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

(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
5Act to carry on the regulated activity of effecting or carrying out
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) 10Section 347 of FSMA 2000 (the record of authorised persons etc.) is amended as
follows.

(2) In subsection (2)—

(a) in paragraph (g), after sub-paragraph (iii) insert—

“(iv) in a case where the relevant authorised person is
15a bank, whether or not the person is a senior
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
20bank—

(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
25under section 391(4).”

(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
  30perform a designated senior management function in relation to
  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
  3559(6B) or (6C).”

26 Consequential amendments relating to Part 4

Schedule 3 (which contains further amendments relating to the provisions of
this Part) has effect.

Offence

27 40Offence relating to decision that results in bank failure

(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—

(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
5being taken,

(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
10in S’s position, and

(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) 15Subsections (1) and (2) are to be read with the interpretative provisions in
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
20exceeding 12 months (or 6 months, if the offence was committed
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) 25in Northern Ireland, to imprisonment for a term not exceeding
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 30Section 27: interpretation

(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) 35an insurer, or

(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) 40“insurer” means an institution which is authorised under FSMA 2000 to
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
45the Credit Unions (Northern Ireland) Order 1985.

(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
5carrying on by the bank of a regulated activity, the person performs a function
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) 10A bank (“B”) is to be regarded as failing where—

(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
15Scheme to be unable, or likely to be unable, to satisfy claims against B.

(8) In subsection (7)(a) “insolvency” includes—

(a) bankruptcy,

(b) liquidation,

(c) bank insolvency,

(d) 20administration,

(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 25Institution of proceedings

(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) 30Proceedings for an offence may be instituted in Northern Ireland 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 for
Northern Ireland.

(4) In exercising its power to institute proceedings for an offence, the FCA or the
35PRA must comply with any conditions or restrictions imposed in writing by
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
40direct.

Part 5 Regulation of payment systems

Overview

30 Overview

(1) 5This Part contains provision for the establishment of a new body (the “Payment
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
10regulated payment system.

(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) 15Sections 58 to 60 contain provision about the making of complaints to the
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
20relationship with other regulators.

(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 25The Payment Systems Regulator

(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) 30The FCA must take such steps as are necessary to ensure that the Payment
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) 35provide staff to the Payment Systems Regulator, and

(b) provide services to the Payment Systems Regulator which the FCA
considers would facilitate the exercise of any of those functions.

(5) Schedule 4 (which contains further provision about the Payment Systems
Regulator) has effect.

“Payment system” etc

32 Meaning of “payment system”

(1) 5In this Part “payment system” means a system which is operated by one or
more persons in the course of business for the purpose of enabling persons to
make transfers of funds, and includes a system which is designed to facilitate
the transfer of funds using another payment system.

(2) But “payment system” does not include—

(a) 10any arrangements for the physical movement of cash;

(b) a system which does not make any provision for the transfer of funds
by payers, or to recipients, in the United Kingdom;

(c) a securities settlement system operated by a person approved under
regulations under section 785 of the Companies Act 2006 (provision
15enabling procedures for evidencing and transferring title);

(d) a system operated by a recognised clearing house;

(e) any other system whose primary purpose is not that of enabling
persons to transfer funds.

(3) In this section—

• 20“recognised clearing house” has the meaning given by section 285(1) of
  FSMA 2000;

• “securities settlement system” means a computer-based system, and
  procedures, which enable title to units of a security to be evidenced and
  transferred without a written instrument, and which facilitate
  25supplementary and incidental matters.

(4) The Treasury may by order amend this section so as to—

(a) add descriptions of systems or arrangements that are not to be regarded
as payment systems, or

(b) vary or remove any such description.

33 30Participants in payment systems etc

(1) This section applies for the purposes of this Part.

(2) The following persons are “participants” in a payment system—

(a) the operator of the payment system (see subsection (3));

(b) any infrastructure provider (see subsection (4));

(c) 35any payment service provider (see subsection (5)).

(But see also subsection (8).)

(3) “Operator”, in relation to a payment system, means any person with
responsibility under the system for managing or operating it; and any
reference to the operation of a payment system includes a reference to its
40management.

(4) “Infrastructure provider”, in relation to a payment system, means any person
who provides or controls any part of the infrastructure used for the purposes
of operating the payment system.

(5) “Payment service provider”, in relation to a payment system, means any
person who provides services to persons who are not participants in the system
for the purposes of enabling the transfer of funds using the payment system.

(6) A payment service provider has “direct access” to a payment system if the
5payment service provider is able to provide services for the purposes of
enabling the transfer of funds using the payment system as a result of
arrangements made between the payment service provider and the operator of
the payment system.

(7) Any reference to participation in a payment system is to be read in accordance
10with this section, and in particular—

(a) in the case of an operator of a payment system, includes a reference to
developing the system, and

(b) in the case of a payment service provider with direct access to a
payment system, includes a reference to entering into an agreement
15with a person to enable the person to become a payment service
provider in relation to the system.

(8) The Bank of England is not to be regarded as a participant of any kind in any
payment system.

Designation as a regulated payment system

34 20Designation orders

(1) The Treasury may by order (a “designation order”) designate a payment
system as a regulated payment system for the purposes of this Part.

(2) A designation order must specify in as much detail as is reasonably practicable
the arrangements that constitute the payment system.

35 25Designation criteria

(1) The Treasury may make a designation order in respect of a payment system
only if they are satisfied that any deficiencies in the design of the system, or any
disruption of its operation, would be likely to have serious consequences for
those who use, or are likely to use, the services provided by the system.

(2) 30In considering whether to make a designation order in respect of a payment
system, the Treasury must have regard to—

(a) the number and value of the transactions that the system presently
processes or is likely to process in the future,

(b) the nature of the transactions that the system presently processes or is
35likely to process in the future,

(c) whether those transactions or their equivalent could be handled by
other payment systems, and

(d) the relationship between the system and other payment systems.

36 Procedure

(1) 40Before making a designation order in respect of a payment system the Treasury
must—

(a) consult the Payment Systems Regulator and, if the system is a
recognised inter-bank payment system, the Bank of England,

(b) notify the operator of the system, and

(c) consider any representations made.

(2) In considering whether to make a designation order in respect of a payment
system, the Treasury may rely on information provided by—

(a) 5the Bank of England,

(b) the FCA,

(c) the PRA, or

(d) the Payment Systems Regulator.

37 Amendment of designation order

(1) 10The Treasury may amend a designation order.

(2) Before amending a designation order made in respect of a payment system, the
Treasury must—

(a) consult the Payment Systems Regulator and, if the payment system is a
recognised inter-bank payment system, the Bank of England,

(b) 15notify the operator of the payment system, and

(c) consider any representations made.

(3) The Treasury must consider any request by the operator of a regulated
payment system for the amendment of its designation order.

38 Revocation of designation orders

(1) 20The Treasury may revoke a designation order.

(2) The Treasury must revoke a designation order if they are not satisfied that the
criteria in section 35 are met in respect of the payment system to which the
order relates.

(3) Before revoking a designation order made in respect of a payment system, the
25Treasury must—

(a) consult the Payment Systems Regulator and, if the payment system is a
recognised inter-bank payment system, the Bank of England,

(b) notify the operator of the payment system, and

(c) consider any representations made.

(4) 30The Treasury must consider any request by the operator of a regulated
payment system for the revocation of its designation order.

General duties of Regulator

39 Regulator’s general duties in relation to payment systems

(1) In discharging its general functions relating to payment systems the Payment
35Systems Regulator must, so far as is reasonably possible, act in a way which
advances one or more of its payment systems objectives.

(2) The payment systems objectives of the Payment Systems Regulator are—

(a) the competition objective (see section 40),

(b) the innovation objective (see section 41), and

(c) 40the service-user objective (see section 42).

(3) In discharging its general functions relating to payment systems the Payment
Systems Regulator must have regard to—

(a) the importance of maintaining the stability of, and confidence in, the
UK financial system,

(b) 5the importance of payment systems in relation to the performance of
functions by the Bank of England in its capacity as a monetary
authority, and

(c) the regulatory principles in section 43.

(4) The general functions of the Payment Systems Regulator relating to payment
10systems are—

(a) its function of giving general directions under section 44 (considered as
a whole),

(b) its functions in relation to the giving of general guidance under section
81 (considered as a whole), and

(c) 15its function of determining the general policy and principles by
reference to which it performs particular functions.

40 The competition objective

(1) The competition objective is to promote effective competition in—

(a) the market for payment systems, and

(b) 20the markets for services provided by payment systems,

in the interests of those who use, or are likely to use, services provided by
payment systems.

(2) The reference in subsection (1) to promoting effective competition includes, in
particular, promoting effective competition—

(a) 25between different operators of payment systems,

(b) between different payment service providers, and

(c) between different infrastructure providers.

(3) The matters to which the Payment Systems Regulator may have regard in
considering the effectiveness of competition in a market mentioned in
30subsection (1) include—

(a) the needs of different persons who use, or may use, services provided
by payment systems;

(b) the ease with which persons who may wish to use those services can do
so;

(c) 35the ease with which persons who obtain those services can change the
person from whom they obtain them;

(d) the needs of different payment service providers or persons who wish
to become payment service providers;

(e) the ease with which payment service providers, or persons who wish
40to become payment service providers, can provide services using
payment systems;

(f) the ease with which payment service providers can change the
payment system they use to provide their services;

(g) the needs of different infrastructure providers or persons who wish to
45become infrastructure providers;

(h) the ease with which infrastructure providers, or persons who wish to
become infrastructure providers, can provide infrastructure for the
purposes of operating payment systems;

(i) the needs of different operators of payment systems;

(j) the ease with which operators of payment systems can change the
infrastructure used to operate the payment systems;

(k) the level and structure of fees, charges or other costs associated with
5participation in payment systems;

(l) the ease with which new entrants can enter the market;

(m) how far competition is contributing to the development of efficient and
effective infrastructure for the purposes of operating payment systems;

(n) how far competition is encouraging innovation.

41 10The innovation objective

(1) The innovation objective is to promote the development of, and innovation in,
payment systems in the interests of those who use, or are likely to use, services
provided by payment systems, with a view to improving the quality, efficiency
and economy of payment systems.

(2) 15The reference in subsection (1) to promoting the development of, and
innovation in, payment systems includes, in particular, a reference to
promoting the development of, and innovation in, infrastructure to be used for
the purposes of operating payment systems.

42 The service-user objective

20The service-user objective is to ensure that payment systems are operated and
developed in a way that takes account of, and promotes, the interests of those
who use, or are likely to use, services provided by payment systems.

43 Regulatory principles

The regulatory principles referred to in section 39(3)(c) are as follows—

(a) 25the need to use the resources of the Payment Systems Regulator in the
most efficient and economic way;

(b) the principle that a burden or restriction which is imposed on a person,
or on the carrying on of an activity, should be proportionate to the
benefits, considered in general terms, which are expected to result from
30the imposition of that burden or restriction;

(c) the desirability of sustainable growth in the economy of the United
Kingdom in the medium or long term;

(d) the general principle that those who use services provided by payment
systems should take responsibility for their decisions;

(e) 35the responsibilities of the senior management of persons subject to
requirements imposed by or under this Part, including those affecting
persons who use services provided by payment systems, in relation to
compliance with those requirements;

(f) the desirability where appropriate of the Payment Systems Regulator
40exercising its functions in a way that recognises differences in the
nature of, and objectives of, businesses carried on by different persons
subject to requirements imposed by or under this Part;

(g) the desirability in appropriate cases of the Payment Systems Regulator
publishing information relating to persons on whom requirements are
45imposed by or under this Part, or requiring such persons to publish

information, as a means of contributing to the advancement by the
Payment Systems Regulator of its payment systems objectives;

(h) the principle that the Payment Systems Regulator should exercise its
functions as transparently as possible.

5Regulatory and competition functions

44 Directions

(1) The Payment Systems Regulator may give directions in writing to participants
in regulated payment systems.

(2) A direction given to a participant in a regulated payment system may—

(a) 10require or prohibit the taking of specified action in relation to the
system;

(b) set standards to be met in relation to the system.

(3) A direction under this section may apply—

(a) generally,

(b) 15in relation to all operators, all infrastructure providers or all payment
service providers, or

(c) in relation to specified persons or persons of a specified description.

(4) The Payment Systems Regulator must publish any direction given under this
section that applies as mentioned in subsection (3)(a) or (b).

(5) 20A direction under this section that applies as mentioned in subsection (3)(a) is
referred to in this Part as a “general direction”.

45 System rules

(1) The Payment Systems Regulator may require the operator of a regulated
payment system—

(a) 25to establish rules for the operation of the system;

(b) to change the rules in a specified way or so as to achieve a specified
purpose;

(c) to notify the Payment Systems Regulator of any proposed change to the
rules;

(d) 30not to change the rules without the approval of the Payment Systems
Regulator.

(2) A requirement under subsection (1)(c) or (d) may be general or specific.

46 Power to require granting of access to payment systems

(1) This section applies where a person (“the applicant”) applies for an order
35under this section.

(2) The Payment Systems Regulator may by order require the operator of a
regulated payment system to enable the applicant to become a payment service
provider in relation to the system.

(3) The Payment Systems Regulator may by order require any payment service
40provider with direct access to a regulated payment system to enter into an