Financial Services (Banking Reform) Bill

House of Lords

Session 2013 - 14
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Financial Services (Banking Reform) Bill

Financial Services (Banking Reform) Bill
Part 1 — Ring-fencing
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142R
Relationship with regulators’ powers under Parts 4A and 12A
(1)
Subsection (2) applies in relation to—
(a)
a 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-
5
fenced body or parent undertaking so as to achieve either of the results
in subsection (3).
(3)
Those results are—
(a)
that no existing group member is a parent undertaking of the
ring-fenced body;
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(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
member 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
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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
powers under the following provisions—
(a)
section 55L or 55M (imposition of requirements in connection
with Part 4A permission);
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(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
mixed group if a member of the ring-fenced body’s group carries on an
excluded activity.
Failure of parent undertaking to comply with direction
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142S
Power to impose penalty or issue censure
(1)
This section applies if a regulator is satisfied that a person who is or has
been 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).
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(2)
The regulator may impose a penalty of such amount as it considers
appropriate on—
(a)
P, or
(b)
any person who was knowingly concerned in the
contravention.
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(3)
The regulator may, instead of imposing a penalty on a person, publish
a statement censuring the person.
(4)
The 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.
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(5)
“The limitation period” means the period of 3 years beginning with the
first day on which the regulator knew of the contravention.

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(6)
For this purpose a regulator is to be treated as knowing of a
contravention if it has information from which the contravention can
reasonably 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
5
that the regulator would not but for the direction have power to
impose.
142T
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.
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(2)
A warning notice about a proposal to impose a penalty must state the
amount of the penalty.
(3)
A 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
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142S, it must give the person a decision notice.
(5)
A decision notice about the imposition of a penalty must state the
amount of the penalty.
(6)
A decision notice about the publication of a statement must set out the
terms of the statement.
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(7)
If the regulator decides to take action against a person under section
142S, the person may refer the matter to the Tribunal.
142U
Duty on publication of statement
After a statement under section 142S(3) is published, the regulator must
send a copy of the statement to—
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(a)
the person in respect of whom it is made, and
(b)
any person to whom a copy of the decision notice was given
under 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
30
respect to—
(a)
the imposition of penalties under section 142S, and
(b)
the 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—
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(a)
the seriousness of the contravention,
(b)
the extent to which the contravention was deliberate or reckless,
and
(c)
whether the person on whom the penalty is to be imposed is an
individual.
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(3)
A regulator may at any time alter or replace a statement issued under
this section.

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(4)
If a statement issued under this section is altered or replaced, the
regulator must issue the altered or replacement statement.
(5)
In 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
5
in force at a time when the contravention occurred.
(6)
A statement under this section must be published by the regulator
concerned 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
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copy of the statement published under this section.
(8)
A regulator must, without delay, give the Treasury a copy of any
statement 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.
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Pension liabilities
142W
Pension liabilities
(1)
The Treasury may by regulations require a ring-fenced body to make
arrangements for any one or more of the following purposes—
(a)
ensuring that, except in prescribed cases, the ring-fenced body
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cannot become liable to meet, or contribute to the meeting of,
pension liabilities which arise in connection with persons’
service on or after a date specified in the regulations (“the
specified date”) in any employment, other than service in an
employment in respect of which the employer is a ring-fenced
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body;
(b)
ensuring that, except in prescribed cases, the default of a person
other than another ring-fenced body would not result in the
ring-fenced body becoming liable to meet, or contribute to the
meeting of, pension liabilities arising in connection with
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persons’ service in any employment before the specified date;
(c)
to the extent that it is not possible to ensure the result
mentioned in paragraph (a) or (b), minimising any potential
liability falling within paragraph (a) or (b).
(2)
The regulations may make provision enabling the trustees or managers
35
of a relevant pension scheme in respect of which the employer or one
of the employers is a ring-fenced body—
(a)
to transfer to another relevant pension scheme part of the
pension liabilities arising in connection with persons’ service
before the specified date together with part of the assets of the
40
scheme, or
(b)
to divide the scheme into two or more sections in relation to
which prescribed conditions are met.
(3)
The regulations may make provision—
(a)
enabling a ring-fenced body to apply to the court in a case
45
where the ring-fenced body has been unable to reach agreement
with another person (“P”) about the making of arrangements

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with P on commercial terms for one or more of the purposes in
subsection (1), and
(b)
enabling the court on such an application to order P to enter into
arrangements with the ring-fenced body for those purposes on
such terms as the court considers fair and reasonable in the
5
circumstances.
(4)
The regulations must provide that any terms specified by the court by
virtue of provision made under subsection (3)—
(a)
must be terms which, in the court’s opinion, represent terms on
which the arrangements might be entered into if they were
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being entered into for commercial reasons between willing
parties dealing at arm’s length, and
(b)
may involve the payment of any sum by instalments.
(5)
The regulations may make other provision—
(a)
about the making by a ring-fenced body of arrangements for
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one or more of the purposes in subsection (1);
(b)
about any transfer or division falling within subsection (2).
(6)
The 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
20
sections in relation to which prescribed conditions are met;
(b)
provide that assets or liabilities of a relevant pension scheme
may not be transferred under the arrangements to another
occupational pension scheme unless the other scheme meets
prescribed conditions;
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(c)
require ring-fenced bodies to establish new occupational
pension schemes in prescribed circumstances;
(d)
provide that any provision of a relevant pension scheme that
might prevent the making of the arrangements, other than a
provision requiring the consent of the trustees or managers of
30
the scheme, is not to have effect in prescribed circumstances;
(e)
make 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 the arrangements to be made;
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(f)
require the trustees or managers of a relevant pension scheme
or any employer in relation to a relevant pension scheme to give
notice of prescribed matters to prescribed persons;
(g)
make provision enabling the court, on an application made in
accordance with the regulations by a ring-fenced body, if it
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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
enable the arrangements to be made, to order that the step may
be taken without that consent;
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(h)
confer exemption from any provision of the regulations in
prescribed 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
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contravened a requirement imposed by the PRA under this Act;

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(k)
modify, exclude or apply (with or without modification) any
primary or subordinate legislation.
(7)
The Treasury may by regulations require an authorised person who
will or may be a ring-fenced body or an authorised person who will or
may be a member of a ring-fenced body’s group to do all it can to obtain
5
from the Pensions Regulator a clearance statement in relation to any
arrangements to be made for the purpose of complying with—
(a)
regulations under this section, or
(b)
any provision made by or under this Part (other than this
section) when the provision comes into force.
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(8)
A “clearance statement” is a statement issued by 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
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support 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
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financial support directions).
(9)
In relation to a ring-fenced body that is not a PRA-authorised person,
references in subsection (6) to the PRA are to be read as references to the
FCA.
(10)
Regulations under this section may not require ring-fenced bodies to
25
achieve the results mentioned in subsection (1) 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
30
142W and this section.
(2)
“Relevant pension scheme” means an occupational pension scheme
that is not a money purchase scheme.
(3)
“Occupational pension scheme” has the meaning given in section 1 of
the Pension Schemes Act 1993 or section 1 of the Pension Schemes
35
(Northern Ireland) Act 1993 and, in relation to such a scheme,
“member” and “trustees or managers” have the same meaning as in
Part 1 of the Pensions Act 1995 or Part 2 of the Pensions (Northern
Ireland) Order 1995.
(4)
“Money purchase scheme” has the meaning given in section 181(1) of
40
the Pension Schemes Act 1993 or section 176(1) of the Pension Schemes
(Northern Ireland) Act 1993.
(5)
“Employer”, in relation to a relevant pension scheme, means—
(a)
a person who is for the purposes of Part 1 of the Pensions Act
1995 or Part 2 of the Pensions (Northern Ireland) Order 1995 an
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employer in relation to the scheme, and

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(b)
any other person who has or may have any liability under the
scheme.
(6)
“Employment” 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.
5
(7)
“Pension liabilities” means liabilities attributable to or associated with
the provision under a relevant pension scheme of pensions or other
benefits.
(8)
“The court” means—
(a)
in relation to England and Wales or Northern Ireland, the High
10
Court, and
(b)
in relation to Scotland, the Court of Session.
Loss-absorbency requirements
142Y
Power of Treasury in relation to loss-absorbency requirements
(1)
The Treasury may by order make provision about the exercise by either
15
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)
to issue any debt instrument, or
(b)
to ensure that any part of the relevant body’s debt consists of
20
debt owed by it in respect of debt instruments, or debt
instruments of a particular kind.
(2)
A “relevant body” is—
(a)
a ring-fenced body,
(b)
any other body corporate that has a Part 4A permission relating
25
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)
“Debt instrument” means—
(a)
a bond,
30
(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)
require the regulator to exercise its functions so as to require
relevant bodies to do either or both of the things mentioned in
35
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
instruments or of debt instruments of a kind specified in the
order;
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(c)
require the regulator—
(i)
to make, or not to make, provision by reference to
specified matters, or
(ii)
to have regard, or not to have regard, to specified
matters;
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(d)
require the regulator to consult, or obtain the consent of, the
Treasury before making rules of a specified description or
exercising any other specified function;
(e)
impose on the regulator in connection with the exercise of a
specified function procedural requirements which would not
5
otherwise apply to the exercise of the function;
(f)
refer to a publication issued by a regulator, another body in the
United Kingdom or an international organisation, as the
publication has effect from time to time.
(5)
“Specified” means specified in the order.
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General
142Z
Affirmative procedure in relation to certain orders under Part 9B
(1)
This section applies to an order containing provision made under any
of the following provisions of this Part—
(a)
section 142A(2)(b);
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(b)
section 142B(2) or (5);
(c)
section 142C;
(d)
section 142D(2) or (4);
(e)
section 142E;
(f)
section 142I;
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(g)
section 142Y.
(2)
No order to which this section applies may be made unless—
(a)
a draft of the order has been laid before Parliament and
approved by a resolution of each House, or
(b)
subsection (4) applies.
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(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
urgency, it is necessary to make the order without a draft being so laid
and approved.
(4)
Where this subsection applies the order—
30
(a)
must 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
35
a new order).
(5)
The “relevant period” is a period of 28 days beginning with the day on
which 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
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either House is adjourned for more than 4 days.
142Z1
Interpretation of Part 9B
(1)
This section has effect for the interpretation of this Part.
(2)
Any reference to—