regulator must after considering any representations made in
response to the second preliminary notice give each of the relevant
persons a third preliminary notice stating—

(a) 10whether it has made any revisions to the proposals, and

(b) if so, what the revisions are.

142N   Procedure: warning notice and decision notice

(1) If the appropriate regulator has given a third preliminary notice, it
must either—

(a) 15if it still proposes to exercise the group restructuring powers,
give each of the relevant persons a warning notice during the
warning notice period, or

(b) before the end of the warning notice period, give each of them
a notice stating that it has decided not to exercise the powers.

(2) 20The “warning notice period” is the period of 6 months beginning with
the first anniversary of the day on which the third preliminary notice
was given.

(3) Before giving a warning notice under subsection (1)(a), the appropriate
regulator must —

(a) 25give the Treasury a draft of the notice,

(b) provide the Treasury with any information that the Treasury
may require in order to decide whether to give their consent,
and

(c) obtain the consent of the Treasury.

(4) 30The action specified in the warning notice may be different from that
specified in the third preliminary notice if—

(a) the appropriate regulator considers that different action is
appropriate as a result of any change in circumstances since the
third preliminary notice was given, or

(b) 35the person concerned consents to the change.

(5) The regulator must, in particular, have regard to anything that—

(a) has been done by the person concerned since the giving of the
third preliminary notice, and

(b) represents action that would have been required in pursuance
40of the proposals in that notice.

(6) If the regulator decides to exercise the group restructuring powers it
must give each of the relevant persons a decision notice.

(7) The decision notice must allow at least 5 years from the date of the
decision notice for the completion of—

(a) 45any disposal of shares, securities or other property that is
required by the notice, or

(b) any transfer of liabilities for which the notice requires
arrangements to be made.

(8) The giving of consent for the purpose of subsection (4)(b) does not
affect any right to refer to the Tribunal the matter to which any decision
5notice resulting from the warning notice relates.

(9) “The relevant persons” has the same meaning as in section 142M.

142O   References to Tribunal

(1) A notified person who is aggrieved by—

(a) the imposition by either regulator of a requirement as a result of
10section 142L(2)(a) or (b) or (3)(a) or (b),

(b) a requirement to be imposed as a result of the giving by one
regulator to the other of a direction under section 142L(2)(c) or
(3)(c), or

(c) the giving by either regulator of a direction under section
15142L(2)(d) or (3)(d),

may refer the matter to the Tribunal.

(2) “Notified person” means a person to whom a decision notice under
section 142N(6) was given or ought to have been given.

142P   Subsequent variation of requirement or direction

(1) 20A regulator may at any time with the consent of the person concerned
vary—

(a) a requirement imposed by it as a result of section 142L(2)(a) or
(b) or (3)(a) or (b), or

(b) a direction given by it as a result of section 142L(2)(c) or (d) or
25(3)(c) or (d).

(2) The person concerned may at any time apply to the appropriate
regulator for the variation of—

(a) a requirement imposed by it as a result of section 142L(2)(a) or
(b) or (3)(a) or (b), or

(b) 30a direction given by it as a result of section 142L(2)(c) or (d) or
(3)(c) or (d).

(3) Sections 55U, 55V, 55X and 55Z3 apply to an application under
subsection (2) as they apply to an application for the variation of a
requirement imposed by the appropriate regulator under section 55L
35or 55M.

142Q   Consultation etc. between regulators

(1) Where a notice under section 142M or a warning notice or decision
notice under section 142N relates to a requirement to be imposed in
pursuance of a direction to be given as a result of section 142L(2)(c) or
40(3)(c), the appropriate regulator must—

(a) consult the other regulator before giving the notice, and

(b) give a copy of the notice to the other regulator.

(2) The appropriate regulator must consult the other regulator before
varying under section 142P a direction given as a result of section
45142L(2)(c) or (3)(c).

(3) Directions given by the FCA as a result of section 142L(3)(c) are subject
to any directions given to the FCA under section 3I.

142R   Relationship with regulators’ powers under Parts 4A and 12A

(1) Subsection (2) applies in relation to—

(a) 5a ring-fenced body which is a member of a mixed group, and

(b) a parent undertaking of such a ring-fenced body.

(2) A regulator may not exercise its general powers in relation to the ring-
fenced body or parent undertaking so as to achieve either of the results
in subsection (3).

(3) 10Those results are—

(a) that no existing group member is a parent undertaking of the
ring-fenced body;

(b) that the ring-fenced body is not a member of a mixed group.

(4) In subsection (3)(a) “existing group member” means a person who is a
15member of the ring-fenced body’s group at the time when the
requirement is imposed or the direction given.

(5) Except as provided by subsections (1) to (4), the provisions of sections
142K to 142Q do not limit the general powers of either regulator.

(6) For the purposes of this section, a regulator’s “general powers” are its
20powers under the following provisions—

(a) section 55L or 55M (imposition of requirements in connection
with Part 4A permission);

(b) section 192C (power to direct qualifying parent undertaking).

(7) For the purposes of this section, a ring-fenced body is a member of a
25mixed group if a member of the ring-fenced body’s group carries on an
excluded activity.

Failure of parent undertaking to comply with direction

142S   Power to impose penalty or issue censure

(1) This section applies if a regulator is satisfied that a person who is or has
30been a qualifying parent undertaking as defined in section 142L(4) (“P”)
has contravened a requirement of a direction given to P by that
regulator as a result of section 142L(2)(d) or (3)(d).

(2) The regulator may impose a penalty of such amount as it considers
appropriate on—

(a) 35P, or

(b) any person who was knowingly concerned in the
contravention.

(3) The regulator may, instead of imposing a penalty on a person, publish
a statement censuring the person.

(4) 40The regulator may not take action against a person under this section
after the end of the limitation period unless, before the end of that
period, it has given a warning notice to the person under section 142T.

(5) “The limitation period” means the period of 3 years beginning with the
first day on which the regulator knew of the contravention.

(6) For this purpose a regulator is to be treated as knowing of a
contravention if it has information from which the contravention can
5reasonably be inferred.

(7) The requirements that a regulator may be required to impose as a result
of a direction under section 142L(2)(c) or (3)(c) include requirements
that the regulator would not but for the direction have power to
impose.

142T 10  Procedure and right to refer to Tribunal

(1) If a regulator proposes to take action against a person under section
142S, it must give the person a warning notice.

(2) A warning notice about a proposal to impose a penalty must state the
amount of the penalty.

(3) 15A warning notice about a proposal to publish a statement must set out
the terms of the statement.

(4) If the regulator decides to take action against a person under section
142S, it must give the person a decision notice.

(5) A decision notice about the imposition of a penalty must state the
20amount of the penalty.

(6) A decision notice about the publication of a statement must set out the
terms of the statement.

(7) If the regulator decides to take action against a person under section
142S, the person may refer the matter to the Tribunal.

142U 25  Duty on publication of statement

After a statement under section 142S(3) is published, the regulator must
send a copy of the statement to—

(a) the person in respect of whom it is made, and

(b) any person to whom a copy of the decision notice was given
30under section 393(4).

142V   Imposition of penalties under section 142S: statement of policy

(1) Each regulator must prepare and issue a statement of policy with
respect to—

(a) the imposition of penalties under section 142S, and

(b) 35the amount of penalties under that section.

(2) A regulator’s policy in determining what the amount of a penalty
should be must include having regard to—

(a) the seriousness of the contravention,

(b) the extent to which the contravention was deliberate or reckless,
40and

(c) whether the person on whom the penalty is to be imposed is an
individual.

(3) A regulator may at any time alter or replace a statement issued under
this section.

(4) If a statement issued under this section is altered or replaced, the
regulator must issue the altered or replacement statement.

(5) 5In exercising, or deciding whether to exercise, a power under section
142S(2) in the case of any particular contravention, a regulator must
have regard to any statement of policy published under this section and
in force at a time when the contravention occurred.

(6) A statement under this section must be published by the regulator
10concerned in the way appearing to the regulator to be best calculated to
bring it to the attention of the public.

(7) A regulator may charge a reasonable fee for providing a person with a
copy of the statement published under this section.

(8) A regulator must, without delay, give the Treasury a copy of any
15statement which it publishes under this section.

(9) Section 192I applies in relation to a statement under this section as it
applies in relation to a statement under section 192H.

Pension liabilities

142W Pension liabilities

(1) 20For the purposes of this section an occupational pension scheme is a
“relevant pension scheme” if—

(a) it is a multi-employer scheme, as defined in section 75A(13) of
the Pensions Act 1995 or Article 75A(13) of the Pensions
(Northern Ireland) Order 1995,

(b) 25it is not a money purchase scheme,

(c) at least one of the employers in relation to the scheme is a ring-
fenced body, and

(d) at least one of the employers in relation to the scheme is not a
ring-fenced body.

(2) 30The Treasury may by regulations—

(a) require a ring-fenced body which is an employer in relation to a
relevant pension scheme to make arrangements for the purpose
of—

(i) ensuring that the ring-fenced body cannot become liable
35to meet, or contribute to the meeting of, liabilities in
respect of pensions or other benefits payable to or in
respect of employment by a person who is not a ring-
fenced body, and

(ii) to the extent that it is not possible to ensure that result,
40minimising any potential liability falling within sub-
paragraph (i);

(b) make other provision about the making of arrangements for
that purpose by a ring-fenced body which is an employer in
relation to a relevant pension scheme.

(3) 45The regulations may in particular—

(a) require a ring-fenced body to cease to participate in a relevant
pension scheme unless the scheme is divided into two or more
sections in relation to which prescribed conditions are met;

(b) provide that assets or liabilities of a relevant pension scheme
5may not be transferred under the arrangements to another
occupational pension scheme unless the other scheme meets
prescribed conditions;

(c) require ring-fenced bodies to establish new occupational
pension schemes in prescribed circumstances;

(d) 10provide that any provision of a relevant pension scheme that
might prevent a ring-fenced body from making the
arrangements, other than a provision requiring the consent of
the trustees or managers of the scheme, is not to have effect in
prescribed circumstances;

(e) 15make provision enabling the trustees or managers of a relevant
pension scheme, with the consent of the employers in relation
to the scheme, to modify the scheme by resolution for the
purpose of enabling a ring-fenced body to make the
arrangements;

(f) 20make provision enabling the court, on an application made in
accordance with the regulations by a ring-fenced body, if it
appears to the court that the trustees or managers of a relevant
pension scheme, or an employer in relation to such a scheme,
have unreasonably refused their consent to any step that would
25enable the ring-fenced body to make the arrangements, to order
that the step may be taken without that consent;

(g) require a ring-fenced body to make an application for clearance
in connection with the making of the arrangements;

(h) confer exemption from any provision of the regulations in
30prescribed cases;

(i) confer functions on the PRA;

(j) provide that a ring-fenced body which contravenes a prescribed
requirement of the regulations is to be taken to have
contravened a requirement imposed by the PRA under this Act.

(4) 35An “application for clearance” is an application to the Pensions
Regulator under any of the following provisions—

(a) section 42 of the Pensions Act 2004 (clearance statements
relating to contribution notice under section 38);

(b) section 46 of that Act (clearance statements relating to financial
40support directions);

(c) Article 38 of the Pensions (Northern Ireland) Order 2005
(clearance statements relating to contribution notices under
article 34);

(d) Article 42 of that Order (clearance statements relating to
45financial support directions).

(5) In relation to a ring-fenced body that is not a PRA-authorised person,
references in subsection (3) to the PRA are to be read as references to the
FCA.

(6) The regulations may not require ring-fenced bodies to achieve the
50results mentioned in subsection (2) before 1 January 2026, but this does

not prevent the regulations requiring steps to be taken at any time after
the regulations come into force.

142X Further interpretative provisions for section 142W

(1) The following provisions have effect for the interpretation of section
5142W.

(2) “Occupational pension scheme” has the meaning given in section 1 of
the Pension Schemes Act 1993 or section 1 of the Pension Schemes
(Northern Ireland) Act 1993 and, in relation to such a scheme,
“employer”, “member” and “trustees or managers” have the same
10meaning as in Part 1 of the Pensions Act 1995 or Part 2 of the Pensions
(Northern Ireland) Order 1995.

(3) “Money purchase scheme” has the meaning given in section 181(1) of
the Pension Schemes Act 1993 or section 176(1) of the Pension Schemes
(Northern Ireland) Act 1993.

(4) 15“The court” means—

(a) in relation to England and Wales or Northern Ireland, the High
Court, and

(b) in relation to Scotland, the Court of Session.

Loss-absorbency requirements

142Y 20Power of Treasury in relation to loss-absorbency requirements

(1) The Treasury may by order make provision about the exercise by either
regulator of its functions under this Act, so far as they are (apart from
the order) capable of being exercised in relation to a relevant body so as
to require the relevant body—

(a) 25to issue any debt instrument, or

(b) to ensure that any part of the relevant body’s debt consists of
debt owed by it in respect of debt instruments, or debt
instruments of a particular kind.

(2) A “relevant body” is—

(a) 30a ring-fenced body,

(b) any other body corporate that has a Part 4A permission relating
to the regulated activity of accepting deposits, or

(c) a body corporate that is a member of the group of a body falling
within paragraph (a) or (b).

(3) 35“Debt instrument” means—

(a) a bond,

(b) any other instrument creating or acknowledging a debt, or

(c) an instrument giving rights to acquire a debt instrument.

(4) An order under this section may in particular—

(a) 40require the regulator to exercise its functions so as to require
relevant bodies to do either or both of the things mentioned in
subsection (1);

(b) limit the extent to which the regulator may require a relevant
body’s debt to consist of debt owed in respect of debt