Banking Bill

House of Commons

Session 2007 - 08
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Banking Bill

Banking Bill
Part 4 — Financial Services Compensation Scheme
87

165
Special resolution regime
(1)
After section 214A of the Financial Services and Markets Act 2000 (contingency
funding - inserted by section 164 above) insert—
“214B
     Contribution to costs of special resolution regime
(1)
This section applies where—
5
(a)
a stabilisation power under Part 1 of the Banking Act 2008 has
been exercised in respect of a bank, building society or credit
union (within the meaning of that Part), and
(b)
the Treasury think that the bank, building society or credit
union was, or but for the exercise of the stabilisation power
10
would have become, unable to satisfy claims against it.
(2)
Where this section applies—
(a)
the Treasury may require the scheme manager to contribute
towards expenses connected with the exercise of the
stabilisation power, and
15
(b)
contributions shall be treated as expenditure under the scheme
for all purposes (including levies, contingency funds and
borrowing).
(3)
The Treasury shall make regulations—
(a)
specifying what expenses the scheme manager may be required
20
to contribute towards under subsection (2),
(b)
providing for independent verification of the nature and
amount of expenses incurred (which may include provision
about appointment and payment of an auditor), and
(c)
providing for the method by which amounts to be contributed
25
are to be determined.
(4)
The regulations must ensure that contributions required do not exceed
the amount of compensation that would have been payable under the
scheme if the stabilisation power had not been exercised and the bank
had been unable to satisfy claims against it; and for that purpose the
30
amount of compensation that would have been payable does not
include—
(a)
amounts that would have been likely, at the time when the
stabilisation power was exercised, to be recovered by the
scheme from the bank, or
35
(b)
any compensation actually paid to an eligible depositor of the
bank.
(5)
The regulations must provide for the appointment of an independent
valuer (who may be the person appointed as valuer under section 54 of
the Banking Act 2008 in respect of the exercise of the stabilisation
40
power) to calculate the amounts referred to in subsection (4)(a); and the
regulations—
(a)
must provide for the valuer to be appointed by the Treasury or
by a person designated by the Treasury,
(b)
must include provision enabling the valuer to reconsider a
45
decision,
(c)
must provide a right of appeal to a court or tribunal,
(d)
must provide for payment of the valuer,

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(e)
may replicate or apply a provision of section 54 or 55, and
(f)
may apply or include any provision that is or could be made
under that section.
(6)
The regulations may include provision—
(a)
about timing;
5
(b)
about procedures to be followed;
(c)
for discretionary functions to be exercised by a specified body
or by persons of a specified class;
(d)
about the resolution of disputes (which may include provision
conferring jurisdiction on a court or tribunal).
10
(7)
The compensation scheme may include provision about contributions
under and levies in connection with this section, provided that it is not
inconsistent with this section or regulations under it.”
(2)
At the end of section 223(3) of the Financial Services and Markets Act 2000
(management expenses) add “;
15
(c)
under section 214B.”.
166
Investing in National Loans Fund
After section 223 of the Financial Services and Markets Act 2000 (management
expenses) insert—
“223A
    Investing in National Loans Fund
20
(1)
Sums levied for the purpose of maintaining a contingency fund may be
paid to the Treasury.
(2)
The Treasury may receive sums under subsection (1) and may set terms
and conditions of receipts.
(3)
Sums received shall be treated as if raised under section 12 of the
25
National Loans Act 1968 (and shall therefore be invested as part of the
National Loans Fund).
(4)
Interest accruing on the invested sums may be credited to the
contingency fund (subject to any terms and conditions set under
subsection (2)).
30
(5)
The Treasury shall comply with any request of the scheme manager to
arrange for the return of sums for the purpose of making payments out
of a contingency fund (subject to any terms and conditions set under
subsection (2)).”
167
Borrowing from National Loans Fund
35
After section 223A of the Financial Services and Markets Act 2000 (investing in
National Loans Fund - inserted by section 166 above) insert—
“223B
    Borrowing from National Loans Fund
(1)
The scheme manager may request a loan from the National Loans Fund
for the purpose of funding expenses incurred or expected to be
40
incurred under the scheme.

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(2)
The Treasury may arrange for money to be paid out of the National
Loans Fund in pursuance of a request under subsection (1).
(3)
The Treasury shall determine—
(a)
the rate of interest on a loan, and
(b)
other terms and conditions.
5
(4)
The Treasury may make regulations—
(a)
about the amounts that may be borrowed under this section;
(b)
permitting the scheme manager to impose levies under section
213 for the purpose of meeting expenses in connection with
loans under this section (and the regulations may have effect
10
despite any provision of this Act);
(c)
about the classes of person on whom those levies may be
imposed;
(d)
about the amounts and timing of those levies.
(5)
The compensation scheme may include provision about borrowing
15
under this section provided that it is not inconsistent with regulations
under this section.”
168
Procedure for claims
(1)
After section 214(1) of the Financial Services and Markets Act 2000 (the
compensation scheme: powers) insert—
20
“(1A)
Rules by virtue of subsection (1)(h) may, in particular, allow the scheme
manager to treat persons who are or may be entitled to claim under the
scheme as if they had done so.
(1B)
A reference in any enactment or instrument to a claim or claimant
under this Part includes a reference to a deemed claim or claimant in
25
accordance with subsection (1A).
(1C)
Rules by virtue of subsection (1)(j) may, in particular, allow, or be
subject to rules which allow, the scheme manager to settle a class of
claim by payment of sums fixed without reference to, or by
modification of, the normal rules for calculation of maximum
30
entitlement for individual claims.”
(2)
In section 417(1) (definitions) at the appropriate place insert—
““claim”, in relation to the Financial Services Compensation
Scheme under Part XV, is to be construed in accordance with
section 214(1B);”.
35
169
Rights in insolvency
(1)
This section amends section 215 of the Financial Services and Markets Act 2000
(rights of scheme following insolvency).
(2)
For section 215(1) substitute—
“(1)
The compensation scheme may make provision—
40
(a)
about the effect of a payment of compensation under the
scheme on rights or obligations arising out of matters in
connection with which the compensation was paid;

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(b)
giving the scheme manager a right of recovery in respect of
those rights or obligations.”
(3)
In section 215(2) for “the relevant person’s insolvency” substitute “a person’s
insolvency”.
(4)
The heading of section 215 becomes “Rights of the scheme in insolvency”.
5
170
Information
(1)
Before section 219 of the Financial Services and Markets Act 2000 (scheme
manager’s power to require information) insert—
“218A
   Authority’s power to require information
(1)
The Authority may make rules enabling the Authority to require
10
authorised persons to provide information, which may then be made
available to the scheme manager by the Authority.
(2)
A requirement may be imposed only if the Authority thinks the
information is of a kind that may be of use to the scheme manager in
connection with functions in respect of the scheme.
15
(3)
A requirement under this section may apply—
(a)
to authorised persons generally or only to specified persons or
classes of person;
(b)
to the provision of information at specified periods, in
connection with specified events or in other ways.
20
(4)
In addition to requirements under this section, a notice under section
165 may relate to information or documents which the Authority thinks
are reasonably required by the scheme manager in connection with the
performance of functions in respect of the scheme; and section 165(4) is
subject to this subsection.
25
(5)
Rules under subsection (1) shall be prepared, made and treated in the
same way as (and may be combined with) the Authority’s general
rules.”
(2)
Section 219 is amended as follows.
(3)
In subsection (1) for “given to the relevant person in respect of whom a claim
30
is made under the scheme or to a person otherwise involved, require that
person” substitute “require a person”.
(4)
After subsection (1) insert—
“(1A)
A requirement may be imposed only—
(a)
on a person (P) against whom a claim has been made under the
35
scheme,
(b)
on a person (P) who is unable or likely to be unable to satisfy
claims under the scheme against P,
(c)
on a person (“the Third Party”) whom the scheme manager
thinks was knowingly involved in matters giving rise to a claim
40
against another person (P) under the scheme, or
(d)
on a person (“the Third Party”) whom the scheme manager
thinks was knowingly involved in matters giving rise to the

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actual or likely inability of another person (P) to satisfy claims
under the scheme.
(1B)
For the purposes of subsection (1A)(b) and (d) whether P is unable or
likely to be unable to satisfy claims shall be determined in accordance
with provision to be made by the scheme (which may, in particular—
5
(a)
apply or replicate, with or without modifications, a provision of
an enactment;
(b)
confer discretion on a specified person).”
(5)
In subsection (3) for paragraphs (a) and (b) substitute “to be necessary (or likely
to be necessary) for the fair determination of claims which have been or may
10
be made against P”.
(6)
After subsection (3) insert—
“(3A)
Where a stabilisation power under Part 1 of the Banking Act 2008 has
been exercised in respect of a bank, the scheme manager may by notice
in writing require the bank or the Bank of England to provide
15
information that the scheme manager requires for the purpose of
applying regulations under section 214B(3) above.”
(7)
In subsection (6) for “the relevant person” substitute “P”.
(8)
Omit subsection (8).
(9)
Omit subsection (10).
20
171
Payments in error
After section 223B of the Financial Services and Markets Act 2000 (borrowing
from National Loans Fund - inserted by section 167 above) insert—
“223C
     Payments in error
(1)
Payments made by the scheme manager in error may be provided for
25
in setting a levy by virtue of section 213, 214A, 214B or 223B.
(2)
This section does not apply to payments made in bad faith.”
172
Regulations
In section 429(2) of the Financial Services and Markets Act 2000 (parliamentary
control of subordinate legislation: affirmative resolution) after “90B” insert “,
30
214A, 214B”.
173
Delegation of functions
(1)
Before section 222 of the Financial Services and Markets Act 2000 (scheme
manager: statutory immunity) insert—
“221A
     Delegation of functions
35
(1)
The scheme manager may arrange for any of its functions to be
discharged on its behalf by another person (a “scheme agent”).
(2)
Before entering into arrangements the scheme manager must be
satisfied that the scheme agent—

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(a)
is competent to discharge the function, and
(b)
has been given sufficient directions to enable the agent to take
any decisions required in the course of exercising the function
in accordance with policy determined by the scheme manager.
(3)
Arrangements may include provision for payments to be made by the
5
scheme manager to the scheme agent (which payments are
management expenses of the scheme manager).”
(2)
In section 222(1) of that Act after “officer” insert “, scheme agent”.
174
Functions under this Act
At the end of Part 15 of the Financial Services and Markets Act 2000 add—
10
“224A
    Functions under the Banking Act 2008
A reference in this Part to functions of the scheme manager (including
a reference to functions conferred by or under this Part) includes a
reference to functions conferred by or under the Banking Act 2008.”
Part 5
15
Inter-Bank Payment Systems
Introduction
175
Overview
This Part enables the Bank of England to oversee certain systems for payments
between financial institutions.
20
176
Interpretation: “inter-bank payment system”
(1)
In this Part “inter-bank payment system” means arrangements designed to
facilitate or control the transfer of money between financial institutions who
participate in the arrangements.
(2)
The fact that persons other than financial institutions can participate does not
25
prevent arrangements from being an inter-bank payment system.
(3)
In subsection (1) “financial institutions” means—
(a)
banks, and
(b)
building societies.
(4)
In subsection (1) “money” includes credit.
30
(5)
A system is an inter-bank payment system for the purposes of this Part
whether or not it operates wholly or partly in relation to persons or places
outside the United Kingdom.
177
Interpretation: other expressions
In this Part—
35

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(a)
a reference to the “operator” of an inter-bank payment system is a
reference to any person with responsibility under the system for
managing or operating it,
(b)
a reference to the operation of a system includes a reference to its
management,
5
(c)
“the UK financial system” has the meaning given to “the financial
system” by section 3(2) of the Financial Services and Markets Act 2000
(market confidence),
(d)
a reference to the Bank of England’s role as a monetary authority is to
be construed in accordance with section 231(2)(c), and
10
(e)
“the FSA” means the Financial Services Authority.
Recognised systems
178
Recognition order
(1)
The Treasury may by order (“recognition order”) specify an inter-bank
payment system as a recognised system for the purposes of this Part.
15
(2)
A recognition order must specify in as much detail as is reasonably practicable
the arrangements which constitute the inter-bank payment system.
(3)
The Treasury may not specify an inter-bank system operated solely by the
Bank of England.
179
Recognition criteria
20
(1)
The Treasury may make a recognition order in respect of an inter-bank
payment system only if satisfied that any deficiencies in the design of the
system, or any disruption of its operation, would be likely—
(a)
to threaten the stability of, or confidence in, the UK financial system, or
(b)
to have serious consequences for business or other interests throughout
25
the United Kingdom.
(2)
In considering whether to specify a 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 processes,
30
(c)
whether those transactions or their equivalent could be handled by
other systems,
(d)
the relationship between the system and other systems, and
(e)
whether the system is used by the Bank of England in the course of its
role as a monetary authority.
35
180
Procedure
(1)
Before making a recognition order in respect of a payment system the Treasury
must—
(a)
consult the Bank of England,
(b)
notify the operator of the system, and
40
(c)
consider any representations made.