Financial Services (Banking Reform) Bill

House of Lords

Session 2013 - 14
Internet Publications
Other Bills before Parliament

Financial Services (Banking Reform) Bill

Financial Services (Banking Reform) Bill
Part 4 — Conduct of persons working in financial services sector
36

23
Definition of “misconduct”
(1)
In section 66 of FSMA 2000 (disciplinary powers)—
(a)
after subsection (1) insert—
“(1A)
For provision about when a person is guilty of misconduct for
the purposes of action by a regulator—
5
(a)
see section 66A, in the case of action by the FCA, and
(b)
see section 66B, in the case of action by the PRA.”;
(b)
omit subsections (2), (2A), (6) and (7).
(2)
After that section insert—
“66A
Misconduct: action by the FCA
10
(1)
For the purposes of action by the FCA under section 66, a person is
guilty of misconduct if any of conditions A to C is met in relation to the
person.
(2)
Condition A is that—
(a)
the person has at any time failed to comply with rules made by
15
the FCA under section 64A, and
(b)
at that time the person was—
(i)
an approved person, or
(ii)
an employee of a bank.
(3)
Condition B is that—
20
(a)
the person has at any time been knowingly concerned in a
contravention of a relevant requirement by an authorised
person, and
(b)
at that time the person was—
(i)
an approved person in relation to the authorised person,
25
or
(ii)
in the case of an authorised person that is a bank, an
employee of the bank.
(4)
In this section “relevant requirement” means a requirement—
(a)
imposed by or under this Act, or
30
(b)
imposed by any qualifying EU provision specified, or of a
description specified, for the purposes of this subsection by the
Treasury by order.
(5)
Condition C is that—
(a)
the person has at any time been a senior manager in relation to
35
an authorised person that is a bank,
(b)
there has at that time been (or continued to be) a contravention
of a relevant requirement by the bank, and
(c)
the senior manager was at that time responsible for the
management of any of the bank’s activities in relation to which
40
the contravention occurred.
(6)
But a person (“P”) is not guilty of misconduct by virtue of subsection (5)
if P satisfies the FCA that P had taken such steps as a person in P’s
position could reasonably be expected to take to avoid the
contravention occurring (or continuing).
45

Financial Services (Banking Reform) Bill
Part 4 — Conduct of persons working in financial services sector
37

(7)
For the purposes of subsection (5)—
“senior manager”, in relation to an authorised person that is a
bank, means a person who has approval under section 59 to
perform a designated senior management function in relation to
the carrying on by the bank of a regulated activity;
5
“designated senior management function” means a function
designated as a senior management function under section
59(6B) or (6C).
(8)
In this section—
“approved person”—
10
(a)
means a person in relation to whom an approval is given
under section 59, and
(b)
in relation to an authorised person, means a person in
relation to whom such approval is given on the
application of the authorised person;
15
“employee”, in relation to a person, has the same meaning as in
section 64A.
66B
Misconduct: action by the PRA
(1)
For the purposes of action by the PRA under section 66, a person is
guilty of misconduct if any of conditions A to C is met in relation to the
20
person.
(2)
Condition A is that—
(a)
the person has at any time failed to comply with rules made by
the PRA under section 64A, and
(b)
at that time the person was—
25
(i)
an approved person, or
(ii)
an employee of a PRA-authorised bank.
(3)
Condition B is that—
(a)
the person has at any time been knowingly concerned in a
contravention of a relevant requirement by a PRA-authorised
30
person, and
(b)
at that time the person was—
(i)
an approved person in respect of the performance of a
relevant senior management function in relation to the
carrying on by the PRA-authorised person of a
35
regulated activity, or
(ii)
in the case of an authorised person that is a bank, an
employee of the bank.
(4)
In this section “relevant requirement” means a requirement—
(a)
imposed by or under this Act, or
40
(b)
imposed by any qualifying EU provision specified, or of a
description specified, for the purposes of this subsection by the
Treasury by order.
(5)
Condition C is that—
(a)
the person has at any time been a senior manager in relation to
45
a PRA-authorised bank,

Financial Services (Banking Reform) Bill
Part 4 — Conduct of persons working in financial services sector
38

(b)
there has at that time been (or continued to be) a contravention
of a relevant requirement by the bank, and
(c)
the senior manager was at that time responsible for the
management of any of the bank’s activities in relation to which
the contravention occurred.
5
(6)
But a person (“P”) is not guilty of misconduct by virtue of subsection (5)
if P satisfies the PRA that P had taken such steps as a person in P’s
position could reasonably be expected to take to avoid the
contravention occurring (or continuing).
(7)
For the purposes of subsection (5)—
10
“senior manager”, in relation to an authorised person that is a
bank, means a person who has approval under section 59 to
perform a designated senior management function in relation to
the carrying on by the bank of a regulated activity;
“designated senior management function” means a function
15
designated as a senior management function under section
59(6B) or (6C).
(8)
In this section—
“approved person”—
(a)
means a person in relation to whom—
20
(i)
the PRA has given its approval under section 59,
or
(ii)
the FCA has given its approval under section 59
in respect of the performance by the person of a
relevant senior management function in relation
25
to the carrying on by a PRA-authorised person of
a regulated activity, and
(b)
in relation to an authorised person, means a person in
relation to whom approval under section 59 is given on
the application of the authorised person;
30
“employee”, in relation to a person, has the same meaning as in
section 64A;
“PRA-authorised bank” means a bank that is a PRA-authorised
person;
“relevant senior management function” means a function which
35
the PRA is satisfied is a senior management function as defined
in section 59ZA (whether or not the function has been
designated as such by the FCA).”
24
Meaning of “bank”
In Part 5 of FSMA 2000 (performance of regulated activities), after section 71
40
insert—
““Bank”
71A
Meaning of “bank”
(1)
In this Part “bank” means a UK institution which has permission under
Part 4A to carry on the regulated activity of accepting deposits.
45
(2)
But “bank” does not include an insurer.

Financial Services (Banking Reform) Bill
Part 4 — Conduct of persons working in financial services sector
39

(3)
In this section—
(a)
“UK institution” means an institution which is incorporated in,
or formed under the law of any part of, the United Kingdom;
(b)
“insurer” means an institution which is authorised under this
Act to carry on the regulated activity of effecting or carrying out
5
contracts of insurance as principal.
(4)
Subsections (1) and (3)(b) are to be read in accordance with section 22,
taken with Schedule 2 and any order under section 22.”
25
Recording information about senior managers
(1)
Section 347 of FSMA 2000 (the record of authorised persons etc.) is amended as
10
follows.
(2)
In subsection (2)—
(a)
in paragraph (g), after sub-paragraph (iii) insert—
“(iv)
in a case where the relevant authorised person is
a bank, whether or not the person is a senior
15
manager;”;
(b)
after that paragraph insert—
“(h)
in the case of an approved person who is a senior
manager in relation to an authorised person that is a
bank—
20
(i)
whether a final notice has been given to the
person under section 390; and
(ii)
if so, any information about the matter to which
the notice relates which has been published
under section 391(4).”
25
(3)
After subsection (8) insert—
“(8A)
In this section—
“senior manager”, in relation to an authorised person that is a
bank, means a person who has approval under section 59 to
perform a designated senior management function in relation to
30
the carrying on by the bank of a regulated activity,
“bank” has the same meaning as in Part 5 (see section 71A), and
“designated senior management function” means a function
designated as a senior management function under section
59(6B) or (6C).”
35
26
Consequential amendments relating to Part 4
Schedule 3 (which contains further amendments relating to the provisions of
this Part) has effect.
Offence
27
Offence relating to decision that results in bank failure
40
(1)
A person (“S”) commits an offence if—
(a)
at a time when S is a senior manager in relation to a bank (“B”), S—

Financial Services (Banking Reform) Bill
Part 4 — Conduct of persons working in financial services sector
40

(i)
takes, or agrees to the taking of, a decision by or on behalf of B
as to the way in which the business of a group bank is to be
carried on, or
(ii)
fails to take steps that S could take to prevent such a decision
being taken,
5
(b)
at the time of the decision, S is aware of a risk that the implementation
of the decision may cause the failure of the group bank,
(c)
in all the circumstances, S’s conduct in relation to the taking of the
decision falls far below what could reasonably be expected of a person
in S’s position, and
10
(d)
the implementation of the decision causes the failure of the group bank.
(2)
A “group bank”, in relation to a bank (“B”), means B or any other bank that is
a member of B’s group for the purpose of FSMA 2000 (see section 421 of that
Act).
(3)
Subsections (1) and (2) are to be read with the interpretative provisions in
15
section 28.
(4)
A person guilty of an offence under this section is liable—
(a)
on summary conviction—
(i)
in England and Wales, to imprisonment for a term not
exceeding 12 months (or 6 months, if the offence was committed
20
before the commencement of section 154(1) of the Criminal
Justice Act 2003) or a fine, or both;
(ii)
in Scotland, to imprisonment for a term not exceeding 12
months or a fine not exceeding the statutory maximum, or both;
(iii)
in Northern Ireland, to imprisonment for a term not exceeding
25
6 months or a fine not exceeding the statutory maximum, or
both;
(b)
on conviction on indictment, to imprisonment for a term not exceeding
7 years or a fine, or both.
28
Section 27: interpretation
30
(1)
This section has effect for the interpretation of section 27.
(2)
“Bank” means a UK institution which has permission under Part 4A of FSMA
2000 to carry on the regulated activity of accepting deposits.
(3)
But “bank” does not include—
(a)
an insurer, or
35
(b)
a credit union.
(4)
In subsections (2) and (3)—
(a)
“UK institution” means an institution which is incorporated in, or
formed under the law of any part of, the United Kingdom;
(b)
“insurer” means an institution which is authorised under FSMA 2000 to
40
carry on the regulated activity of effecting or carrying out contracts of
insurance as principal;
(c)
“credit union” means a credit union as defined by section 31 of the
Credit Unions Act 1979 or a credit union as defined by Article 2(2) of
the Credit Unions (Northern Ireland) Order 1985.
45

Financial Services (Banking Reform) Bill
Part 4 — Conduct of persons working in financial services sector
41

(5)
Subsections (2) and (4)(b) are to be read in accordance with section 22 of FSMA
2000, taken with Schedule 2 to that Act and any order under that section.
(6)
A person is a “senior manager” in relation to a bank if, under an arrangement
entered into by the bank, or by a contractor of the bank, in relation to the
carrying on by the bank of a regulated activity, the person performs a function
5
that is designated as a senior management function—
(a)
by the FCA under subsection (6B) of section 59 of FSMA 2000 (approval
for particular arrangements), or
(b)
by the PRA under subsection (6C) of that section.
(7)
A bank (“B”) is to be regarded as failing where—
10
(a)
B enters insolvency,
(b)
any of the stabilisation options in Part 1 of the Banking Act 2009 is
achieved in relation to B, or
(c)
B is taken for the purposes of the Financial Services Compensation
Scheme to be unable, or likely to be unable, to satisfy claims against B.
15
(8)
In subsection (7)(a) “insolvency” includes—
(a)
bankruptcy,
(b)
liquidation,
(c)
bank insolvency,
(d)
administration,
20
(e)
bank administration,
(f)
receivership,
(g)
a composition between B and B’s creditors, and
(h)
a scheme of arrangement of B’s affairs.
29
Institution of proceedings
25
(1)
In this section “an offence” means an offence under section 27.
(2)
Proceedings for an offence may be instituted in England and Wales only—
(a)
by the FCA, the PRA or the Secretary of State, or
(b)
by or with the consent of the Director of Public Prosecutions.
(3)
Proceedings for an offence may be instituted in Northern Ireland only—
30
(a)
by the FCA, the PRA or the Secretary of State, or
(b)
by or with the consent of the Director of Public Prosecutions for
Northern Ireland.
(4)
In exercising its power to institute proceedings for an offence, the FCA or the
PRA must comply with any conditions or restrictions imposed in writing by
35
the Treasury.
(5)
Conditions or restrictions may be imposed under subsection (4) in relation to—
(a)
proceedings generally, or
(b)
such proceedings, or categories of proceedings, as the Treasury may
direct.
40

Financial Services (Banking Reform) Bill
Part 5 — Regulation of payment systems
42

Part 5
Regulation of payment systems
Overview
30
Overview
(1)
This Part contains provision for the establishment of a new body (the “Payment
5
Systems Regulator”) to exercise functions in relation to payment systems.
(2)
Section 31 provides for the establishment of the Payment Systems Regulator.
(3)
Sections 32 and 33 contain definitions of “payment system” and related terms.
(4)
Sections 34 to 38 make provision about designating a payment system as a
regulated payment system.
10
(5)
Sections 39 to 43 contain provision about the general duties of the Payment
Systems Regulator under this Part.
(6)
Sections 44 to 57 confer various regulatory and competition functions on the
Payment Systems Regulator.
(7)
Sections 58 to 60 contain provision about the making of complaints to the
15
Payment Systems Regulator.
(8)
Sections 61 to 70 contain provision about enforcement and appeals.
(9)
Sections 71 to 82 contain supplementary powers.
(10)
Sections 83 to 87 contain provision about the Payment Systems Regulator’s
relationship with other regulators.
20
(11)
Sections 88 to 92 contain provision about consultation, accountability and
oversight.
(12)
Sections 93 to 95 contain miscellaneous and supplemental provision.
The Payment Systems Regulator
31
The Payment Systems Regulator
25
(1)
The FCA must establish a body corporate to exercise the functions conferred
on the body by or under this Part.
(2)
The body established under subsection (1) is referred to in this Part as the
Payment Systems Regulator.
(3)
The FCA must take such steps as are necessary to ensure that the Payment
30
Systems Regulator is, at all times, capable of exercising the functions referred
to in subsection (1).
(4)
In complying with the duty imposed by subsection (3) the FCA may, in
particular—
(a)
provide staff to the Payment Systems Regulator, and
35
(b)
provide services to the Payment Systems Regulator which the FCA
considers would facilitate the exercise of any of those functions.