Financial Services (Banking Reform) Bill

House of Lords

Session 2013 - 14
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Other Bills before Parliament

Financial Services (Banking Reform) Bill

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(3)
The duty in subsection (2) applies only to the extent that compliance with the
duty—
(a)
is compatible with the advancement by each regulator of any of its
objectives, and
(b)
does not impose a burden on the regulators that is disproportionate to
5
the benefits of compliance.
(4)
A function conferred on a regulator relates to matters of common regulatory
interest if—
(a)
another regulator exercises similar or related functions in relation to the
same persons,
10
(b)
another regulator exercises functions which relate to different persons
but relate to similar subject-matter, or
(c)
its exercise could affect the advancement by another regulator of any of
its objectives.
(5)
“Relevant functions” means—
15
(a)
in relation to the Payment Systems Regulator, its functions under this
Part;
(b)
in relation to the Bank of England, its functions under Part 5 of the
Banking Act 2009 (inter-bank payment systems);
(c)
in relation to the FCA, the functions conferred on it by or under FSMA
20
2000 (see section 1A(6) of that Act);
(d)
in relation to the PRA, the functions conferred on it by or under FSMA
2000 (see section 2A(6) of that Act).
(6)
“Objectives” means—
(a)
in relation to the Payment Systems Regulator, its payment systems
25
objectives;
(b)
in relation to the Bank of England, its Financial Stability Objective
under section 2A of the Bank of England Act 1998;
(c)
in relation to the FCA, its strategic objective and operational objectives
under section 1B of FSMA 2000;
30
(d)
in relation to the PRA, its general objective under section 2B of that Act.
84
Memorandum of understanding
(1)
The following are regulators for the purposes of this section—
(a)
the Payment Systems Regulator;
(b)
the Bank of England;
35
(c)
the FCA;
(d)
the PRA.
(2)
The regulators must prepare and maintain a memorandum which describes in
general terms—
(a)
the role of each regulator in relation to the exercise of relevant functions
40
which relate to matters of common regulatory interest, and
(b)
how the regulators intend to comply with section 83 in relation to the
exercise of such functions.
(3)
The regulators must review the memorandum at least once in each calendar
year.
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(4)
The regulators must give the Treasury a copy of the memorandum and any
revised memorandum.
(5)
The Treasury must lay before Parliament a copy of any document received by
them under this section.
(6)
The regulators must ensure that the memorandum as currently in force is
5
published in the way appearing to them to be best calculated to bring it to the
attention of the public.
(7)
The memorandum need not relate to any aspect of compliance with section 83
if the regulators consider—
(a)
that publication of information about that aspect would be against the
10
public interest, or
(b)
that that aspect is a technical or operational matter not affecting the
public.
(8)
In this section—
(a)
the reference in subsection (2)(a) to matters of common regulatory
15
interest is to be read in accordance with section 83(4), and
(b)
references to relevant functions are to be read in accordance with
section 83(5).
85
Power of Bank to require Regulator to refrain from specified action
(1)
Where the first, second and third conditions are met, the Bank of England may
20
give a direction under this section to the Payment Systems Regulator.
(2)
The first condition is that the Payment Systems Regulator is proposing to
exercise any of its powers under this Part in relation to a participant in a
regulated payment system.
(3)
The second condition is that the Bank of England is of the opinion that the
25
exercise of the power in the manner proposed may—
(a)
threaten the stability of the UK financial system,
(b)
have serious consequences for business or other interests in the United
Kingdom, or
(c)
have an adverse effect on the Bank’s ability to act in its capacity as a
30
monetary authority.
(4)
The third condition is that the Bank of England is of the opinion that the giving
of the direction is necessary in order to avoid the possible consequence falling
within subsection (3).
(5)
A direction under this section is a direction requiring the Payment Systems
35
Regulator not to exercise the power or not to exercise it in a specified manner.
(6)
The direction may be expressed to have effect during a specified period or until
revoked.
(7)
The Payment Systems Regulator is not required to comply with a direction
under this section if or to the extent that in the opinion of the Payment Systems
40
Regulator compliance would be incompatible with any EU obligation or any
other international obligation of the United Kingdom.

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Power of FCA to require Regulator to refrain from specified action
(1)
Where the first, second and third conditions are met, the FCA may give a
direction under this section to the Payment Systems Regulator.
(2)
The first condition is that the Payment Systems Regulator is proposing to
exercise any of its powers under this Part in relation to a participant in a
5
regulated payment system.
(3)
The second condition is that the FCA is of the opinion that the exercise of the
power in the manner proposed may have an adverse effect on the ability of the
FCA to comply with its duty under section 1B(1) of FSMA 2000 (FCA’s general
duties).
10
(4)
The third condition is that the FCA is of the opinion that the giving of the
direction is necessary in order to avoid the possible consequence falling within
subsection (3).
(5)
A direction under this section is a direction requiring the Payment Systems
Regulator not to exercise the power or not to exercise it in a specified manner.
15
(6)
The direction may be expressed to have effect during a specified period or until
revoked.
(7)
The Payment Systems Regulator is not required to comply with a direction
under this section if or to the extent that in the opinion of the Payment Systems
Regulator compliance would be incompatible with any EU obligation or any
20
other international obligation of the United Kingdom.
87
Power of PRA to require Regulator to refrain from specified action
(1)
Where the first, second and third conditions are met, the PRA may give a
direction under this section to the Payment Systems Regulator.
(2)
The first condition is that the Payment Systems Regulator is proposing to
25
exercise any of its powers under this Part in relation to—
(a)
a class of PRA-authorised persons, or
(b)
a particular PRA-authorised person.
(3)
The second condition is that the PRA is of the opinion that the exercise of the
power in the manner proposed may—
30
(a)
threaten the stability of the UK financial system,
(b)
result in the failure of a PRA-authorised person in a way that would
have an adverse effect on the stability of the UK financial system, or
(c)
have an adverse effect on the ability of the PRA to comply with its duty
under section 2B(1) of FSMA 2000 (the PRA’s general objective).
35
(4)
The third condition is that the PRA is of the opinion that the giving of the
direction is necessary in order to avoid the possible consequence falling within
subsection (3).
(5)
A direction under this section is a direction requiring the Payment Systems
Regulator not to exercise the power or not to exercise it in a specified manner.
40
(6)
The direction may be expressed to have effect during a specified period or until
revoked.

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(7)
The Payment Systems Regulator is not required to comply with a direction
under this section if or to the extent that in the opinion of the Payment Systems
Regulator compliance would be incompatible with any EU obligation or any
other international obligation of the United Kingdom.
(8)
The reference in subsection (3)(b) to the “failure” of a PRA-authorised person
5
is to be read in accordance with section 2J(3) and (4) of FSMA 2000.
(9)
In this section “PRA-authorised person” has the same meaning as in FSMA
2000 (see section 2B(5) of that Act).
Consultation, accountability and oversight
88
Regulator’s general duty to consult
10
(1)
The Payment Systems Regulator must make and maintain effective
arrangements for consulting relevant persons on—
(a)
the extent to which its general policies and practices are consistent with
its general duties under section 39, and
(b)
how its payment systems objectives may best be achieved.
15
(2)
The following are “relevant persons” for the purposes of this section—
(a)
participants in regulated payment systems, and
(b)
those who use, or are likely to use, services provided by regulated
payment systems.
(3)
Arrangements under this section must include the establishment and
20
maintenance of one or more panels of persons to represent the interests of
relevant persons.
(4)
Where the Payment Systems Regulator establishes a panel under subsection
(3), it must appoint one of the members of the panel to be its chair.
(5)
The Treasury’s approval is required for the appointment or dismissal of the
25
chair of a panel established under subsection (3).
(6)
The Payment Systems Regulator must—
(a)
consider representations that are made to it in accordance with
arrangements made under this section, and
(b)
from time to time publish, in such manner as it thinks fit, responses to
30
the representations.
89
Consultation in relation to generally applicable requirements
(1)
In this section references to imposing a generally applicable requirement are
to—
(a)
giving a general direction, or
35
(b)
imposing a requirement under section 45 that applies to all operators of
regulated payment systems,

and references to the requirement are to be read accordingly.
(2)
Before imposing a generally applicable requirement, the Payment Systems
Regulator must—
40
(a)
consult the Bank of England, the FCA and the PRA, and

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(b)
after doing so, publish a draft of the proposed requirement in the way
appearing to the Payment Systems Regulator to be best calculated to
bring it to the attention of the public.
(3)
The draft must be accompanied by—
(a)
a cost benefit analysis,
5
(b)
an explanation of the purpose of the proposed requirement,
(c)
an explanation of the Payment Systems Regulator’s reasons for
believing that imposing the requirement is compatible with its duties
under section 39, and
(d)
notice that representations about the proposed requirement may be
10
made to the Payment Systems Regulator within a specified time.
(4)
Before imposing the proposed requirement the Payment Systems Regulator
must have regard to any representations made to it in accordance with
subsection (3)(d).
(5)
If the Payment Systems Regulator proposes to impose the requirement, it must
15
publish an account, in general terms, of—
(a)
the representations made to it in accordance with subsection (3)(d), and
(b)
its response to them.
(6)
If the requirement differs from the draft published under subsection (2)(b) in a
way which is, in the opinion of the Payment Systems Regulator, significant the
20
Payment Systems Regulator must (in addition to complying with subsection
(5)) publish details of the difference together with a cost benefit analysis.
(7)
For the purposes of this section a “cost benefit analysis” is—
(a)
an analysis of the costs together with an analysis of the benefits that will
arise—
25
(i)
if the proposed requirement is imposed, or
(ii)
if subsection (6) applies, from the requirement imposed, and
(b)
subject to subsection (8), an estimate of those costs and of those benefits.
(8)
If, in the opinion of the Payment Systems Regulator—
(a)
the costs or benefits referred to in subsection (7) cannot reasonably be
30
estimated, or
(b)
it is not reasonably practicable to produce an estimate,

the cost benefit analysis need not estimate them, but must include a statement
of the Payment Systems Regulator’s opinion and an explanation of it.
(9)
The Payment Systems Regulator may charge a reasonable fee for providing a
35
person with a copy of a draft published under subsection (2)(b).
(10)
Subsections (2)(b) and (3) to (6) do not apply if the Payment Systems Regulator
considers that the delay involved in complying with them would be prejudicial
to the interests of those who use, or are likely to use, services provided by
regulated payment systems.
40
(11)
Subsections (3)(a) and (6) do not apply if the Payment Systems Regulator
considers that, making the appropriate comparison—
(a)
there will be no increase in costs, or
(b)
there will be an increase in costs but the increase will be of minimal
significance.
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(12)
In subsection (11) the “appropriate comparison” means—

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(a)
in relation to subsection (3)(a), a comparison between the overall
position if the requirement is imposed and the overall position if it is
not imposed;
(b)
in relation to subsection (6), a comparison between the overall position
after the imposing of the requirement and the overall position before it
5
was imposed.
90
Independent inquiries
(1)
Section 68 of the Financial Services Act 2012 (cases in which Treasury may
arrange independent inquiries) is amended as follows.
(2)
In subsection (1), for “two” substitute “three”.
10
(3)
After subsection (3) insert—
“(3A)
The third case is where it appears to the Treasury that—
(a)
events have occurred in relation to a regulated payment system
which caused or risked causing significant damage to business
or other interests throughout the United Kingdom, and
15
(b)
those events might not have occurred, or the threat or damage
might have been reduced, but for a serious failure in—
(i)
the system established by Part 5 of the Financial Services
(Banking Reform) Act 2013 for the regulation of
payment systems, or
20
(ii)
the operation of that system.”
(4)
In section 83(1) (interpretation), after the definition of “regulated activity”
insert—
““regulated payment system” has the same meaning as in Part 5 of
the Financial Services (Banking Reform) Act 2013 (see section 95
25
of that Act);”.
91
Investigations into regulatory failure
(1)
Part 5 of the Financial Services Act 2012 (inquiries and investigations) is
amended as follows.
(2)
After section 76 insert—
30
“76A
Duty of Payment Systems Regulator to investigate and report on
possible regulatory failure
(1)
Subsection (3) applies where it appears to the Payment Systems
Regulator that—
(a)
events have occurred in relation to a regulated payment system
35
which had or could have had a significant adverse effect on
effective competition in the interests of—
(i)
participants in the payment system, or
(ii)
those who use, or are likely to use, the services provided
by the payment system, and
40
(b)
those events might not have occurred, or the adverse effect
might have been reduced, but for a serious failure in—

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(i)
the system established by Part 5 of the Financial Services
(Banking Reform) Act 2013 for the regulation of
payment systems, or
(ii)
the operation of that system.
(2)
Subsection (3) also applies where the Treasury direct the Payment
5
Systems Regulator that it appears to the Treasury that the conditions in
subsection (1) are met in relation to specified events.
(3)
The Payment Systems Regulator must carry out an investigation into
the events and the circumstances surrounding them and report to the
Treasury on the result of the investigation.
10
(4)
Subsection (3) does not apply by virtue of subsection (1) if the Treasury
direct the Payment Systems Regulator that it is not required to carry out
an investigation into the events concerned.
(5)
In this section “participant”, in relation to a regulated payment system,
has the same meaning as in Part 5 of the Financial Services (Banking
15
Reform) Act 2013 (see section 33 of that Act).”
(5)
In section 77 (power of Treasury to require FCA or PRA to undertake
investigation)—
(a)
in subsection (1)(a), for “either regulator” substitute “a regulator”;
(b)
in subsection (3), omit the “or” at the end of paragraph (b) and after
20
paragraph (c) insert “, or
(d)
a regulated payment system.”;
(c)
the heading of that section becomes “Power of Treasury to require
regulator to undertake investigation”.
(6)
In section 78 (conduct of investigation), in subsection (1), for “or 74” substitute
25
“, 74 or 76A”.
(7)
In section 79 (conclusion of investigation), for “or 74” substitute “, 74 or 76A”.
(8)
In section 80 (statements of policy), in subsection (1)(a), for “or 74” substitute “,
74 or 76A”.
(9)
In section 81 (publication of directions), in subsection (1), after paragraph (b)
30
insert—
“(ba)
section 76A(4);”.
(10)
In section 83(1) (interpretation)—
(a)
after the definition of “listed securities” insert—
““the Payment Systems Regulator” means the body
35
established under section 31 of the Financial Services
(Banking Reform) Act 2013;”;
(b)
in the definition of “regulator”, for “or the PRA” substitute “, the PRA
or the Payment Systems Regulator”.
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Competition scrutiny
40
(1)
Chapter 4 of Part 9A of FSMA 2000 (competition scrutiny) applies to the
Payment Systems Regulator’s practices and regulating provisions in relation to
payment systems as it applies to the FCA’s practices and regulating provisions
within the meaning of that Chapter.