Financial Services Bill

Memorandum submitted by Bates Wells & Braithwaite London LLP

(FS 10)




1.1 As the Financial Services Bill is at the Committee Stage, we are writing to you as members of the Committee to ask you to accept amendments 72 and 73 to the Bill. The Amendments are set out below at paragraphs 4 and 5.

1.2 The amendments would:

1.2.1 place a general ‘social investment duty’ on the FCA to carry out its work in a way which promotes the development of social finance and social investment; and

1.2.2 require the FCA to establish a ‘social investment panel’ of persons with knowledge and expertise in social finance and social investment which it would be obliged to consult and have regard to over time in relation to the conduct of its activities.

1.3 The amendments pave the way for the growth of the social investment market, which is about to receive a large injection of capital from Big Society Capital, a new social investment wholesaler set up under the Dormant Bank and Building Society Accounts Act 2008, and which is currently experiencing a wave of innovation and requires sensitive regulation.



2.1 The amendments:

2.1.1 recognise the growing importance of social finance and social investment, examples of which are listed at paragraph 3 below;

2.1.2 acknowledge that social finance is a developing market requiring proportionate regulation (for further information see ‘Investing in Civil Society: A framework for bespoke regulatory regime’, produced by NESTA and BWB);

2.1.3 are consistent with Government’s the strategy of growing civil society and the social investment market at a time of fiscal austerity and public spending cuts;

2.1.4 would help Big Society Capital to achieve its aims and be a success. Big Society Capital was set in motion by virtue of the Dormant Bank and Building Society Accounts Act 2008, whilst the Labour party were in Government and has been taken forward by the Coalition Government;

2.1.5 would be an example of support for responsible capitalism and would be a step towards creating a ‘John Lewis economy’ with greater shared wealth;

2.1.6 would make sure that the FCA has social finance and social investment in its ‘DNA’, encouraging responsive and sensitive regulation in a developing area;

2.1.7 would ensure that the FCA does not adopt a regulatory approach which unnecessarily inhibits innovation in social finance and social investment;

2.1.8 would help the UK to strengthen its place as a leading global centre for social finance and social investment; and

2.1.9 would help the UK to remain competitive with other often smaller, more mobile jurisdictions in the growing international impact investment market.

2.2 The amendments are simple, modest and stand-alone, do not cost the taxpayer and do not interfere with any other aspects of the Bill. At a time of austerity and public funding cuts for charities, the amendments would help to support the role of social investment to finance civil society and would help the UK to develop as a leading international destination for social investment.

2.3 Without the amendments, it is likely that the FCA will continue to place a very low priority on social finance and social investment and that financial services regulation will continue to have unintended consequences for the growing social investment market in the UK and will continue to impede the ability of the UK to win its fair share of the growing international social investment market. As currently drafted, the Financial Services Bill places no obligation upon the FCA to pay particular attention to the social investment market, which is innovative, often unorthodox and does not therefore readily fit into the existing financial services regulatory categories, whether that is in respect of the regulation of financial promotions, regulated activities, collective investment schemes or otherwise.

2.4 In summary, the absence of any social investment duty on the FCA or any obligation to consult with the social investment market jeopardises current Government strategy on social investment.



3.1 The amendments are consistent with the Government’s aim to grow civil society and the social investment market (see the Cabinet Office paper on ‘Growing the Social Investment Market: A vision and strategy’).

3.2 The amendments would help Big Society Capital to achieve its aim of developing a new class of social finance intermediaries which will help to finance and capitalise civil society organisations across the UK (see

3.3 It is hoped that social investment will grow civil society, assist the development of more open public services, advance localism and enable more payment by results and outcomes focussed financing of charities and social enterprises.



4.1 The amendments acknowledge the special features of social investment and reflect growing innovation in the social investment market, including:

(a) the establishment of Big Society Capital;

(b) the launch of social venture funds such as Big Issue Invest and Bridges Ventures;

(c) the development of social impact bonds, such as those piloted by Social Finance, including the Peterborough Prison Social Impact Bond;

(d) the issuance of listed charity bonds, such as the bond recently issued by Scope;

(e) the growth of crowd-funding and peer-to-peer lending, such as BuzzBnk and Zopa;

(f) the development of new internationally focussed impact investment funds, such as the recent impact investment fund launched by Oxfam; and

(g) the prospective launch in London in the next year of a ‘Social Stock Exchange’ for social enterprises, which is one of the first investments by Big Society Capital.



5.1 The text in italics below is part of Clause 1B of the original Financial Services Bill as introduced to Parliament on 27 January 2012.

5.2 Amendment 72 would be inserted at the end of clause 5, page 16, line 7, as shown below.

The FCA’s general duties

1B The FCA’s general duties

(1) In discharging its general functions the FCA must, so far as is
reasonably possible, act in a way which-

(a) is compatible with its strategic objective, and

(b) advances one or more of its operational objectives.

(2) The FCA’s strategic objective is: ensuring that the relevant markets (see
section 1F) function well.

(3) The FCA’s operational objectives are-

(a) the consumer protection objective (see section 1C);

(b) the integrity objective (see section 1D);

(c) the competition objective (see section 1E).

(4) The FCA must, so far as is compatible with acting in a way which
advances the consumer protection objective or the integrity objective,
discharge its general functions in a way which promotes effective
competition in the interests of consumers.

Amendment 72

‘(5)    The FCA must, so far as is compatible with acting in a way which advances its operational objectives, discharge its general functions in a way which promotes the growth and development of social finance and social investment.’.

(5) In discharging its general functions the FCA must have regard to-

(a) the regulatory principles in section 3B, and

(b) the importance of taking action intended to minimise the extent
to which it is possible for a business carried on-

(i) by an authorised person or a recognised investment
exchange, or

(ii) in contravention of the general prohibition,

to be used for a purpose connected with financial crime.

(6) For the purposes of this Chapter, the FCA’s general functions are-

(a) its function of making rules under this Act (considered as a

(b) its function of preparing and issuing codes under this Act
(considered as a whole),

(c) its functions in relation to the giving of general guidance under
this Act (considered as a whole), and

(d) its function of determining the general policy and principles by
reference to which it performs particular functions under this

(7) Except to the extent that an order under section 47 of the Financial
Services Act 2012 (orders relating to mutual societies functions) so
provides, the FCA’s general functions do not include functions that are
transferred functions within the meaning of section 48 of that Act.

(8) "General guidance" has the meaning given in section 139B(5).



6.1 Amendment 73, below, would be inserted at the end of clause 5, page 22, line 44.

6.2 The Social Investment Panel would be established along with the proposed Practitioner Panel, Smaller Business Practitioner Panel, Markets Practitioner Panel and the Consumer Panel.

‘1R    The Social Investment Panel

(1) Arrangements under section 1M must include the establishment and maintenance of a panel of persons (to be known as "the Social Investment Panel") to represent the interests of organisations which specialise wholly or mainly in social finance or social investment.

(2) The FCA must appoint one of the members of the Social Investment Panel to be its chair.

(3) The Treasury’s approval is required for the appointment or dismissal of the chair.

(4) The FCA must appoint to the Social Investment Panel such-

(a) individuals who represent organisations carrying out social finance activity, and

(b) individuals who represent social sector organisations receiving social investment, as it considers appropriate.

(5) The FCA may appoint to the Social Investment Panel such other persons as it considers appropriate.

In making the appointments, the FCA must have regard to the desirability of ensuring the representation of a range of different forms of social sector organisations.’.



Bates Wells & Braithwaite has long been at the forefront of the development of social investment and is a leading social finance law firm, which advises the majority of the organisations in support of the amendments.



(a) Charity Finance Directors Group (body for charity finance directors).

(b) Association of Chief Executives of Voluntary Organisations (membership body for the leaders of third sector organisations in England and Wales).

(c) National Council for Voluntary Organisations (umbrella body for the community and voluntary sector in England).

(d) Investing for Good (specialist provider of impact investment services to private banks, asset managers and foundations).

(e) CAN Mezzanine (charity landlord offering office space to other social enterprises and charities).

(f) Bridges Ventures (a firm which invests for financial returns and social impact).

(g) FSE Group (comprises the fund managers FSE Loan Management, FE Loan Management, operating as  Finance East , and South East Fund Managers, which invest in small and medium sized businesses, as well as FSE Investor Networks, a group of business angel networks and clubs operating throughout the UK ).

(h) Charity Bank (finances social enterprises, charities and community organisations).

(i) Social Enterprise UK (a national organisation promoting social enterprise in the UK).

(j) Community Development Finance Association (the membership body for community development finance institutions in the UK).

(k) Social Finance (which was set up to lay the foundations for a social investment bank).

(l) Social Investment Business (the UK’s largest social investor).

(m) Social Stock Exchange (which is preparing for launch in the UK and will allow investors to trade exclusively in companies with social and environmental goals).

(n) Big Issue Invest (a specialised provider of finance to social enterprises and charities).

(o) Big Society Capital (the social investment wholesaler).

(p) Clearly So ( connects social business & enterprises with potential investors and corporations looking to engage with the social economy).

(q) UK Sustainable Investment and Finance Association (the member association of the UK social, ethical, and green investment industry and community).

(r) The Young Foundation (brings together insights, innovation and entrepreneurship to meet social needs).

(s) Triodos Investment Banking (one of the world’s leading sustainable banks, which strives to make money work for positive social, environmental and cultural change).

We hope that you will support the amendments.

February 2012

Prepared 6th March 2012