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354. This clause inserts new section 214B into the Financial Services and Markets Act 2000.
355. This new section confers a power on the Treasury to require the FSCS to contribute to the costs incurred in applying the special resolution regime (see Part 1 of the Bill) to banks which are encountering financial difficulties. It imposes a duty on the Treasury to make regulations setting out the costs for which a contribution may be required, how the contribution is to be calculated and other matters, including provision for the costs to be independently verified. New section 214B (4) requires that the schemes contributions must not exceed the amount of the compensation which the scheme would have had to pay to eligible claimants if the bank had been unable to satisfy claims against it, taking into account any amounts the scheme is likely to have recovered from the insolvent banks estate. New section 214B(5) requires the appointment of an independent person to calculate this amount of recovery. This person may be the same person as the independent valuer appointed under clause 46 of Part 1 of the Banking Bill. New section 214B(7) allows the Financial Services Authority to make rules relating to contingency funds provided they are compatible with the regulations the Treasury has made.
356. This clause inserts new section 223A into the Financial Services and Markets Act 2000.
357. This section enables the FSCS to invest the levies collected to build up contingency funds in the National Loans Fund and provides for that investment to be treated as money borrowed by the Treasury.
358. This clause inserts new section 223B into the Financial Services and Markets Act 2000.
359. This section allows the Treasury to make loans from the National Loans Fund to the FSCS and to make regulations about the amount that can be borrowed and the collection of levies to secure its repayment. It also allows the FSA to make rules relating to borrowing from the National Loans Fund provided they are compatible with the regulations the Treasury has made.
This clause inserts new sections 214(1A), 214(1B) and 214(1C) into the Financial Services and Markets Act 2000. The purpose of these provisions is to facilitate the speedy payment of compensation to depositors or to facilitate the speedy transfer of their accounts to another bank under Part 2 of this Bill.
360. New section 214(1A) allows the FSA to make rules to enable the FSCS to deem claims under the scheme to have been made, to avoid the need to wait for actual claims to be made.
361. New section 214(1C) allows the FSA to make rules to enable the FSCS to deal with certain kinds of claim without having to make calculations of the entitlement of individual claimants.
362. This clause amends section 215 of the Financial Services and Markets Act 2000 to make it clear that the FSA may make rules which enable the FSCS to recover compensation it has paid from any person from whom a claimant under the scheme could have obtained damages in respect of the loss he had suffered.
363. This clause inserts new section 218A into the Financial Services and Markets Act 2000 and amends section 219.
364. New section 218A confers a power on the FSA to make rules allowing it to obtain information that will assist the FSCS in carrying out its work, or in preparing for a possible need to pay compensation (even when no default is imminent). It also allows the FSA to use its existing power to require individual authorised persons to provide information to obtain information that would be of use to the FSCS.
365. The amendments to section 219 allow the FSCS to obtain information from authorised persons or certain other persons from the time the authorised person could be declared in default for the purposes of the scheme. They also allow the FSCS to obtain information from a bank which is subject to the special resolution regime (or from the Bank of England) to enable the maximum amount the FSCS would be able to contribute to the costs of the special resolution regime to be calculated.
366. This clause inserts new section 223C into the Financial Services and Markets Act 2000.
367. This section provides that levies collected by the FSCS can be used to cover the costs of any compensation payments made in error. The new provision does not cover payments made in bad faith.
368. This clause amends section 429 of the Financial Services and Markets Act 2000 to provide that regulations made by the Treasury under new sections 214A and 214B are subject to the affirmative resolution procedure (Regulations under the new section 223B will be subject to the negative resolution procedure.).
369. This clause inserts new section 221A into the Financial Services and Markets Act 2000.
370. This section provides that the FSCS can make arrangements with a third party to carry out any of its functions. This does not change the schemes responsibility for the decisions that are taken. Before entering into an arrangement the FSCS must be satisfied that the person is competent to carry out the function and has been given sufficient directions.
371. This clause inserts new section 224A into the Financial Services and Markets Act 2000.
372. This section provides that the new functions of the FSCS conferred in this Bill, for example, those functions of the Financial Services Compensation Scheme under Part 2, are to be regarded as among its functions under the Financial Services and Markets Act 2000.
PART 5: INTER-BANK PAYMENT SYSTEMS
373. This clause summarises the purpose of this Part: that is, it enables the Bank of England to oversee systems for payments between financial institutions.
374. Subsection (1) defines the use of the term inter-bank payment system for Part 5. It refers to arrangements that enable the transfer of money (including credit, see subsection (4)) between participant financial institutions (defined in subsection (3) as banks and building societies). It does not include internal bank systems or correspondent banking arrangements.
375. Subsection (2) provides that the fact that non-financial institutions participate in a system does not prevent it being considered to be an inter-bank payment system.
376. Subsection (5) ensures that systems operating wholly or mainly outside of the United Kingdom are included.
377. This clause defines other terms used in this Part.
378. In particular, subsection (a) defines the use of the term operator as a person with responsibility under the system for managing or operating it.
379. Subsection (1) gives the Treasury power to designate an inter-bank payment system as a recognised system. Under these provisions, once a payment system is recognised, the Bank of Englands powers of formal oversight apply.
380. Subsection (2) ensures that a recognition order must include a sufficient description of the arrangements that constitute the inter-bank payment system.
381. The Bank of England has a central role in relation to certain payment systems. In particular, it operates the Real Time Gross Settlement System and it acts as an infrastructure provider in relation to CHAPS. It is possible that in some circumstances, the Bank of England could step in and provide payment system services. In such circumstances, the Bank of England as overseer will not have to use its formal powers to oversee itself. Subsection (3) provides that a system operated solely by the Bank of England is not to be recognised.
382. Subsection (1) provides that the Treasury may make a recognition order only if it is satisfied that any deficiencies in the design of the system, or any disruption of its operation, would be likely to have consequences of a systemic nature or could have serious consequences for business or other interests throughout the United Kingdom. A payment system would be of systemic importance if a failure that affected the payment system could threaten the stability of or confidence in the UK financial system, for example by creating disruption, increasing the risk of such disruption or worsening the effect of any disruption.
383. Subsection (2) stipulates the considerations that the Treasury must have regard to when deciding whether to make a recognition order in relation to an inter-bank payment system; such as the volume and value of the transactions processed (or potentially processed) by the system (see subsection (2)(a)), the nature of these transactions (see subsection (2)(b)), the availability of alternative systems that could handle the transaction in the case of a system failure (see subsection (2)(c)), the relationship of the system with other systems (such as interdependence), (see subsection (2)(d)) and whether the Bank of England uses the system in its role as a monetary authority (see subsection (2)(e)).
384. This clause sets the procedure for the making of recognition orders. In particular, the Treasury must first consult the Bank of England and the system operator and consider representations made (see subsection (1)). It must also consult the FSA where the operator is or has applied to become a recognised investment exchange, a recognised clearing house or a person holding Part 4 permission under FSMA (see subsection (2)).
385. Subsection (3) allows for information provided by the Bank of England to the Treasury to inform its consideration of whether to recognise a particular payment system.
386. Subsection (1) gives the Treasury the power to revoke a recognition order.
387. Subsection (2) ensures that the Treasury must revoke a recognition order if the criteria under which recognition was made (Clause 171) are no longer met.
388. Subsections (3) and (4) set out the process involved in revoking a recognition order. This involves consultation equivalent to that in the process of making an order.
389. Subsection (5) ensures that if an operator of a recognised payment system requests that its recognition order be revoked, the Treasury must consider the request.
390. Subsection (1) gives the Bank of England the power to publish principles that operators of recognised payment systems must have regard to in the operation of their systems. This formalises an aspect of the existing structure of oversight, under which the Bank of England currently expects payment systems to take account of the Committee on Payment and Settlement Systems Core Principles for Systemically Important Payment Systems. The Bank of England will be able to use this power to reflect principles such as these CPSS principles and establish guidance on the operation of recognised payment systems.
391. The publication of such principles must first be agreed by the Treasury (see subsection (2)).
392. This clause gives the Bank of England the power to publish codes of practice for recognised payment systems.
393. Payment systems operate by way of rules for their members. This clause gives the Bank of England power to require the operator of a recognised inter-bank payment system to establish or change rules, to notify the Bank of changes and not to make changes without the approval of the Bank.
394. This clause gives the Bank of England power to give directions to the operator of a recognised inter bank payment system (See subsection (1)). This may include requiring or prohibiting the taking of certain actions in relation to the system or setting standards to be met in the operation of the system (See subsection (2)).
395. This clause ensures that the Bank of England, when exercising its powers under this Part, has regard to the powers of the FSA for taking action, so as not to have a duplication of regulation.
396. This clause gives the Bank of England the power to appoint inspectors, whose role it is to inspect the operation of an inter-bank payment system (See subsection (1)). This inspector could be a representative of the Bank of England or could be an independent appointee.
397. Subsection (2) requires the co-operation of the operator of the inter-bank payment system with an inspector, including granting access to the premises on or from which a payment system is operated.
398. This clause provides that an inspector may apply for a warrant for the inspector or a constable to enter premises from which any part of a recognised payment system is operated. The application is to a justice of the peace, who can issue the warrant only if certain conditions are fulfilled. These are set out in subsections (2), (3), (4) and (5):
399. Subsection (6) provides for the warrant to allow the inspector or constable to enter the premises, to search and take possession of relevant documents or information, take copies and require explanation of documents or information, and for a constable to use reasonable force.
400. Subsection (7) incorporates sections 15(5) to (8) and 16 of the Police and Criminal Evidence Act 1984 that allows a warrant to authorise persons to accompany the constable executing it and for that person to have the same powers as the constable in relation to the warrant.
401. Subsection (1) enables the Bank of England to require that the operator of an inter-bank payment system must appoint an expert to provide a report on the effectiveness of the systems and management of the payment system and those of any connected infrastructure provider.
402. Subsection (2) specifies that the Bank of England can only impose this requirement to occasions where the Bank thinks that the operator is not adhering sufficiently to the principles (as set out in clause 174), or where the operator is failing to comply with a code of practice (as set out in clause 175), or where the Bank of England feels that such a report is necessary to help it carry out its functions in accordance with this Part.
403. Subsection (3) enables the Bank of England to make certain stipulations such as the nature of the expert the operator of the payment system must appoint (for example experience, qualifications, link to payment system), the content of the experts report, how the report is subsequently treated (including whether or not it is published), and the timeframe within which the report must be produced.
404. This clause defines the use of the term compliance failure throughout this Part. A compliance failure is taken to mean the failure of an operator of an inter-bank payment system to comply with a code of practice (clause 175), with a requirement regarding system rules (clause 176), with a direction made by the Bank of England (clause 177) or with a requirement made with regard to producing an independent report (clause 181).
405. This clause gives the Bank of England the power to publish details of a compliance failure. This is, in effect, a power of public censure.
406. In the event of a compliance failure, subsection (1) gives the Bank of England the right to impose on the operator of the payment system a penalty.
407. Subsection (2) gives further detail on the nature of the penalty: that it is paid to the Bank of England and is enforceable as a debt.
408. This clause enables the Bank of England to give a closure order to an operator of a recognised payment system.
409. Subsection (1) sets out that this clause applies if the Bank of England believes that a compliance failure is serious enough to threaten the stability of the UK financial system.
410. Under subsection (2), the Bank of England can give a closure order to the operator of an inter-bank payment system for a specified time, until further notice, or permanently. This will depend on the seriousness of the threat to financial stability and the individual circumstances of the case. Subsection (3) allows this closure order to apply to some or all of the payment system in question.
411. Subsection (4) makes it an offence for an operator to fail to comply with a closure order, with maximum penalty of a fine.
412. This clause enables the Bank of England to make an order to disqualify a person from being an operator of a recognised inter-bank payment system (see subsection (1)) or from holding a position of management responsibility within such a system (see subsection (2)).
413. Under subsection (3) it is an offence to breach a prohibition as set out subsections (1) or (2), with the maximum penalty of a fine.
414. This clause requires the Bank of England to give a warning notice and allow 21 days for representations, which the Bank must consider before it imposes various sanctions under this Part. The provisions relating to sanctions are set out in subsection (2) as: publishing details of a compliance failure (clause 183); requiring the payment of a penalty (clause 184); giving a closure order (clause 185); and prohibiting (by order) a specific person from being an operator of an inter-bank payment system (clause 186).
415. In certain circumstances, if satisfied that it is necessary, the Bank of England has the power, under subsection (3), to take immediate action (without giving notice) and give a closure order under clause 185 or disqualify a person as an operator or manager of a payment system under clause 186. Such situations may arise if, for instance, delaying the cessation of the operation of the payment system (as under subsection (1)) were to pose an imminent threat to the stability of the UK financial system.
416. This clause provides for appeals against Bank of England decisions to impose sanctions under this Part to be heard by the Financial Services and Markets Tribunal. Subsection (2) lists the relevant sanctions provisions, matching those in the preceding clause.
417. Subsection (3) applies Part 9 of the Financial Services and Markets Act 2000 with necessary modifications.
418. This clause enables the Bank of England to require the operators of recognised inter-bank payment systems to pay fees (see subsection (1)) but only in accordance with a scale of fees set by the Treasury in Regulations (see subsection (2)). Fees may be charged by the Bank of England to cover expenses incurred, for example, the cost of hiring an expert to produce an independent report.
419. Subsection (4) allows the Bank of England to enforce a fee as a debt.
420. This clause gives the Bank of England a statutory power to gather information which will help the Treasury in its decisions about recognition orders or which the Bank of England requires in connection with its functions under this Part.
421. Subsection (2) allows the Bank of England to include a requirement on recognised inter-bank payment systems that the occurrence of certain events must be notified to the Bank of England.
422. The Bank of England may, under subsection (3), require this information to be provided in a specified form or manner, at a specified time, or in respect of a specified period.
423. Subsection (4) allows the Bank of England to share information obtained under this clause with the: Treasury and the FSA; their or the Banks international equivalents; the European Central Bank; and the Bank for International Settlements.
424. Under subsection (5) the Treasury can, by regulations, specify other persons with whom the Bank of England may share the information. Under subsection (6), the Bank of England may publish information obtained under this clause, subject to any regulations concerning the manner and extent of publication, made by the Treasury under (subsection (7)). The Bank currently publishes an annual Payment Systems Oversight Report and this clause can be used to enable such a report to be published.
425. Subsection (9) makes it an offence to fail to comply with a requirement under this section or to knowingly give false information under this section. The maximum penalty is a fine (see subsection (10)).
426. This clause makes it an offence for the operator of a non-recognised payment system to assert or otherwise do anything to suggest that their system is recognised. The maximum penalty is a fine (see subsection (2)).
427. This clause ensures that the Bank of England can engage in informal oversight in relation to inter-bank payment systems which are not recognised (see subsection (1)) and to use means of oversight other than the provisions in this Part in relation to recognised inter-bank payment systems (see subsection (2)).
PART 6: BANKNOTES: SCOTLAND AND NORTHERN IRELAND
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