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

instruments or of debt instruments of a kind specified in the
order;

(c) require the regulator—

(i) to make, or not to make, provision by reference to
5specified matters, or

(ii) to have regard, or not to have regard, to specified
matters;

(d) require the regulator to consult, or obtain the consent of, the
Treasury before making rules of a specified description or
10exercising any other specified function;

(e) impose on the regulator in connection with the exercise of a
specified function procedural requirements which would not
otherwise apply to the exercise of the function;

(f) refer to a publication issued by a regulator, another body in the
15United Kingdom or an international organisation, as the
publication has effect from time to time.

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

(b)(b)instruments or of debt instruments of a kind specified in the
order;

(c) require the regulator—

(i) to make, or not to make, provision by reference to
5specified matters, or

(ii) to have regard, or not to have regard, to specified
matters;

(d) require the regulator to consult, or obtain the consent of, the
Treasury before making rules of a specified description or
10exercising any other specified function;

(e) impose on the regulator in connection with the exercise of a
specified function procedural requirements which would not
otherwise apply to the exercise of the function;

(f) refer to a publication issued by a regulator, another body in the
15United Kingdom or an international organisation, as the
publication has effect from time to time.

(5) “Specified” means specified in the order.

General

142Z Affirmative procedure in relation to certain orders under Part 9B

(1) 20This section applies to an order containing provision made under any
of the following provisions of this Part—

(a) section 142A(2)(b);

(b) section 142B(2) or (5);

(c) section 142C;

(d) 25section 142D(2) or (4);

(e) section 142E;

(f) section 142I;

(g) section 142Y.

(2) No order to which this section applies may be made unless—

(a) 30a draft of the order has been laid before Parliament and
approved by a resolution of each House, or

(b) subsection (4) applies.

(3) Subsection (4) applies if an order under 142D(4) or 142E contains a
statement that the Treasury are of the opinion that, by reason of
35urgency, it is necessary to make the order without a draft being so laid
and approved.

(4) Where this subsection applies the order—

(a) must be laid before Parliament after being made, and

(b) ceases to have effect at the end of the relevant period unless
40before 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
a new order).

(5) The “relevant period” is a period of 28 days beginning with the day on
45which the order is made.

(6) In calculating the relevant period no account is to be taken of any time
during which Parliament is dissolved or prorogued or during which
either House is adjourned for more than 4 days.

142Z1 Interpretation of Part 9B

(1) 5This section has effect for the interpretation of this Part.

(2) Any reference to—

(a) the regulated activity of accepting deposits, or

(b) the regulated activity of dealing in investments as principal,

is to be read in accordance with Schedule 2, taken with any order under
10section 22.

(3) Any reference to the group restructuring powers is to be read in
accordance with section 142L(1).”

(2) In section 133 of FSMA 2000 (proceedings before Tribunal), in subsection (7A)
after paragraph (i) insert—

“(ia) 15a decision to take action under section 142S;”.

(3) In section 392 of FSMA 2000 (application of sections 393 and 394)—

(a) in paragraph (a), after “131H(1),” insert “142T(1),”, and

(b) in paragraph (b), after “131H(4),” insert “142T(4),”.

(4) In section 417 of FSMA 2000 (definitions), in subsection (1)—

(a) 20after the definition of “control of information rules” insert—

• ““core activities” has the meaning given in section 142B;

• “core services” has the meaning given in section 142C;”,

(b) after the definition of “ESMA” insert—

• ““excluded activities” has the meaning given in section
  25142D;”, and

(c) after the definition of “regulator” insert—

• ““ring-fenced body” has the meaning given in section
  142A;

• “ring-fencing rules” has the meaning given in section
  30142H;”.

(5) In Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority), in
paragraph 8(3)(c)(i), after “138N,” insert “142V,”.

(6) In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority), in
paragraph 16(3)(c)(i), after “69,” insert “142V,”.

5 35Directors of ring-fenced bodies to be approved persons

In section 59 of FSMA 2000 (approval for particular arrangements) after
subsection (7B) insert—

“(7C) In relation to a ring-fenced body, the function of acting as a director (or,
where the ring-fenced body does not have a board of directors, as a
40member of its equivalent management body)—

(a) is a significant-influence function, and

(b) must be specified as a controlled function by rules made—

(i) in relation to ring-fenced bodies that are PRA-
authorised persons, by the PRA, or

(ii) in relation to other ring-fenced bodies, by the FCA.”

6 PRA annual report

(1) 5In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority),
paragraph 19 (annual report) is amended as follows.

(2) After sub-paragraph (1) insert—

“(1A) In the report the PRA must also report in general terms on—

(a) the extent to which, in its opinion, ring-fenced bodies have
10complied with the ring-fencing provisions,

(b) steps taken by ring-fenced bodies in order to comply with the
ring-fencing provisions,

(c) steps taken by it to enforce the ring-fencing provisions, and

(d) the extent to which ring-fenced bodies appear to it to have
15acted in accordance with any guidance which it has given to
ring-fenced bodies and which relates to the operation of the
ring-fencing provisions.

(1B) In sub-paragraph (1A)—

(a) references to “ring-fenced bodies” relate only to ring-fenced
20bodies that are PRA-authorised persons, and

(b) “the ring-fencing provisions” means ring-fencing rules and
the duty imposed as a result of section 142G.”

(3) In sub-paragraph (2), for “Sub-paragraph (1) does not” substitute “Sub-
paragraphs (1) and (1A) do not”.”

7 25Ring-fencing transfer schemes

Schedule 1 (which contains amendments of Part 7 of FSMA 2000 relating to
ring-fencing transfer schemes) has effect.

8 Building societies: power to make provision about ring-fencing

(1) The Treasury may by regulations—

(a) 30make provision in relation to building societies for purposes
corresponding to those of any provision made, in relation to authorised
persons other than building societies, by or under any provision of Part
9B of FSMA 2000 (ring-fencing) apart from sections 142W to 142Y, and

(b) provide for the application of the relevant continuity provision in
35relation to the exercise by the FCA or the PRA of any function conferred
on it by or under provision made pursuant to paragraph (a).

(2) The regulations may, in particular—

(a) amend the Building Societies Act 1986;

(b) apply any of the provisions contained in, or made under, Part 9B of
40FSMA 2000, with such modifications as the Treasury consider
appropriate;

(c) authorise the making of rules or other instruments by the FCA or the
PRA for the purposes of, or connected with, any provision made by the
regulations;

(d) confer functions on the FCA or the PRA;

(e) 5make such consequential provision including amendments of any
enactment as the Treasury consider appropriate.

(3) This section does not affect the application of section 142Y of FSMA 2000
(power of Treasury in relation to loss-absorbency requirements) to building
societies that are relevant bodies for the purposes of that section.

(4) 10In this section—

• “building society” has the same meaning as in the Building Societies Act
  1986;

• “the relevant continuity provision” means—

  (a)

  in the case of functions exercisable by the FCA, the continuity
  15objective set out in section 1EA of FSMA 2000, or

  (b)

  in the case of functions exercisable by the PRA, section 2B(3)(c)
  and (4A) of that Act.

Depositor preference

9 Preferential debts: Great Britain

(1) 20In Schedule 6 to the Insolvency Act 1986 (categories of preferential debts) after
paragraph 15A insert—

“Category 7: Deposits covered by Financial Services Compensation Scheme

15B So much of any amount owed at the relevant date by the debtor in
respect of an eligible deposit as does not exceed the compensation
25that would be payable in respect of the deposit under the Financial
Services Compensation Scheme to the person or persons to whom
the amount is owed.

Interpretation for Category 7

15C (1) In paragraph 15B “eligible deposit” means a deposit in respect of
30which the person, or any of the persons, to whom it is owed would
be eligible for compensation under the Financial Services
Compensation Scheme.

(2) For this purpose a “deposit” means rights of the kind described in—

(a) paragraph 22 of Schedule 2 to the Financial Services and
35Markets Act 2000 (deposits), or

(b) section 1(2)(b) of the Dormant Bank and Building Society
Accounts Act 2008 (balances transferred under that Act to
authorised reclaim fund).”

(2) In section 386 of the Insolvency Act 1986 (categories of preferential debt), in
40subsection (1), after “production” insert “;  deposits covered by Financial
Services Compensation Scheme”.

(3) In Part 1 of Schedule 3 to the Bankruptcy (Scotland) Act 1985 (list of preferred

debts), after paragraph 6A insert—

“Deposits covered by Financial Services Compensation Scheme

6B So much of any amount owed at the relevant date by the debtor in
respect of an eligible deposit as does not exceed the compensation
5that would be payable in respect of the deposit under the Financial
Services Compensation Scheme to the person or persons to whom
the amount is owed.”

(4) In Part 2 of Schedule 3 to the Bankruptcy (Scotland) Act 1985 (interpretation of
Part 1), after paragraph 9 insert—

10“Meaning of eligible deposit

9A (1) In paragraph 6B “eligible deposit” means a deposit in respect of
which the person, or any of the persons, to whom it is owed would
be eligible for compensation under the Financial Services
Compensation Scheme.

(2) 15For this purpose a “deposit” means rights of the kind described in
paragraph 22 of Schedule 2 to the Financial Services and Markets Act
2000 (deposits).”

Financial Services Compensation Scheme

10 Discharge of functions by the scheme manager

20After section 224 of FSMA 2000 insert—

“224ZA Discharge of functions

(1) In discharging its functions the scheme manager must have regard to—

(a) the need to ensure efficiency and effectiveness in the discharge
of those functions, and

(b) 25the need to minimise public expenditure attributable to loans
made or other financial assistance given to the scheme manager
for the purposes of the scheme.

(2) In subsection (1)(b) “financial assistance” includes the giving of
guarantees and indemnities and any other kind of financial assistance
30(actual or contingent).”

11 Power to require information from scheme manager

After section 218A of FSMA 2000 insert—

218B   Treasury’s power to require information from scheme manager

(1) The Treasury may by notice in writing require the scheme manager to
35provide specified information or information of a specified description
that the Treasury reasonably require in connection with the duties of
the Treasury under the Government Resources and Accounts Act 2000.

(2) Information required under this section must be provided before the
end of such reasonable period as may be specified.

(3) “Specified” means specified in the notice.”

12 Scheme manager: appointment of accounting officer

(1) Section 212 of FSMA 2000 (the scheme manager of the Financial Services
Compensation Scheme) is amended as follows.

(2) 5In subsection (3)—

(a) omit the “and” following paragraph (a),

(b) after that paragraph insert—

“(aa) a chief executive (who is to be the accounting officer);
and”, and

(c) 10in paragraph (b), after “chairman” insert “and chief executive”.

(3) In subsection (4)—

(a) after “chairman”, in the first place, insert “, chief executive”, and

(b) after “chairman”, in the second place, insert “and the chief executive”.

Fees to meet Treasury expenditure

13 15Fees to meet Treasury expenditure relating to international organisations

After section 410 of FSMA 2000 insert—

“Fees to meet Treasury expenses

410A Fees to meet certain expenses of the Treasury

(1) The Treasury may by regulations—

(a) 20enable the Treasury from time to time by direction to require the
FCA, the PRA or the Bank of England (each a “regulator”) to
require the payment of fees by relevant persons, or such class of
relevant person as may be specified in, or determined by the
regulator in accordance with, the direction, for the purpose of
25meeting relevant expenses incurred by the Treasury;

(b) make provision about how the regulator to which a direction is
given is to comply with the direction;

(c) require the regulator to pay to the Treasury, by such time or
times as may be specified in the direction, the amount of any
30fees received by the regulator.

(2) “Relevant expenses” are expenses (including any expenses of a capital
nature) which are attributable to United Kingdom membership of, or
Treasury participation in, a prescribed international organisation so far
as those expenses—

(a) 35represent a contribution (by way of subscription or otherwise)
to the resources of the international organisation, and

(b) are in the opinion of the Treasury attributable to functions of the
organisation which relate to financial stability or financial
services.

(3) 40The regulations must provide for the charging of fees in pursuance of a
direction given under the regulations to the FCA or the PRA to be by
rules made by that regulator.

(4) The provisions of Chapter 2 of Part 9A apply to rules of the FCA or the
PRA providing for the charging of fees in pursuance of a direction
given under the regulations—

(a) in the case of the FCA, as they apply to rules relating to the
5payment of fees under paragraph 23 of Schedule 1ZA;

(b) in the case of the PRA, as they apply to rules relating to the
payment of fees under paragraph 31 of Schedule 1ZB.

(5) Paragraph 36(1) of Schedule 17A applies to the charging of fees by the
Bank of England in pursuance of a direction given to the Bank under
10the regulations.

(6) The regulations may in particular—

(a) make provision about what is, or is not, to be regarded as an
expense;

(b) specify requirements that the Treasury must comply with
15before giving a direction;

(c) enable a direction to be varied or revoked by a subsequent
direction;

(d) confer functions on a regulator.

(7) An amount payable to a regulator as a result of—

(a) 20any provision of rules made by the FCA or the PRA as a result
of the regulations, or

(b) the imposition of fees by the Bank of England as a result of a
direction given under the regulations to the Bank,

may be recovered as a debt due to the regulator.

(8) 25“Relevant persons” means—

(a) in the case of a direction given to the PRA, PRA-authorised
persons;

(b) in the case of a direction given to the FCA, authorised persons
and recognised investment exchanges who (in either case) are
30not PRA-authorised persons;

(c) in the case of a direction given to the Bank of England,
recognised clearing houses, other than those falling within
paragraph (a) or (b).

(9) This section is subject to section 410B.

410B 35Directions in pursuance of section 410A

(1) In this section “a fees direction” means a direction given by the
Treasury as a result of regulations under section 410A.

(2) Before giving a fees direction to the FCA, the PRA or the Bank of
England (each a “regulator”), the Treasury must consult the regulator
40concerned.

(3) A fees direction must—

(a) be in writing;

(b) except in the case of a direction that revokes a previous
direction or a direction that varies a previous direction without
45affecting the total amount intended to be raised by the fees,
specify the total amount intended to be raised by the fees to be

charged by the regulator and explain how that amount is
calculated;

(c) contain such other information as may be prescribed.

(4) As soon as practicable after giving a fees direction, the Treasury must
5lay before Parliament a copy of the direction.”

Parliamentary control of statutory instruments under FSMA 2000

14 Amendments of section 429 of FSMA 2000

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

(2) 10In subsection (1)(a) (orders subject to affirmative procedure), for “144(4), 192(b)
or (e), 138K(6)(c)” substitute “138K(6)(c), 144(4), 192(b) or (e)”.

(3) In subsection (2) (regulations subject to affirmative procedure), after “90B,”
insert “142W,”.

(4) After subsection (2) insert—

“(2A) 15Regulations to which subsection (2B) applies are not to be made unless
a draft of the regulations has been laid before Parliament and approved
by a resolution of each House.

(2B) This subsection applies to regulations which contain provision made
under section 410A, other than provision made only by virtue of
20subsection (2) of that section.”

(5) In subsection (8), for “or 23A” substitute “, 23A or 142Z”.

Bank of England

15 Accounts of Bank of England and its wholly-owned subsidiaries

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

(2) 25In section 7 (accounts), in subsection (4), for the words from “appropriate” to
the end substitute “necessary to do so having regard to the Financial Stability
Objective”.

(3) After section 7 insert—

“7A Accounts of companies wholly owned by the Bank

(1) 30If the Bank considers it necessary to do so having regard to the
Financial Stability Objective, the Bank may by direction to a qualifying
company exclude the application to the qualifying company of any of
the relevant Companies Act requirements.

(2) The relevant Companies Act requirements are the requirements to
35which the directors of the qualifying company would otherwise be
subject under the Companies Act 2006 (except sections 412 and 413
(directors’ benefits)) in relation to the preparation of accounts under
section 394 of that Act.

(3) A direction under subsection (1) may relate to one or more specified
accounting periods of the qualifying company, or to a specified
accounting period and all subsequent accounting periods of the
qualifying company.

(4) 5The Bank must consult the Treasury before giving a direction under
subsection (1).

(5) The Treasury may by notice in writing to the Bank require it to publish
in such manner as it thinks fit such information relating to the accounts
of a qualifying company as the Treasury may specify in the notice.

(6) 10The information specified in a notice under subsection (5) may include
information which as a result of a direction under subsection (1) was
excluded from accounts prepared in accordance with the Companies
Act 2006.

(7) The Treasury must consult the Bank before giving a notice under
15subsection (5).

(8) A direction under subsection (1) or a notice under subsection (5) may
be revoked by a subsequent direction or notice (as the case may be).

(9) “Qualifying company” means any company which is wholly owned by
the Bank other than—

(a) 20the Prudential Regulation Authority, or

(b) a company which is a bridge bank for the purposes of section
12(3) of the Banking Act 2009.

(10) For the purposes of subsection (9), a company is wholly owned by the
Bank if—

(a) 25it is a company of which no person other than the Bank or a
nominee of the Bank is a member, or

(b) it is a wholly-owned subsidiary of a company within paragraph
(a).”

Miscellaneous

16 30Minor amendments

Schedule 2 (which contains amendments of, or connected with, the Financial
Services Act 2012 and amendments of provisions amended by that Act) has
effect.

Final provisions

17 35Orders and regulations

(1) Any power of the Treasury to make an order or regulations under this Act is
exercisable by statutory instrument.

(2) A statutory instrument containing regulations under section 8 (building
societies: power to make provision about ring-fencing) may not be made unless
40a draft of the instrument has been laid before, and approved by a resolution of,
each House of Parliament.