Financial Services (Banking Reform) Bill (HL Bill 54)

(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
5Ireland) Act 1993.

(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) 10in relation to England and Wales or Northern Ireland, the High
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) 15The Treasury may by order make provision about the exercise by either
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) 20to ensure that any part of the relevant body’s debt consists of
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) 25any other body corporate that has a Part 4A permission relating
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) 30a bond,

(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
35relevant bodies to do either or both of the things mentioned in
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
40order;

(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
45matters;

(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
5specified function procedural requirements which would not
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.

(b)(b)10limit 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;

(c) require the regulator—

(i) 15to make, or not to make, provision by reference to
specified matters, or

(ii) to have regard, or not to have regard, to specified
matters;

(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
5specified function procedural requirements which would not
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) 10“Specified” means specified in the order.

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) 15section 142A(2)(b);

(b) section 142B(2) or (5);

(c) section 142C;

(d) section 142D(2) or (4);

(e) section 142E;

(f) 20section 142I;

(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) 25subsection (4) applies.

(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) 30Where this subsection applies the order—

(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
35affecting anything done under the order or the power to make
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
40during which Parliament is dissolved or prorogued or during which
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—

(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) 5Any reference to the group restructuring powers is to be read in
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) 10In section 391 of FSMA 2000 (publication), in subsection (1ZB), after paragraph
(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) 15in paragraph (b), after “131H(4),” insert “142T(4),”.

(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) 20after the definition of “ESMA” insert—

• ““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
  25142A;

• “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) 30In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority), in
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) 35After subsection (6) insert—

“(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
40PRA, or

(b) in any other case, by the FCA.”

(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) 5In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority),
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
10complied with the ring-fencing provisions,

(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
15regulated activity of dealing in investments as principal
(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
20activities that would be excluded activities by virtue of an
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
25section 142E but for an exemption made by such an order,
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
30ring-fencing provisions.

(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
35the duty imposed as a result of section 142G.”

(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
40ring-fencing transfer schemes) has effect.

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

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
5on it by or under provision made pursuant to paragraph (a).

(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
10appropriate;

(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) 15make such consequential provision including amendments of any
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) 20In this section—

• “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
  25objective set out in section 1EA of FSMA 2000, or

  (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

30Depositor preference

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 35So much of any amount owed at the relevant date by the debtor in
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.

40Interpretation for Category 7

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

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
5Markets Act 2000 (deposits), or

(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
10subsection (1), after “production” insert “;  deposits covered by Financial
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 15So much of any amount owed at the relevant date by the debtor in
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) 20In Part 2 of Schedule 3 to the Bankruptcy (Scotland) Act 1985 (interpretation of
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
25be eligible for compensation under the Financial Services
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).”

30Financial Services Compensation Scheme

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) 35the need to ensure efficiency and effectiveness in the discharge
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.

(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

5After section 218A of FSMA 2000 insert—

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
10the Treasury under the Government Resources and Accounts Act 2000.

(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) 15Section 212 of FSMA 2000 (the scheme manager of the Financial Services
Compensation Scheme) is amended as follows.

(2) In subsection (3)—

(a) omit the “and” following paragraph (a),

(b) after that paragraph insert—

“(aa) 20a chief executive (who is to be the accounting officer);
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) 25after “chairman”, in the second place, insert “and the chief executive”.

Part 3 Bail-in stabilisation option

13 Bail-in stabilisation option

(1) Schedule 2 (which contains amendments relating to a new stabilisation option
30in Part 1 of the Banking Act 2009) has effect.

(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
35amend or modify the effect of any other enactment to which this subsection
applies.

(4) Subsection (3) applies to any enactment (including a fiscal enactment) passed
or made—

(a) before the passing of this Act, or

(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 5Conduct 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.

(2) 10Omit 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
15management 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
20to 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
25management 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.”

(5) 30Omit 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
35purposes 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—

(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
5consequences—

(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
10participating in the taking of decisions, about how one or more aspects
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) 15If—

(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
20accompanied by, a statement setting out the aspects of the affairs of the
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) 25In subsection (2A) “designated senior management function” means a
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
30to the authorised person concerned.”

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) 35The regulator to which an application for approval is made under
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) 40in a case where the application is for approval to perform a
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