Financial Services (Banking Reform) Bill (HL Bill 62)

(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).

(4) Any reference to a qualifying parent undertaking is to be read in
accordance with section 142L(4).”

(2) In section 133 of FSMA 2000 (proceedings before Tribunal), in subsection (7A),
10after paragraph (i) insert—

“(ia) a decision to take action under section 142S;”.

(3) In section 391 of FSMA 2000 (publication), in subsection (1ZB), after paragraph
(i) insert—

“(ia) section 142N;”.

(4) 15In section 392 of FSMA 2000 (application of sections 393 and 394)—

(a) in paragraph (a), after “131H(1),” insert “142T(1),”, and

(b) in 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—

• 20““core activities” has the meaning given in section 142B;

• “core services” has the meaning given in section 142C;”,

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

• ““excluded activities” has the meaning given in section
  142D;”, and

(c) 25after the definition of “regulator” insert—

• ““ring-fenced body” has the meaning given in section
  142A;

• “ring-fencing rules” has the meaning given in section
  142H;”.

(6) 30In Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority), in
paragraph 8(3)(c)(i), after “138N,” insert “142V,”.

(7) In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority), in
paragraph 16(3)(c)(i), after “69,” insert “142V,”.

5 PRA annual report

(1) 35In 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
40complied 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
regulated 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
5142D(2) that activity is not an excluded activity,

(e) the extent to which ring-fenced bodies are carrying on
activities 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) 10the extent to which ring-fenced bodies are doing things that
they would be prohibited from doing by an order under
section 142E but for an exemption made by such an order,
and

(g) the extent to which ring-fenced bodies appear to it to have
15acted in accordance with any guidance which it has given to
ring-fenced bodies and which relates to the operation of the
ring-fencing provisions.

(1B) In sub-paragraph (1A)—

(a) references to “ring-fenced bodies” relate only to ring-fenced
20bodies that are PRA-authorised persons, and

(b) “the ring-fencing provisions” means ring-fencing rules and
the 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”.

6 25Ring-fencing transfer schemes

Schedule 1 (which contains amendments of Part 7 of FSMA 2000 relating to
ring-fencing transfer schemes) has effect.

7 Building societies: power to make provision about ring-fencing

(1) The Treasury may by regulations—

(a) 30make 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
35relation to the exercise by the FCA or the PRA of any function conferred
on 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
40FSMA 2000, with such modifications as the Treasury consider
appropriate;

(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) 45confer functions on the FCA or the PRA;

(e) make 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) In this section—

• 5“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
  objective set out in section 1EA of FSMA 2000, or

  (b)

  10in the case of functions exercisable by the PRA, section 2B(3)(c)
  and (4A) of that Act.

8 Independent review of operation of legislation relating to ring-fencing

(1) The Treasury must, before the end of the initial period, appoint a panel of at
least 5 persons (“the review panel”) to carry out a review of the operation of the
15legislation relating to ring-fencing.

(2) “The legislation relating to ring-fencing” means—

(a) Part 9B of FSMA 2000 (as inserted by section 4);

(b) orders and regulations made by the Treasury under that Part;

(c) ring-fencing rules, as defined by section 142H(3) of FSMA 2000, made
20by the FCA or the PRA;

(d) section 192JA of FSMA 2000 (as inserted by section 124);

(e) rules made by the FCA or the PRA under that section.

(3) The initial period is the period of 4 years beginning with the first day on which
section 142G of FSMA 2000 is fully in force.

(4) 25The members of the review panel must be persons—

(a) who appear to the Treasury to be independent of the PRA, the FCA, the
Bank of England and the Treasury, and

(b) who do not appear to the Treasury to have any financial or other
interests that could reasonably be regarded as affecting their suitability
30to serve as members of the review panel.

(5) In appointing the members of the review panel, the Treasury—

(a) must have regard to the need to ensure that the review panel
(considered as a whole) has the necessary experience to undertake the
review, and

(b) 35must ensure that at least one of the members is a person appearing to
the Treasury to have substantial experience in central banking or
banking regulation at a senior level.

(6) Before appointing the members of the review panel, the Treasury must consult
the chairman of the Treasury Committee of the House of Commons.

(7) 40The reference in subsection (6) to the Treasury Committee of the House of
Commons—

(a) if the name of that Committee is changed, is a reference to that
Committee by its new name, and

(b) if the functions of that Committee (or substantially corresponding
45functions) become functions of a different Committee of the House of

Commons, is to be treated as a reference to the Committee by which the
functions are exercisable;

and any question arising under paragraph (a) or (b) is to be determined by the
Speaker of the House of Commons.

(8) 5The Treasury must appoint one of the members of the review panel to be the
chair of the panel.

(9) The review panel must, within a reasonable time after the end of the initial
period, make a written report to the Treasury—

(a) setting out the results of the review, and

(b) 10making such recommendations (if any) as the panel considers
appropriate.

(10) The Treasury must—

(a) lay a copy of the report before Parliament, and

(b) publish the report in such manner as they think fit.

(11) 15Any expenses reasonably incurred in the conduct of the review are to be paid
by the Treasury out of money provided by Parliament.

9 Right to obtain documents and information

(1) A review panel appointed under section 8—

(a) has a right of access at any reasonable time to all such documents as the
20panel may reasonably require for the purposes of the review, and

(b) may require any person holding or accountable for any such document
to provide such information and explanation as are reasonably
necessary for that purpose.

(2) An obligation imposed on a person as a result of the exercise of the powers
25conferred by subsection (1) is enforceable by injunction or, in Scotland, by an
order for specific performance under section 45 of the Court of Session Act
1988.

Part 2 Depositor preference and the Financial Services Compensation Scheme

30Depositor preference

10 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.

Interpretation 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
5Compensation 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
Markets Act 2000 (deposits), or

(b) section 1(2)(b) of the Dormant Bank and Building Society
10Accounts 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
subsection (1), after “production” insert “;  deposits covered by Financial
Services Compensation Scheme”.

(3) 15In 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 So much of any amount owed at the relevant date by the debtor in
respect of an eligible deposit as does not exceed the compensation
20that 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) In Part 2 of Schedule 3 to the Bankruptcy (Scotland) Act 1985 (interpretation of
Part 1), after paragraph 9 insert—

25“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
be eligible for compensation under the Financial Services
Compensation Scheme.

(2) 30For 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).”

Financial Services Compensation Scheme

11 Discharge of functions by the scheme manager

35After section 224 of FSMA 2000 insert—

“224ZA Discharge of functions

(1) In discharging its functions the scheme manager must have regard to—

(a) the 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
5guarantees and indemnities and any other kind of financial assistance
(actual or contingent).”

12 Power to require information from scheme manager

After section 218A of FSMA 2000 insert—

218B   Treasury’s power to require information from scheme manager

(1) 10The 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
the Treasury under the Government Resources and Accounts Act 2000.

(2) Information required under this section must be provided before the
15end of such reasonable period as may be specified.

(3) “Specified” means specified in the notice.”

13 Scheme manager: appointment of accounting officer

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

(2) 20In subsection (3)—

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

(b) after that paragraph insert—

“(aa) a chief executive (who is to be the accounting officer);
and”, and

(c) 25in paragraph (b), after “chairman” insert “and chief executive”.

(3) In subsection (4)—

(a) after “chairman”, in the first place, insert “, chief executive”, and

(b) after “chairman”, in the second place, insert “and the chief executive”.

Part 3 30Bail-in stabilisation option

14 Bail-in stabilisation option

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

(2) The Treasury may by order make any provision they consider appropriate in
35consequence 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
amend 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) 5In this section “building society” has the same meaning as in section 84 of the
Banking Act 2009.

Part 4 Conduct of persons working in financial services sector

Amendments of FSMA 2000

15 10Professional standards

After section 65 of FSMA 2000 insert—

“65A Professional standards

(1) The regulator will raise standards of professionalism in financial
services by mandating a licensing regime based on training and
15competence.

(2) This licensing regime must—

(a) apply to all approved persons exercising controlled functions,
regardless of financial sector;

(b) specify minimum thresholds of competence including integrity,
20professional qualifications, continuous professional
development and adherence to a recognised code of conduct
and revised Banking Standards Rules;

(c) make provisions in connection with—

(i) the granting of a licence;

(ii) 25the refusal of a licence;

(iii) the withdrawal of a licence; and

(iv) the revalidation of a licensed person of a prescribed
description whenever the appropriate regulator sees fit,
either as a condition of the person continuing to hold a
30licence or of the person’s licence being restored;

(d) be evidenced by individuals holding an annual validation of
competence;

(e) include specific provision for a Senior Persons Regime in
relation to activities involving the exercise of a significant
35influence over a controlled function under section 59 of the Act.

(3) In section 59, for “authorised” substitute “licensed” throughout the
section.”

16 Functions for which approval is required

(1) Section 59 of FSMA 2000 (approval for particular arrangements) is amended as
40follows.