Financial Services (Banking Reform) Bill

House of Lords

Session 2013 - 14
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Other Bills before Parliament

Financial Services (Banking Reform) Bill

Financial Services (Banking Reform) Bill
Part 1 — Ring-fencing
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Ring-fencing rules
142H
Ring-fencing rules
(1)
In the exercise of its power to make general rules, the appropriate
regulator must in particular make rules—
(a)
requiring a ring-fenced body to make arrangements to ensure
5
the effective provision to the ring-fenced body of services and
facilities that it requires in relation to the carrying on of a core
activity, and
(b)
making provision for the group ring-fencing purposes applying
to ring-fenced bodies and to authorised persons who are
10
members of a ring-fenced body’s group.
(2)
Section 142E(1)(c) does not affect the power of the appropriate
regulator to make general rules imposing restrictions on the extent of
the shares or voting power that a ring-fenced body may hold in another
company, except where a restriction on the extent of the shares or
15
voting power that the ring-fenced body may hold in the company is
imposed by order under section 142E(1)(c).
(3)
General rules that are required by this section or make provision falling
within subsection (2) are in this Act referred to as “ring-fencing rules”.
(4)
The “group ring-fencing purposes” are—
20
(a)
ensuring as far as reasonably practicable that the carrying on of
core activities by a ring-fenced body is not adversely affected by
the acts or omissions of other members of its group;
(b)
ensuring as far as reasonably practicable that in carrying on its
business a ring-fenced body—
25
(i)
is able to take decisions independently of other
members of its group, and
(ii)
does not depend on resources which are provided by a
member of its group and which would cease to be
available to the ring-fenced body in the event of the
30
insolvency of the other member;
(c)
ensuring as far as reasonably practicable that the ring-fenced
body would be able to continue to carry on core activities in the
event of the insolvency of one or more other members of its
group.
35
(5)
Ring-fencing rules made for the group ring-fencing purposes must
include—
(a)
provision restricting the power of a ring-fenced body to enter
into contracts with other members of its group otherwise than
on arm’s length terms;
40
(b)
provision restricting the payments that a ring-fenced body may
make (by way of dividend or otherwise) to other members of its
group;
(c)
provision requiring the disclosure to the appropriate regulator
of information relating to transactions between a ring-fenced
45
body and other members of its group;
(d)
provision requiring a ring-fenced body to ensure that its board
of directors (or if there is no such board, the equivalent
management body) includes to a specified extent—

Financial Services (Banking Reform) Bill
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(i)
members who are treated by the rules as being
independent of other members of the ring-fenced
body’s group,
(ii)
members who are treated by the rules as being
independent of the ring-fenced body itself, and
5
(iii)
non-executive members;
(e)
provision requiring a ring-fenced body to act in accordance
with a remuneration policy meeting specified requirements;
(f)
provision requiring a ring-fenced body to act in accordance
with a human resources policy meeting specified requirements;
10
(g)
provision requiring arrangements made by the ring-fenced
body for the identification, monitoring and management of risk
to meet specified requirements;
(h)
such other provision as the appropriate regulator considers
necessary or expedient for any of the purposes in subsection (4).
15
(6)
The reference in subsection (5)(e) to a remuneration policy is a reference
to a policy about the remuneration of officers, employees and other
persons who (in each case) are of a specified description.
(7)
The reference in subsection (5)(f) to a human resources policy is a
reference to a policy about the appointment and management of
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officers, employees and other persons who (in each case) are of a
specified description.
(8)
In this section—
“the appropriate regulator” means—
(a)
in relation to a PRA-authorised person, the PRA,
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(b)
in relation to any other authorised person, the FCA;
“shares” has the meaning given in section 422;
“specified” means specified in the rules;
“voting power” has the meaning given in section 422.
142I
Powers of Treasury in relation to ring-fencing rules
30
(1)
The Treasury may by order require the appropriate regulator, as
defined in section 142H(8), to include (or not to include) in ring-fencing
rules specified provision relating to—
(a)
any of the matters mentioned in section 142H(5)(a) to (g), or
(b)
any other specified matter.
35
(2)
The power to make an order under this section is exercisable only if the
Treasury consider it necessary or expedient to do so—
(a)
for any of the group ring-fencing purposes as defined in section
142H(4), or
(b)
otherwise for securing the independence of ring-fenced bodies
40
from other members of their groups.
(3)
“Specified” means specified in the order.
142J
Review of ring-fencing rules etc
(1)
The PRA must carry out reviews of its ring-fencing rules and of any
rules made by it under section 192JA (rules applying to parent
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undertakings of ring-fenced bodies).

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(2)
The first review must be completed before the end of the period of 5
years beginning with the day on which the first ring-fencing rules come
into force.
(3)
Subsequent reviews must be completed before the end of the period of
5 years beginning with the day on which the previous review was
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completed.
(4)
The PRA must give the Treasury a report of each review.
(5)
The Treasury must lay a copy of the report before Parliament.
(6)
The PRA must publish the report in such manner as it thinks fit.
(7)
If (because any ring-fenced body is not a PRA-authorised person)
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section 142H has the effect of requiring the FCA to make ring-fencing
rules, subsections (1) to (6) apply to the FCA as they apply to the PRA.
Group restructuring powers
142K
Cases in which group restructuring powers become exercisable
(1)
The appropriate regulator may exercise the group restructuring
15
powers only if it is satisfied that one or more of Conditions A to D is met
in relation to a ring-fenced body that is a member of a group.
(2)
Condition A is that the carrying on of core activities by the ring-fenced
body is being adversely affected by the acts or omissions of other
members of its group.
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(3)
Condition B is that in carrying on its business the ring-fenced body—
(a)
is unable to take decisions independently of other members of
its group, or
(b)
depends on resources which are provided by a member of its
group and which would cease to be available in the event of the
25
insolvency of the other member.
(4)
Condition C is that in the event of the insolvency of one or more other
members of its group the ring-fenced body would be unable to
continue to carry on the core activities carried on by it.
(5)
Condition D is that the ring-fenced body or another member of its
30
group has engaged, or is engaged, in conduct which is having, or
would apart from this section be likely to have, an adverse effect on the
advancement by the appropriate regulator—
(a)
in the case of the PRA, of the objective in section 2B(3)(c), or
(b)
in the case of the FCA, of the continuity objective.
35
(6)
The appropriate regulator may not exercise the group restructuring
powers in relation to any person if—
(a)
either regulator has previously exercised the group
restructuring powers in relation to that person, and
(b)
the decision notice in relation to the current exercise is given
40
before the second anniversary of the day on which the decision
notice in relation to the previous exercise was given.
(7)
In this section and sections 142L to 142Q “the appropriate regulator”
means—

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(a)
where the ring-fenced body is a PRA-authorised person, the
PRA;
(b)
where it is not, the FCA.
142L
Group restructuring powers
(1)
In this Part “the group restructuring powers” means one or more of the
5
powers conferred by this section.
(2)
Where the appropriate regulator is the PRA, the powers conferred by
this section are as follows—
(a)
in relation to the ring-fenced body, power to impose a
requirement on the ring-fenced body requiring it to take any of
10
the steps mentioned in subsection (5),
(b)
in relation to any member of the ring-fenced body’s group
which is a PRA-authorised person, power to impose a
requirement on the PRA-authorised person requiring it to take
any of the steps mentioned in subsection (6),
15
(c)
in relation to any member of the ring-fenced body’s group
which is an authorised person but not a PRA-authorised
person, power to direct the FCA to impose a requirement on the
authorised person requiring it to take any of the steps
mentioned in subsection (6), and
20
(d)
in relation to a qualifying parent undertaking, power to give a
direction under this paragraph to the parent undertaking
requiring it to take any of the steps mentioned in subsection (6).
(3)
Where the appropriate regulator is the FCA, the powers conferred by
this section are as follows—
25
(a)
in relation to the ring-fenced body, power to impose a
requirement on the ring-fenced body requiring it to take any of
the steps mentioned in subsection (5),
(b)
in relation to any member of the ring-fenced body’s group
which is an authorised person but not a PRA-authorised
30
person, power to impose a requirement on the authorised
person requiring it to take any of the steps mentioned in
subsection (6),
(c)
in relation to any member of the ring-fenced body’s group
which is a PRA-authorised person, power to direct the PRA to
35
impose a requirement on the authorised person requiring it to
take any of the steps mentioned in subsection (6), and
(d)
in relation to a qualifying parent undertaking, power to give a
direction under this paragraph to the parent undertaking
requiring it to take any of the steps mentioned in subsection (6).
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(4)
A parent undertaking of a ring-fenced body by reference to which the
group restructuring powers are exercisable is for the purposes of this
Part a “qualifying parent undertaking” if—
(a)
it is a body corporate which is incorporated in the United
Kingdom and has a place of business in the United Kingdom,
45
and
(b)
it is not itself an authorised person.
(5)
The steps that the ring-fenced body may be required to take are—
(a)
to dispose of specified property or rights to an outside person;

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(b)
to apply to the court under Part 7 for an order sanctioning a
ring-fencing transfer scheme relating to the transfer of the
whole or part of the business of the ring-fenced body to an
outside person;
(c)
otherwise to make arrangements discharging the ring-fenced
5
body from specified liabilities.
(6)
The steps that another authorised person or a qualifying parent
undertaking may be required to take are—
(a)
to dispose of any shares in, or securities of, the ring-fenced body
to an outside person;
10
(b)
to dispose of any interest in any other body corporate that is a
member of the ring-fenced body’s group to an outside person;
(c)
to dispose of other specified property or rights to an outside
person;
(d)
to apply to the court under Part 7 for an order sanctioning a
15
ring-fencing transfer scheme relating to the transfer of the
whole or part of the business of the authorised person or
qualifying parent undertaking to an outside person.
(7)
In subsections (5) and (6) “outside person” means a person who, after
the implementation of the disposal or scheme in question, will not be a
20
member of the group of the ring-fenced body by reference to which the
powers are exercised (whether or not that body is to remain a ring-
fenced body after the implementation of the disposal or scheme in
question).
(8)
It is immaterial whether a requirement to be imposed on an authorised
25
person by the appropriate regulator, or by the other regulator at the
direction of the appropriate regulator, is one that the regulator
imposing it could impose under section 55L or 55M.
142M
Procedure: preliminary notices
(1)
If the appropriate regulator proposes to exercise the group
30
restructuring powers in relation to any authorised person or qualifying
parent undertaking (“the person concerned”), the regulator must give
each of the relevant persons a notice (a “preliminary notice”).
(2)
The preliminary notice must—
(a)
state that it is a preliminary notice,
35
(b)
state that the regulator proposes to exercise the group
restructuring powers,
(c)
state the action which the regulator proposes to take in the
exercise of those powers,
(d)
be in writing, and
40
(e)
give reasons for the proposed action (which must include the
regulator’s reasons for being satisfied as to the matters
mentioned in section 142K(1)).
(3)
The appropriate regulator must give a copy of the preliminary notice to
the Treasury.
45
(4)
The preliminary notice must specify a reasonable period (which may
not be less than 14 days) within which any of the relevant persons may
make representations to the regulator.

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(5)
The relevant persons are—
(a)
the person concerned,
(b)
the ring-fenced body, if not the person concerned, and
(c)
any other authorised person who will, in the opinion of the
appropriate regulator, be significantly affected by the exercise
5
of the group restructuring powers.
142N
Procedure: warning notice and decision notice
(1)
If the appropriate regulator has given a preliminary notice under
section 142M, it must either—
(a)
if, having considered any representations made by any of the
10
relevant persons, it still proposes to exercise the group
restructuring powers, give each of the relevant persons a
warning notice during the warning notice period, or
(b)
before the end of the warning notice period, give each of them
a written notice stating that it has decided not to exercise the
15
powers and give a copy of that notice to the Treasury.
(2)
The “warning notice period” is the period—
(a)
beginning 3 months after the end of the period specified under
section 142M(4) as that within which any representations must
be made, and
20
(b)
ending 6 months after the end of that period.
(3)
Before giving a warning notice under subsection (1)(a), the appropriate
regulator must—
(a)
give the Treasury a draft of the notice,
(b)
provide the Treasury with any information that the Treasury
25
may require in order to decide whether to give their consent,
and
(c)
obtain the consent of the Treasury.
(4)
The action specified in the warning notice may be different from that
specified in the preliminary notice if—
30
(a)
the appropriate regulator considers that different action is
appropriate as a result of any change in circumstances since the
preliminary notice was given, or
(b)
the person concerned consents to the change.
(5)
The regulator must, in particular, have regard to anything that—
35
(a)
has been done by the person concerned since the giving of the
preliminary notice, and
(b)
represents action that would have been required in pursuance
of the proposals in that notice.
(6)
If the regulator decides to exercise the group restructuring powers it
40
must give each of the relevant persons a decision notice.
(7)
The decision notice must specify the date or dates by which each of the
following must be completed—
(a)
any disposal of shares, securities or other property that is
required by the notice;
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(b)
any transfer of liabilities for which the notice requires
arrangements to be made.

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(8)
The giving of consent for the purpose of subsection (4)(b) does not
affect any right to refer to the Tribunal the matter to which any decision
notice resulting from the warning notice relates.
(9)
“The relevant persons” has the same meaning as in section 142M.
142O
References to Tribunal
5
(1)
A notified person who is aggrieved by—
(a)
the imposition by either regulator of a requirement as a result of
section 142L(2)(a) or (b) or (3)(a) or (b),
(b)
a requirement to be imposed as a result of the giving by one
regulator to the other of a direction under section 142L(2)(c) or
10
(3)(c), or
(c)
the giving by either regulator of a direction under section
142L(2)(d) or (3)(d),

may refer the matter to the Tribunal.
(2)
“Notified person” means a person to whom a decision notice under
15
section 142N(6) was given or ought to have been given.
142P
Subsequent variation of requirement or direction
(1)
A regulator may at any time with the consent of the person concerned
vary—
(a)
a requirement imposed by it as a result of section 142L(2)(a) or
20
(b) or (3)(a) or (b), or
(b)
a direction given by it as a result of section 142L(2)(c) or (d) or
(3)(c) or (d).
(2)
The person concerned may at any time apply to the appropriate
regulator for the variation of—
25
(a)
a requirement imposed by it as a result of section 142L(2)(a) or
(b) or (3)(a) or (b), or
(b)
a direction given by it as a result of section 142L(2)(c) or (d) or
(3)(c) or (d).
(3)
Sections 55U, 55V, 55X and 55Z3 apply to an application under
30
subsection (2) as they apply to an application for the variation of a
requirement imposed by the appropriate regulator under section 55L
or 55M.
142Q
Consultation etc. between regulators
(1)
Where a notice under section 142M or a warning notice or decision
35
notice under section 142N relates to a requirement to be imposed in
pursuance of a direction to be given as a result of section 142L(2)(c) or
(3)(c), the appropriate regulator must—
(a)
consult the other regulator before giving the notice, and
(b)
give a copy of the notice to the other regulator.
40
(2)
The appropriate regulator must consult the other regulator before
varying under section 142P a direction given as a result of section
142L(2)(c) or (3)(c).
(3)
Directions given by the FCA as a result of section 142L(3)(c) are subject
to any directions given to the FCA under section 3I.
45