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

(7) For the purposes of subsection (5)—

• “senior manager”, in relation to a relevant authorised person,
  means a person who has approval under section 59 to perform
  a designated senior management function in relation to the
  5carrying on by the authorised person of a regulated activity;

• “designated senior management function” means a function
  designated as a senior management function under section
  59(6A) or (6B).

(8) In this section—

• 10“approved person”—

  (a)

  means a person in relation to whom an approval is given
  under section 59, and

  (b)

  in relation to an authorised person, means a person in
  relation to whom such approval is given on the
  15application of the authorised person;

• “employee”, in relation to a person, has the same meaning as in
  section 64A.

(9) For the meaning of “relevant authorised person”, see section 71A.

66B Misconduct: action by the PRA

(1) 20For the purposes of action by the PRA under section 66, a person is
guilty of misconduct if any of conditions A to C is met in relation to the
person.

(2) Condition A is that—

(a) the person has at any time failed to comply with rules made by
25the PRA under section 64A, and

(b) at that time the person was—

(i) an approved person, or

(ii) an employee of a relevant PRA-authorised person.

(3) Condition B is that—

(a) 30the person has at any time been knowingly concerned in a
contravention of a relevant requirement by a PRA-authorised
person, and

(b) at that time the person was—

(i) an approved person in respect of the performance of a
35relevant senior management function in relation to the
carrying on by the PRA-authorised person of a
regulated activity, or

(ii) in the case of a relevant authorised person, an employee
of the authorised person.

(4) 40In this section “relevant requirement” means a requirement—

(a) imposed by or under this Act, or

(b) imposed by any qualifying EU provision specified, or of a
description specified, for the purposes of this subsection by the
Treasury by order.

(5) 45Condition C is that—

(a) the person has at any time been a senior manager in relation to
a relevant PRA-authorised person,

(b) there has at that time been (or continued to be) a contravention
of a relevant requirement by the authorised person, and

(c) the senior manager was at that time responsible for the
management of any of the authorised person’s activities in
5relation to which the contravention occurred.

(6) But a person (“P”) is not guilty of misconduct by virtue of subsection (5)
if P satisfies the PRA that P had taken such steps as a person in P’s
position could reasonably be expected to take to avoid the
contravention occurring (or continuing).

(7) 10For the purposes of subsection (5)—

• “senior manager”, in relation to a relevant authorised person,
  means a person who has approval under section 59 to perform
  a designated senior management function in relation to the
  carrying on by the authorised person of a regulated activity;

• 15“designated senior management function” means a function
  designated as a senior management function under section
  59(6A) or (6B).

(8) In this section—

• “approved person”—

  (a)

  20means a person in relation to whom—

  (i)

  the PRA has given its approval under section 59,
  or

  (ii)

  the FCA has given its approval under section 59
  in respect of the performance by the person of a
  25relevant senior management function in relation
  to the carrying on by a PRA-authorised person of
  a regulated activity, and

  (b)

  in relation to an authorised person, means a person in
  relation to whom approval under section 59 is given on
  30the application of the authorised person;

• “employee”, in relation to a person, has the same meaning as in
  section 64A;

• “relevant PRA-authorised person” means a PRA-authorised
  person that is a relevant authorised person;

• 35“relevant senior management function” means a function which
  the PRA is satisfied is a senior management function as defined
  in section 59ZA (whether or not the function has been
  designated as such by the FCA).

(9) For the meaning of “relevant authorised person”, see section 71A.”

26 40Meaning of “relevant authorised person”

In Part 5 of FSMA 2000 (performance of regulated activities), after section 71
insert—

““Relevant authorised person”

71A Meaning of “relevant authorised person”

(1) 45In this Part “relevant authorised person” means a UK institution
which—

(a) meets condition A or B, and

(b) is not an insurer.

(2) Condition A is that the institution has permission under Part 4A to
carry on the regulated activity of accepting deposits.

(3) 5Condition B is that—

(a) the institution is an investment firm,

(b) it has permission under Part 4A to carry on the regulated
activity of dealing in investments as principal, and

(c) when carried on by it, that activity is a PRA-regulated activity.

(4) 10In 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
Act to carry on the regulated activity of effecting or carrying out
15contracts of insurance as principal.

(5) Subsections (2), (3) and (4)(b) are to be read in accordance with
Schedule 2, taken with any order under section 22.”

27 Recording information about senior managers

(1) Section 347 of FSMA 2000 (the record of authorised persons etc.) is amended as
20follows.

(2) In subsection (2)—

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

“(iv) in a case where the authorised person concerned
is a relevant authorised person, whether or not
25the 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 a relevant authorised person—

(i) whether a final notice has been given to the
30person under section 390; and

(ii) if so, any information about the matter to which
the notice relates which has been published
under section 391(4).”

(3) After subsection (8) insert—

“(8A) 35In this section—

• “relevant authorised person” has the same meaning as in Part 5
  (see section 71A),

• “senior manager”, in relation to a relevant authorised person,
  means a person who has approval under section 59 to perform
  40a designated senior management function in relation to the
  carrying on by the authorised person of a regulated activity,
  and

• “designated senior management function” means a function
  designated as a senior management function under section
  4559(6A) or (6B).”

(4) For subsection (9) substitute—

“(9) The authorised person concerned”, in relation to an approved person,
means the person on whose application approval was given.”

28 Consequential amendments relating to Part

54

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

Offence

29 Offence relating to a decision causing a financial institution to fail

(1) 10A person (“S”) commits an offence if—

(a) at a time when S is a senior manager in relation to a financial institution
(“F”), S—

(i) takes, or agrees to the taking of, a decision by or on behalf of F
as to the way in which the business of a group institution is to
15be carried on, or

(ii) fails to take steps that S could take to prevent such a decision
being 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 institution,

(c) 20in 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
in S’s position, and

(d) the implementation of the decision causes the failure of the group
institution.

(2) 25A “group institution”, in relation to a financial institution (“F”), means F or any
other financial institution that is a member of F’s group for the purpose of
FSMA 2000 (see section 421 of that Act).

(3) Subsections (1) and (2) are to be read with the interpretative provisions in
section 30.

(4) 30A 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
exceeding 12 months (or 6 months, if the offence was committed
before the commencement of section 154(1) of the Criminal
35Justice 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) in Northern Ireland, to imprisonment for a term not exceeding
6 months or a fine not exceeding the statutory maximum, or
40both;

(b) on conviction on indictment, to imprisonment for a term not exceeding
7 years or a fine, or both.

30 Section 29: interpretation

(1) This section has effect for the interpretation of section 29.

(2) “Financial institution” means a UK institution which—

(a) meets condition A or B, and

(b) is not an insurer or a credit union.

(3) Condition A is that it has permission under Part 4A of FSMA 2000 to carry on
5the regulated activity of accepting deposits.

(4) Condition B is that—

(a) it is for the purposes of FSMA 2000 an investment firm (see section
424A of that Act),

(b) it has permission under Part 4A of that Act to carry on the regulated
10activity of dealing in investments as principal, and

(c) when carried on by it, that activity is a PRA-regulated activity.

(5) In subsection (2)—

(a) “UK institution” means an institution which is incorporated in, or
formed under the law of any part of, the United Kingdom;

(b) 15“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
20the Credit Unions (Northern Ireland) Order 1985.

(6) Subsections (3), (4) and (5)(b) are to be read in accordance with sections 22 and
22A of FSMA 2000, taken with Schedule 2 to that Act and any order under
section 22.

(7) A person is a “senior manager” in relation to a financial institution if, under an
25arrangement entered into by the institution, or by a contractor of the
institution, in relation to the carrying on by the institution of a regulated
activity, the person performs a senior management function.

(8) A “senior management function” is a function designated as such—

(a) by the FCA under subsection (6A) of section 59 of FSMA 2000 (approval
30for particular arrangements), or

(b) by the PRA under subsection (6B) of that section.

(9) A financial institution (“F”) is to be regarded as failing where—

(a) F enters insolvency,

(b) any of the stabilisation options in Part 1 of the Banking Act 2009 is
35achieved in relation to F, or

(c) F is taken for the purposes of the Financial Services Compensation
Scheme to be unable, or likely to be unable, to satisfy claims against F.

(10) In subsection (9)(a) “insolvency” includes—

(a) bankruptcy,

(b) 40liquidation,

(c) bank insolvency,

(d) administration,

(e) bank administration,

(f) receivership,

(g) 45a composition between F and F’s creditors, and

(h) a scheme of arrangement of F’s affairs.

31 Institution of proceedings

(1) In this section “an offence” means an offence under section 29.

(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) 5by or with the consent of the Director of Public Prosecutions.

(3) Proceedings 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) 10In exercising its power to institute proceedings for an offence, the FCA or the
PRA 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) 15such proceedings, or categories of proceedings, as the Treasury may
direct.

Part 5 Regulation of payment systems

Overview

32 20Overview

(1) This Part contains provision for the establishment of a new body (the “Payment
Systems Regulator”) to exercise functions in relation to payment systems.

(2) Section 33 provides for the establishment of the Payment Systems Regulator.

(3) Sections 34 and 35 contain definitions of “payment system” and related terms.

(4) 25Sections 36 to 41 make provision about designating a payment system as a
regulated payment system.

(5) Sections 42 to 46 contain provision about the general duties of the Payment
Systems Regulator under this Part.

(6) Sections 47 to 60 confer various regulatory and competition functions on the
30Payment Systems Regulator.

(7) Sections 61 to 63 contain provision about the making of complaints to the
Payment Systems Regulator.

(8) Sections 64 to 73 contain provision about enforcement and appeals.

(9) Sections 74 to 88 contain information and investigation powers and provision
35about the disclosure of information.

(10) Sections 89 and 90 contain supplementary powers.

(11) Sections 91 to 95 contain provision about the Payment Systems Regulator’s
relationship with other regulators.

(12) Sections 96 to 100 contain provision about consultation, accountability and
oversight.

(13) Sections 101 to 103 contain miscellaneous and supplemental provision.

The Payment Systems Regulator

33 5The 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) 10The 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) 15provide 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.

20“Payment system” etc

34 Meaning of “payment system”

(1) In 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
25the transfer of funds using another payment system.

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

(a) any 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) 30a securities settlement system operated by a person approved under
regulations under section 785 of the Companies Act 2006 (provision
enabling 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
35persons to transfer funds.

(3) In this section—

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

• “securities settlement system” means a computer-based system, and
  40procedures, which enable title to units of a security to be evidenced and
  transferred without a written instrument, and which facilitate
  supplementary 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.

35 5Participants 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) 10any 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
15management.

(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
20person 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
payment service provider is able to provide services for the purposes of
enabling the transfer of funds using the payment system as a result of
25arrangements 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
with this section, and in particular—

(a) in the case of an operator of a payment system, includes a reference to
30developing 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
with a person to enable the person to become a payment service
provider in relation to the system.

(8) 35The Bank of England is not to be regarded as a participant of any kind in any
payment system.

Designation as a regulated payment system

36 Designation orders

(1) The Treasury may by order (a “designation order”) designate a payment
40system 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.

37 Designation 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
5those who use, or are likely to use, the services provided by the system.

(2) In 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) 10the nature of the transactions that the system presently processes or is
likely 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.

38 15Procedure

(1) Before 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) 20notify 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) the Bank of England,

(b) 25the FCA,

(c) the PRA, or

(d) the Payment Systems Regulator.

39 Amendment of designation order

(1) The Treasury may amend a designation order.

(2) 30Before 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) notify the operator of the payment system, and

(c) 35consider 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.

40 Revocation of designation orders

(1) The Treasury may revoke a designation order.

(2) 40The Treasury must revoke a designation order if they are not satisfied that the
criteria in section 37 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
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) 5notify the operator of the payment system, and

(c) consider any representations made.

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

41 Publication

(1) 10The Treasury must publish any designation order.

(2) If the Treasury amends a designation order, the Treasury must publish the
amended order.

(3) The Treasury must publish any revocation of a designation order.

General duties of Regulator

42 15Regulator’s general duties in relation to payment systems

(1) In discharging its general functions relating to payment systems the Payment
Systems 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) 20the competition objective (see section 43),

(b) the innovation objective (see section 44), and

(c) the service-user objective (see section 45).

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

(a) 25the importance of maintaining the stability of, and confidence in, the
UK financial system,

(b) the 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) 30the regulatory principles in section 46.

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

(a) its function of giving general directions under section 47 (considered as
a whole),

(b) 35its functions in relation to the giving of general guidance under section
89 (considered as a whole), and

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

43 The competition objective

(1) 40The competition objective is to promote effective competition in—

(a) the market for payment systems, and