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
22

(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
section 22.
(3)
Any reference to the group restructuring powers is to be read in
5
accordance with section 142L(1).”
(2)
In section 133 of FSMA 2000 (proceedings before Tribunal), in subsection (7A),
after paragraph (i) insert—
“(ia)
a decision to take action under section 142S;”.
(3)
In section 391 of FSMA 2000 (publication), in subsection (1ZB), after paragraph
10
(i) insert—
“(ia)
section 142N;”.
(4)
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),”.
15
(5)
In section 417 of FSMA 2000 (definitions), in subsection (1)—
(a)
after 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—
20
““excluded activities” has the meaning given in section
142D;”, and
(c)
after the definition of “regulator” insert—
““ring-fenced body” has the meaning given in section
142A;
25
“ring-fencing rules” has the meaning given in section
142H;”.
(6)
In Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority), in
paragraph 8(3)(c)(i), after “138N,” insert “142V,”.
(7)
In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority), in
30
paragraph 16(3)(c)(i), after “69,” insert “142V,”.
5
Directors of ring-fenced bodies to be approved persons
(1)
Section 59 of FSMA 2000 (approval for particular arrangements) is amended as
follows.
(2)
After subsection (6) insert—
35
“(6A)
In relation to the carrying on of a regulated activity by an authorised
person which is a ring-fenced body, the function of acting as a director
of the body must be specified as a controlled function in rules made—
(a)
in a case where the body is a PRA-authorised person, by the
PRA, or
40
(b)
in any other case, by the FCA.”

Financial Services (Banking Reform) Bill
Part 1 — Ring-fencing
23

(3)
After subsection (10) insert—
“(10A)
In relation to a body which does not have a board of directors,
“director” means a member of its equivalent management body.”
6
PRA annual report
(1)
In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority),
5
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
complied with the ring-fencing provisions,
10
(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,
(d)
the extent to which ring-fenced bodies are carrying on the
regulated activity of dealing in investments as principal
15
(whether in the United Kingdom or elsewhere) in
circumstances where as a result of an order under section
142D(2) that activity is not an excluded activity,
(e)
the extent to which ring-fenced bodies are carrying on
activities that would be excluded activities by virtue of an
20
order under section 142D(4) but for an exemption or
exclusion made by such an order,
(f)
the extent to which ring-fenced bodies are doing things that
they would be prohibited from doing by an order under
section 142E but for an exemption made by such an order,
25
and
(g)
the extent to which ring-fenced bodies appear to it to have
acted in accordance with any guidance which it has given to
ring-fenced bodies and which relates to the operation of the
ring-fencing provisions.
30
     (1B)
In sub-paragraph (1A)—
(a)
references to “ring-fenced bodies” relate only to ring-fenced
bodies 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.”
35
(3)
In sub-paragraph (2), for “Sub-paragraph (1) does not” substitute “Sub-
paragraphs (1) and (1A) do not”.
7
Ring-fencing transfer schemes
Schedule 1 (which contains amendments of Part 7 of FSMA 2000 relating to
ring-fencing transfer schemes) has effect.
40
8
Building societies: power to make provision about ring-fencing
(1)
The Treasury may by regulations—
(a)
make provision in relation to building societies for purposes
corresponding to those of any provision made, in relation to authorised

Financial Services (Banking Reform) Bill
Part 2 — Depositor preference and the Financial Services Compensation Scheme
24

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
relation to the exercise by the FCA or the PRA of any function conferred
on it by or under provision made pursuant to paragraph (a).
5
(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
FSMA 2000, with such modifications as the Treasury consider
appropriate;
10
(c)
authorise the making of rules or other instruments by the FCA or the
PRA for the purposes of, or for purposes connected with, any provision
made by the regulations;
(d)
confer functions on the FCA or the PRA;
(e)
make such consequential provision including amendments of any
15
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)
In this section—
20
“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
objective set out in section 1EA of FSMA 2000, or
25
(b)
in the case of functions exercisable by the PRA, section 2B(3)(c)
and (4A) of that Act.
Part 2
Depositor preference and the Financial Services Compensation Scheme
Depositor preference
30
9
Preferential debts: Great Britain
(1)
In 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
35
respect of an eligible deposit as does not exceed the compensation
that 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
40
15C   (1)
In paragraph 15B “eligible deposit” means a deposit in respect of
which the person, or any of the persons, to whom it is owed would

Financial Services (Banking Reform) Bill
Part 2 — Depositor preference and the Financial Services Compensation Scheme
25

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
Markets Act 2000 (deposits), or
5
(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
subsection (1), after “production” insert “; deposits covered by Financial
10
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
15
respect of an eligible deposit as does not exceed the compensation
that 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
20
Part 1), after paragraph 9 insert—
“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
25
Compensation Scheme.
      (2)
For 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
30
10
Discharge of functions by the scheme manager
After 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
35
of those functions, and
(b)
the need to minimise public expenditure attributable to loans
made or other financial assistance given to the scheme manager
for the purposes of the scheme.

Financial Services (Banking Reform) Bill
Part 3 — Bail-in stabilisation option
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(2)
In subsection (1)(b) “financial assistance” includes the giving of
guarantees and indemnities and any other kind of financial assistance
(actual or contingent).”
11
Power to require information from scheme manager
After section 218A of FSMA 2000 insert—
5
“218B
Treasury’s power to require information from scheme manager
(1)
The Treasury may by notice in writing require the scheme manager to
provide 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.
10
(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
15
Compensation Scheme) is amended as follows.
(2)
In 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);
20
and”, and
(c)
in 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”.
25
Part 3
Bail-in stabilisation option
13
Bail-in stabilisation option
(1)
Schedule 2 (which contains amendments relating to a new stabilisation option
in Part 1 of the Banking Act 2009) has effect.
30
(2)
The Treasury may by order make any provision they consider appropriate in
consequence of the application to building societies of the amendments made
by this Part.
(3)
An order may, in particular, amend section 84 of the Banking Act 2009, or
amend or modify the effect of any other enactment to which this subsection
35
applies.
(4)
Subsection (3) applies to any enactment (including a fiscal enactment) passed
or made—
(a)
before the passing of this Act, or

Financial Services (Banking Reform) Bill
Part 4 — Conduct of persons working in financial services sector
27

(b)
on or before the last day of the Session in which this Act is passed.
(5)
In this section “building society” has the same meaning as in section 84 of the
Banking Act 2009.

Part 4
5
Conduct of persons working in financial services sector
Amendments of FSMA 2000
14
Functions for which approval is required
(1)
Section 59 of FSMA 2000 (approval for particular arrangements) is amended as
follows.
10
(2)
Omit subsection (5).
(3)
For subsection (6) substitute—
“(6)
The PRA may specify a description of function under subsection (3)(a)
only if, in relation to the carrying on of a regulated activity by a PRA-
authorised person, it is satisfied that the function is a senior
15
management function as defined in section 59ZA.”
(4)
After subsection (6A) (inserted by section 5 above) insert—
“(6B)
If—
(a)
a function of a description specified in rules made by the FCA
under subsection (3)(a) or (b) is a controlled function in relation
20
to the carrying on of a regulated activity by a bank, and
(b)
the FCA is satisfied that, in relation to the carrying on of a
regulated activity by a bank, the function is a senior
management function as defined in section 59ZA,

the FCA must designate the function in the rules as a senior
25
management function.
(6C)
If a function of a description specified in rules made by the PRA under
subsection (3)(a) is a controlled function in relation to the carrying on
of a regulated activity by a bank, the PRA must designate the function
in the rules as a senior management function.”
30
(5)
Omit subsections (7) to (7B) and (11).
15
Senior management functions
After section 59 of FSMA 2000 insert—
“59ZA
Senior management functions
(1)
This section has effect for determining whether a function is for the
35
purposes of section 59(6) or (6B) a senior management function.
(2)
A function is a “senior management function”, in relation to the
carrying on of a regulated activity by an authorised person, if—

Financial Services (Banking Reform) Bill
Part 4 — Conduct of persons working in financial services sector
28

(a)
the function will require the person performing it to be
responsible for managing one or more aspects of the authorised
person’s affairs, so far as relating to the activity, and
(b)
those aspects involve, or might involve, a risk of serious
consequences—
5
(i)
for the authorised person, or
(ii)
for business or other interests in the United Kingdom.
(3)
In subsection (2)(a) the reference to managing one or more aspects of an
authorised person’s affairs includes a reference to taking decisions, or
participating in the taking of decisions, about how one or more aspects
10
of those affairs should be carried on.”
16
Statements of responsibilities
(1)
Section 60 of FSMA 2000 (applications for approval) is amended as follows.
(2)
After subsection (2) insert—
“(2A)
If—
15
(a)
the application is for the approval of a person to perform a
designated senior management function, and
(b)
the authorised person concerned is a bank,

the appropriate regulator must require the application to contain, or be
accompanied by, a statement setting out the aspects of the affairs of the
20
authorised person concerned which it is intended that the person will
be responsible for managing in performing the function.
(2B)
A statement provided under subsection (2A) is known as a “statement
of responsibilities”.
(2C)
In subsection (2A) “designated senior management function” means a
25
function designated as a senior management function under section
59(6B) or (6C).”
(3)
After subsection (6) insert—
“(6A)
Subsection (6) applies to references to a bank as it applies to references
to the authorised person concerned.”
30
17
Power to give approval subject to conditions or for limited period
(1)
Section 61 of FSMA 2000 (determination of applications) is amended as
follows.
(2)
For subsection (1) substitute—
“(1)
The regulator to which an application for approval is made under
35
section 60 may grant the application only if—
(a)
it is satisfied that the person in respect of whom the application
is made (“the candidate”) is a fit and proper person to perform
the function to which the application relates, or
(b)
in a case where the application is for approval to perform a
40
designated senior management function in relation to the
carrying on of a regulated activity by a bank (a “bank-related
senior management application”), it is satisfied that the