Financial Services (Banking Reform) Act 2013

PART 1 — Ring-fencing

Ring-fencing

Preferential debts: Great Britain

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• (1) Section 2B of FSMA 2000 (the PRA's general objective) is amended as follows.

• (2) In subsection (3)—

• (a) at the end of paragraph (a), omit “and”, and

• (b) after paragraph (b) insert

, and (c) discharging its general functions in relation to the matters mentioned in subsection (4A) in a way that seeks to— (i) ensure that the business of ring-fenced bodies is carried on in a way that avoids any adverse effect on the continuity of the provision in the United Kingdom of core services, (ii) ensure that the business of ring-fenced bodies is protected from risks (arising in the United Kingdom or elsewhere) that could adversely affect the continuity of the provision in the United Kingdom of core services, and (iii) minimise the risk that the failure of a ring-fenced body or of a member of a ring-fenced body's group could affect the continuity of the provision in the United Kingdom of core services.

• (3) In subsection (4), for “subsection (3)” substitute “ subsection (3)(a) and (b) ”.

• (4) After subsection (4) insert—

(4A) The matters referred to in subsection (3)(c) are— (a) Part 9B (ring-fencing); (b) ring-fenced bodies (see section 142A); (c) any body corporate incorporated in the United Kingdom that has a ring-fenced body as a member of its group; (d) applications under Part 4A which, if granted, would result, or would be capable of resulting, in a person becoming a ring-fenced body.

• (5) In section 2J of FSMA 2000 (interpretation of Chapter 2 of Part 1)—

• (a) in subsection (3), for “a PRA-authorised” substitute “ an authorised ”,

• (b) after that subsection insert—

(3A) For the purposes of this Chapter, the cases in which a person (“P”) other than an authorised person is to be regarded as failing include any case where P enters insolvency.

, and

• (c) in subsection (4), for “subsection (3)(a)” substitute “ subsections (3)(a) and (3A) ”.

Modification of objectives of Financial Conduct Authority

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After section 1I of FSMA 2000 insert—

(1IA) (1) If and so long as any regulated activity is a core activity (see section 142B) without also being a PRA-regulated activity (see section 22A), the provisions of this Chapter are to have effect subject to the following modifications. (2) Section 1B is to have effect as if— (a) in subsection (3), after paragraph (c) there were inserted— (d) in relation to the matters mentioned in section 1EA(2), the continuity objective (see section 1EA). (b) in subsection (4), for “or the integrity objective,” there were substituted “ , the integrity objective or (in relation to the matters mentioned in section 1EA(2)) the continuity objective, ”. (3) After section 1E there is to be taken to be inserted— (1EA) (1) In relation to the matters mentioned in subsection (2), the continuity objective is: protecting the continuity of the provision in the United Kingdom of core services (see section 142C). (2) Those matters are— (a) Part 9B (ring-fencing); (b) ring-fenced bodies (see section 142A); (c) any body corporate incorporated in the United Kingdom that has a ring-fenced body as a member of its group; (d) applications under Part 4A which, if granted, would result, or would be capable of resulting, in a person becoming a ring-fenced body. (3) The FCA's continuity objective is to be advanced primarily by— (a) seeking to ensure that the business of ring-fenced bodies is carried on in a way that avoids any adverse effect on the continuity of the provision in the United Kingdom of core services, (b) seeking to ensure that the business of ring-fenced bodies is protected from risks (arising in the United Kingdom or elsewhere) that could adversely affect the continuity of the provision in the United Kingdom of core services, and (c) seeking to minimise the risk that the failure of a ring-fenced body or of a member of a ring-fenced body's group could adversely affect the continuity of the provision in the United Kingdom of core services. (4) In subsection (3)(c), “failure” is to be read in accordance with section 2J(3) to (4).

Amendment of PRA power of direction

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In section 3I of FSMA 2000 (power of PRA to require FCA to refrain from specified action), in subsection (4)—

• (a) at the end of paragraph (a), omit “or”, and

• (b) at the end of paragraph (b), insert

, or (c) threaten the continuity of core services provided in the United Kingdom.

Ring-fencing of certain activities

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• (1) After Part 9A of FSMA 2000 insert—

(142A) (1) In this Act “ring-fenced body” means a UK institution which carries on one or more core activities (see section 142B) in relation to which it has a Part 4A permission. (2) But “ring-fenced body” does not include— (a) a building society within the meaning of the Building Societies Act 1986, or (b) a UK institution of a class exempted by order made by the Treasury. (3) An order under subsection (2)(b) may be made in relation to a class of UK institution only if the Treasury are of the opinion that the exemption conferred by the order would not be likely to have a significant adverse effect on the continuity of the provision in the United Kingdom of core services. (4) Subject to that, in deciding whether and, if so, how to exercise their powers under subsection (2)(b), the Treasury must have regard to the desirability of minimising any adverse effect that the ring-fencing provisions might be expected to have on competition in the market for services provided in the course of carrying on core activities, including any adverse effect on the ease with which new entrants can enter the market. (5) In subsection (4) “the ring-fencing provisions” means ring-fencing rules and the duty imposed as a result of section 142G. (6) An order under subsection (2)(b) may provide for the exemption to be subject to conditions. (7) In this section “UK institution” means a body corporate incorporated in the United Kingdom. (142B) (1) References in this Act to a “core activity” are to be read in accordance with this section. (2) The regulated activity of accepting deposits (whether carried on in the United Kingdom or elsewhere) is a core activity unless it is carried on in circumstances specified by the Treasury by order. (3) An order under subsection (2) may be made only if the Treasury are of the opinion that it is not necessary for either of the following purposes that the regulated activity of accepting deposits should be a core activity when carried on in the specified circumstances. (4) Those purposes are— (a) to secure an appropriate degree of protection for the depositors concerned, or (b) to protect the continuity of the provision in the United Kingdom of services provided in the course of carrying on the regulated activity of accepting deposits. (5) The Treasury may by order provide for a regulated activity other than that of accepting deposits to be a core activity, either generally or when carried on in circumstances specified in the order. (6) An order under subsection (5) may be made only if the Treasury are of the opinion— (a) that an interruption of the provision of services provided in the United Kingdom in the carrying on of the regulated activity concerned could adversely affect the stability of the UK financial system or of a significant part of that system, and (b) that the continuity of the provision of those services can more effectively be protected by treating the activity as a core activity. (142C) (1) References in this Act to “core services” are to be read in accordance with this section. (2) The following are core services— (a) facilities for the accepting of deposits or other payments into an account which is provided in the course of carrying on the core activity of accepting deposits; (b) facilities for withdrawing money or making payments from such an account; (c) overdraft facilities in connection with such an account. (3) The Treasury may by order provide that any other specified services provided in the course of carrying on the core activity of accepting deposits are also core services. (4) If an order under section 142B(5) provides for an activity other than that of accepting deposits to be a core activity, the Treasury must by order provide that specified services provided in the course of carrying on that activity are core services. (5) The services specified by order under subsection (4) must be services in relation to which the Treasury are of the opinion mentioned in section 142B(6)(a). (142D) (1) References in this Act to an “excluded activity” are to be read in accordance with this section. (2) The regulated activity of dealing in investments as principal (whether carried on in the United Kingdom or elsewhere) is an excluded activity unless it is carried on in circumstances specified by the Treasury by order. (3) An order under subsection (2) may be made only if the Treasury are of the opinion that allowing ring-fenced bodies to deal in investments as principal in the specified circumstances would not be likely to result in any significant adverse effect on the continuity of the provision in the United Kingdom of core services. (4) The Treasury may by order provide for an activity other than the regulated activity of dealing in investments as principal to be an excluded activity, either generally or when carried on in circumstances specified in the order. (5) An activity to which an order under subsection (4) relates— (a) need not be a regulated activity, and (b) may be an activity carried on in the United Kingdom or elsewhere. (6) In deciding whether to make an order under subsection (4) in relation to any activity, the Treasury must— (a) have regard to the risks to which a ring-fenced body would be exposed if it carried on the activity concerned, and (b) consider whether the carrying on of that activity by a ring-fenced body would make it more likely that the failure of the body would have an adverse effect on the continuity of the provision in the United Kingdom of core services. (7) An order under subsection (4) may be made only if the Treasury are of the opinion that the making of the order is necessary or expedient for the purpose of protecting the continuity of the provision in the United Kingdom of core services. (142E) (1) The Treasury may by order prohibit ring-fenced bodies from— (a) entering into transactions of a specified kind or with persons falling within a specified class; (b) establishing or maintaining a branch in a specified country or territory; (c) holding in specified circumstances shares or voting power in companies of a specified description. (2) In deciding whether to make an order under this section imposing a prohibition, the Treasury must— (a) have regard to the risks to which a ring-fenced body would be exposed if it did the thing to which the prohibition relates, and (b) consider whether the doing of that thing by a ring-fenced body would make it more likely that the failure of the body would have an adverse effect on the continuity of the provision in the United Kingdom of core services. (3) An order under this section may be made only if the Treasury are of the opinion that the making of the order is necessary or expedient for the purpose of protecting the continuity of the provision in the United Kingdom of core services. (4) An order under this section may in particular— (a) provide for any prohibition to be subject to exemptions specified in the order; (b) provide for any exemption to be subject to conditions specified in the order. (142F) (1) An order made under section 142A, 142B, 142D or 142E may— (a) authorise or require the making of rules by a regulator for the purposes of, or for purposes connected with, any provision of the order; (b) authorise the making of other instruments by a regulator for the purposes of, or for purposes connected with, any provision of the order; (c) 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. (2) If the order confers powers on a regulator or authorises or requires the making of rules or other instruments by a regulator, the order may also— (a) impose conditions on the exercise of any power conferred on the regulator; (b) impose consultation requirements on the regulator; (c) make the exercise of a power by the regulator subject to the consent of the Treasury. (142G) (1) A ring-fenced body which— (a) carries on an excluded activity or purports to do so, or (b) contravenes any provision of an order under section 142E, is to be taken to have contravened a requirement imposed on the body by the appropriate regulator under this Act. (2) The contravention does not— (a) make a person guilty of an offence; (b) make a transaction void or unenforceable; (c) (subject to subsection (3)) give rise to any right of action for breach of statutory duty. (3) In such cases as the Treasury may specify by order, the contravention is actionable at the suit of a person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty. (4) In this section “the appropriate regulator” means— (a) in relation to a ring-fenced body which is a PRA-authorised person, the PRA; (b) in relation to any other ring-fenced body, the FCA. (142H) (1) In the exercise of its power to make general rules, the appropriate regulator must in particular make rules— (a) requiring a ring-fenced body to make arrangements to ensure the effective provision to the ring-fenced body of services and facilities that it requires in relation to the carrying on of a core activity, and (b) making provision for the group ring-fencing purposes applying to ring-fenced bodies and to authorised persons who are members of a ring-fenced body's group. (2) Section 142E(1)(c) does not affect the power of the appropriate regulator to make general rules imposing restrictions on the extent of the shares or voting power that a ring-fenced body may hold in another company, except where a restriction on the extent of the shares or voting power that the ring-fenced body may hold in the company is imposed by order under section 142E(1)(c). (3) General rules that are required by this section or make provision falling within subsection (2) are in this Act referred to as “ring-fencing rules”. (4) The “group ring-fencing purposes” are— (a) ensuring as far as reasonably practicable that the carrying on of core activities by a ring-fenced body is not adversely affected by the acts or omissions of other members of its group; (b) ensuring as far as reasonably practicable that in carrying on its business a ring-fenced body— (i) is able to take decisions independently of other members of its group, and (ii) does not depend on resources which are provided by a member of its group and which would cease to be available to the ring-fenced body in the event of the insolvency of the other member; (c) ensuring as far as reasonably practicable that the ring-fenced body would be able to continue to carry on core activities in the event of the insolvency of one or more other members of its group. (5) Ring-fencing rules made for the group ring-fencing purposes must include— (a) provision restricting the power of a ring-fenced body to enter into contracts with other members of its group otherwise than on arm's length terms; (b) provision restricting the payments that a ring-fenced body may make (by way of dividend or otherwise) to other members of its group; (c) provision requiring the disclosure to the appropriate regulator of information relating to transactions between a ring-fenced body and other members of its group; (d) provision requiring a ring-fenced body to ensure that its board of directors (or if there is no such board, the equivalent management body) includes to a specified extent— (i) members who are treated by the rules as being independent of other members of the ring-fenced body's group, (ii) members who are treated by the rules as being independent of the ring-fenced body itself, and (iii) non-executive members; (e) provision requiring a ring-fenced body to act in accordance with a remuneration policy meeting specified requirements; (f) provision requiring a ring-fenced body to act in accordance with a human resources policy meeting specified requirements; (g) provision requiring arrangements made by the ring-fenced body for the identification, monitoring and management of risk to meet specified requirements; (h) such other provision as the appropriate regulator considers necessary or expedient for any of the purposes in subsection (4). (6) The reference in subsection (5)(e) to a remuneration policy is a reference to a policy about the remuneration of officers, employees and other persons who (in each case) are of a specified description. (7) The reference in subsection (5)(f) to a human resources policy is a reference to a policy about the appointment and management of officers, employees and other persons who (in each case) are of a specified description. (8) In this section— - “the appropriate regulator” means— 1. in relation to a PRA-authorised person, the PRA; 2. in relation to any other authorised person, the FCA; - “shares” has the meaning given in section 422; - “specified” means specified in the rules; - “voting power” has the meaning given in section 422. (142I) (1) The Treasury may by order require the appropriate regulator, as defined in section 142H(8), to include (or not to include) in ring-fencing rules specified provision relating to— (a) any of the matters mentioned in section 142H(5)(a) to (g), or (b) any other specified matter. (2) The power to make an order under this section is exercisable only if the Treasury consider it necessary or expedient to do so— (a) for any of the group ring-fencing purposes as defined in section 142H(4), or (b) otherwise for securing the independence of ring-fenced bodies from other members of their groups. (3) “Specified” means specified in the order. (142J) (1) The PRA must carry out reviews of its ring-fencing rules and of any rules made by it under section 192JA (rules applying to parent undertakings of ring-fenced bodies). (2) The first review must be completed before the end of the period of 5 years beginning with the day on which the first ring-fencing rules come into force. (3) Subsequent reviews must be completed before the end of the period of 5 years beginning with the day on which the previous review was completed. (4) The PRA must give the Treasury a report of each review. (5) The Treasury must lay a copy of the report before Parliament. (6) The PRA must publish the report in such manner as it thinks fit. (7) If (because any ring-fenced body is not a PRA-authorised person) section 142H has the effect of requiring the FCA to make ring-fencing rules, subsections (1) to (6) apply to the FCA as they apply to the PRA. (142K) (1) The appropriate regulator may exercise the group restructuring powers only if it is satisfied that one or more of Conditions A to D is met in relation to a ring-fenced body that is a member of a group. (2) Condition A is that the carrying on of core activities by the ring-fenced body is being adversely affected by the acts or omissions of other members of its group. (3) Condition B is that in carrying on its business the ring-fenced body— (a) is unable to take decisions independently of other members of its group, or (b) depends on resources which are provided by a member of its group and which would cease to be available in the event of the insolvency of the other member. (4) Condition C is that in the event of the insolvency of one or more other members of its group the ring-fenced body would be unable to continue to carry on the core activities carried on by it. (5) Condition D is that the ring-fenced body or another member of its group has engaged, or is engaged, in conduct which is having, or would apart from this section be likely to have, an adverse effect on the advancement by the appropriate regulator— (a) in the case of the PRA, of the objective in section 2B(3)(c), or (b) in the case of the FCA, of the continuity objective. (6) The appropriate regulator may not exercise the group restructuring powers in relation to any person if— (a) either regulator has previously exercised the group restructuring powers in relation to that person, and (b) the decision notice in relation to the current exercise is given before the second anniversary of the day on which the decision notice in relation to the previous exercise was given. (7) In this section and sections 142L to 142Q “the appropriate regulator” means— (a) where the ring-fenced body is a PRA-authorised person, the PRA; (b) where it is not, the FCA. (142L) (1) In this Part “the group restructuring powers” means one or more of the powers conferred by this section. (2) Where the appropriate regulator is the PRA, the powers conferred by this section are as follows— (a) in relation to the ring-fenced body, power to impose a requirement on the ring-fenced body requiring it to take any of the steps mentioned in subsection (5), (b) in relation to any member of the ring-fenced body's group which is a PRA-authorised person, power to impose a requirement on the PRA-authorised person requiring it to take any of the steps mentioned in subsection (6), (c) in relation to any member of the ring-fenced body's group which is an authorised person but not a PRA-authorised person, power to direct the FCA to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6), and (d) in relation to a qualifying parent undertaking, power to give a direction under this paragraph to the parent undertaking requiring it to take any of the steps mentioned in subsection (6). (3) Where the appropriate regulator is the FCA, the powers conferred by this section are as follows— (a) in relation to the ring-fenced body, power to impose a requirement on the ring-fenced body requiring it to take any of the steps mentioned in subsection (5), (b) in relation to any member of the ring-fenced body's group which is an authorised person but not a PRA-authorised person, power to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6), (c) in relation to any member of the ring-fenced body's group which is a PRA-authorised person, power to direct the PRA to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6), and (d) in relation to a qualifying parent undertaking, power to give a direction under this paragraph to the parent undertaking requiring it to take any of the steps mentioned in subsection (6). (4) A parent undertaking of a ring-fenced body by reference to which the group restructuring powers are exercisable is for the purposes of this Part a “qualifying parent undertaking” if— (a) it is a body corporate which is incorporated in the United Kingdom and has a place of business in the United Kingdom, and (b) it is not itself an authorised person. (5) The steps that the ring-fenced body may be required to take are— (a) to dispose of specified property or rights to an outside person; (b) to apply to the court under Part 7 for an order sanctioning a ring-fencing transfer scheme relating to the transfer of the whole or part of the business of the ring-fenced body to an outside person; (c) otherwise to make arrangements discharging the ring-fenced body from specified liabilities. (6) The steps that another authorised person or a qualifying parent undertaking may be required to take are— (a) to dispose of any shares in, or securities of, the ring-fenced body to an outside person; (b) to dispose of any interest in any other body corporate that is a member of the ring-fenced body's group to an outside person; (c) to dispose of other specified property or rights to an outside person; (d) to apply to the court under Part 7 for an order sanctioning a ring-fencing transfer scheme relating to the transfer of the whole or part of the business of the authorised person or qualifying parent undertaking to an outside person. (7) In subsections (5) and (6) “outside person” means a person who, after the implementation of the disposal or scheme in question, will not be a member of the group of the ring-fenced body by reference to which the powers are exercised (whether or not that body is to remain a ring-fenced body after the implementation of the disposal or scheme in question). (8) It is immaterial whether a requirement to be imposed on an authorised person by the appropriate regulator, or by the other regulator at the direction of the appropriate regulator, is one that the regulator imposing it could impose under section 55L or 55M. (142M) (1) If the appropriate regulator proposes to exercise the group restructuring powers in relation to any authorised person or qualifying parent undertaking (“the person concerned”), the regulator must give each of the relevant persons a notice (a “preliminary notice”). (2) The preliminary notice must— (a) state that it is a preliminary notice, (b) state that the regulator proposes to exercise the group restructuring powers, (c) state the action which the regulator proposes to take in the exercise of those powers, (d) be in writing, and (e) give reasons for the proposed action (which must include the regulator's reasons for being satisfied as to the matters mentioned in section 142K(1)). (3) The appropriate regulator must give a copy of the preliminary notice to the Treasury. (4) The preliminary notice must specify a reasonable period (which may not be less than 14 days) within which any of the relevant persons may make representations to the regulator. (5) The relevant persons are— (a) the person concerned, (b) the ring-fenced body, if not the person concerned, and (c) any other authorised person who will, in the opinion of the appropriate regulator, be significantly affected by the exercise of the group restructuring powers. (142N) (1) If the appropriate regulator has given a preliminary notice under section 142M, it must either— (a) if, having considered any representations made by any of the relevant persons, it still proposes to exercise the group restructuring powers, give each of the relevant persons a warning notice during the warning notice period, or (b) before the end of the warning notice period, give each of them a written notice stating that it has decided not to exercise the powers and give a copy of that notice to the Treasury. (2) The “warning notice period” is the period— (a) beginning 3 months after the end of the period specified under section 142M(4) as that within which any representations must be made, and (b) ending 6 months after the end of that period. (3) Before giving a warning notice under subsection (1)(a), the appropriate regulator must— (a) give the Treasury a draft of the notice, (b) provide the Treasury with any information that the Treasury may require in order to decide whether to give their consent, and (c) obtain the consent of the Treasury. (4) The action specified in the warning notice may be different from that specified in the preliminary notice if— (a) the appropriate regulator considers that different action is appropriate as a result of any change in circumstances since the preliminary notice was given, or (b) the person concerned consents to the change. (5) The regulator must, in particular, have regard to anything that— (a) has been done by the person concerned since the giving of the preliminary notice, and (b) represents action that would have been required in pursuance of the proposals in that notice. (6) If the regulator decides to exercise the group restructuring powers it must give each of the relevant persons a decision notice. (7) The decision notice must specify the date or dates by which each of the following must be completed— (a) any disposal of shares, securities or other property that is required by the notice; (b) any transfer of liabilities for which the notice requires arrangements to be made. (8) The giving of consent for the purpose of subsection (4)(b) does not affect any right to refer to the Tribunal the matter to which any decision notice resulting from the warning notice relates. (9) “The relevant persons” has the same meaning as in section 142M. (142O) (1) A notified person who is aggrieved by— (a) the imposition by either regulator of a requirement as a result of section 142L(2)(a) or (b) or (3)(a) or (b), (b) a requirement to be imposed as a result of the giving by one regulator to the other of a direction under section 142L(2)(c) or (3)(c), or (c) the giving by either regulator of a direction under section 142L(2)(d) or (3)(d), may refer the matter to the Tribunal. (2) “Notified person” means a person to whom a decision notice under section 142N(6) was given or ought to have been given. (142P) (1) A regulator may at any time with the consent of the person concerned vary— (a) a requirement imposed by it as a result of section 142L(2)(a) or (b) or (3)(a) or (b), or (b) a direction given by it as a result of section 142L(2)(c) or (d) or (3)(c) or (d). (2) The person concerned may at any time apply to the appropriate regulator for the variation of— (a) a requirement imposed by it as a result of section 142L(2)(a) or (b) or (3)(a) or (b), or (b) a direction given by it as a result of section 142L(2)(c) or (d) or (3)(c) or (d). (3) Sections 55U, 55V, 55X and 55Z3 apply to an application under subsection (2) as they apply to an application for the variation of a requirement imposed by the appropriate regulator under section 55L or 55M. (142Q) (1) Where a notice under section 142M or a warning notice or decision notice under section 142N relates to a requirement to be imposed in pursuance of a direction to be given as a result of section 142L(2)(c) or (3)(c), the appropriate regulator must— (a) consult the other regulator before giving the notice, and (b) give a copy of the notice to the other regulator. (2) The appropriate regulator must consult the other regulator before varying under section 142P a direction given as a result of section 142L(2)(c) or (3)(c). (3) Directions given by the FCA as a result of section 142L(3)(c) are subject to any directions given to the FCA under section 3I. (142R) (1) Subsection (2) applies in relation to— (a) a ring-fenced body which is a member of a mixed group, and (b) a parent undertaking of such a ring-fenced body. (2) A regulator may not exercise its general powers in relation to the ring-fenced body or parent undertaking so as to achieve either of the results in subsection (3). (3) Those results are— (a) that no existing group member is a parent undertaking of the ring-fenced body; (b) that the ring-fenced body is not a member of a mixed group. (4) In subsection (3)(a) “existing group member” means a person who is a member of the ring-fenced body's group at the time when the requirement is imposed or the direction given. (5) Except as provided by subsections (1) to (4), the provisions of sections 142K to 142Q do not limit the general powers of either regulator. (6) For the purposes of this section, a regulator's “general powers” are its powers under the following provisions— (a) section 55L or 55M (imposition of requirements in connection with Part 4A permission); (b) section 192C (power to direct qualifying parent undertaking). (7) For the purposes of this section, a ring-fenced body is a member of a mixed group if a member of the ring-fenced body's group carries on an excluded activity. (142S) (1) This section applies if a regulator is satisfied that a person who is or has been a qualifying parent undertaking (“P”) has contravened a requirement of a direction given to P by that regulator as a result of section 142L(2)(d) or (3)(d). (2) The regulator may impose a penalty of such amount as it considers appropriate on— (a) P, or (b) any person who was knowingly concerned in the contravention. (3) The regulator may, instead of imposing a penalty on a person, publish a statement censuring the person. (4) The regulator may not take action against a person under this section after the end of the limitation period unless, before the end of that period, it has given a warning notice to the person under section 142T. (5) “The limitation period” means the period of 3 years beginning with the first day on which the regulator knew of the contravention. (6) For this purpose a regulator is to be treated as knowing of a contravention if it has information from which the contravention can reasonably be inferred. (7) The requirements that a regulator may be required to impose as a result of a direction under section 142L(2)(c) or (3)(c) include requirements that the regulator would not but for the direction have power to impose. (142T) (1) If a regulator proposes to take action against a person under section 142S, it must give the person a warning notice. (2) A warning notice about a proposal to impose a penalty must state the amount of the penalty. (3) A warning notice about a proposal to publish a statement must set out the terms of the statement. (4) If the regulator decides to take action against a person under section 142S, it must give the person a decision notice. (5) A decision notice about the imposition of a penalty must state the amount of the penalty. (6) A decision notice about the publication of a statement must set out the terms of the statement. (7) If the regulator decides to take action against a person under section 142S, the person may refer the matter to the Tribunal. (142U) After a statement under section 142S(3) is published, the regulator must send a copy of the statement to— (a) the person in respect of whom it is made, and (b) any person to whom a copy of the decision notice was given under section 393(4). (142V) (1) Each regulator must prepare and issue a statement of policy with respect to— (a) the imposition of penalties under section 142S, and (b) the amount of penalties under that section. (2) A regulator's policy in determining what the amount of a penalty should be must include having regard to— (a) the seriousness of the contravention, (b) the extent to which the contravention was deliberate or reckless, and (c) whether the person on whom the penalty is to be imposed is an individual. (3) A regulator may at any time alter or replace a statement issued under this section. (4) If a statement issued under this section is altered or replaced, the regulator must issue the altered or replacement statement. (5) In exercising, or deciding whether to exercise, a power under section 142S(2) in the case of any particular contravention, a regulator must have regard to any statement of policy published under this section and in force at a time when the contravention occurred. (6) A statement under this section must be published by the regulator concerned in the way appearing to the regulator to be best calculated to bring it to the attention of the public. (7) A regulator may charge a reasonable fee for providing a person with a copy of the statement published under this section. (8) A regulator must, without delay, give the Treasury a copy of any statement which it publishes under this section. (9) Section 192I applies in relation to a statement under this section as it applies in relation to a statement under section 192H. (142W) (1) The Treasury may by regulations require a ring-fenced body to make arrangements for any one or more of the following purposes— (a) ensuring that, except in prescribed cases, the ring-fenced body cannot become liable to meet, or contribute to the meeting of, pension liabilities which arise in connection with persons' service on or after a date specified in the regulations (“the specified date”) in any employment, other than service in an employment in respect of which the employer is a ring-fenced body; (b) ensuring that, except in prescribed cases, the default of a person other than another ring-fenced body would not result in the ring-fenced body becoming liable to meet, or contribute to the meeting of, pension liabilities arising in connection with persons' service in any employment before the specified date; (c) to the extent that it is not possible to ensure the result mentioned in paragraph (a) or (b), minimising any potential liability falling within paragraph (a) or (b). (2) The regulations may make provision enabling the trustees or managers of a relevant pension scheme in respect of which the employer or one of the employers is a ring-fenced body— (a) to transfer to another relevant pension scheme all or part of the pension liabilities arising in connection with persons' service before the specified date together with all or part of the assets of the scheme, or (b) to divide the scheme into two or more sections in relation to which prescribed conditions are met. (3) The regulations may make provision— (a) enabling a ring-fenced body to apply to the court in a case where the ring-fenced body has been unable to reach agreement with another person (“P”) about the making of arrangements with P on commercial terms for one or more of the purposes in subsection (1), and (b) enabling the court on such an application to order P to enter into arrangements with the ring-fenced body for those purposes on such terms as the court considers fair and reasonable in the circumstances. (4) The regulations must provide that any terms specified by the court by virtue of provision made under subsection (3)— (a) must be terms which, in the court's opinion, represent terms on which the arrangements might be entered into if they were being entered into for commercial reasons between willing parties dealing at arm's length, and (b) may involve the payment of any sum by instalments. (5) The regulations may make other provision— (a) about the making by a ring-fenced body of arrangements for one or more of the purposes in subsection (1); (b) about any transfer or division falling within subsection (2). (6) The regulations may in particular— (a) require a ring-fenced body to cease to participate in a relevant pension scheme unless the scheme is divided into two or more sections in relation to which prescribed conditions are met; (b) provide that assets or liabilities of a relevant pension scheme may not be transferred under the arrangements to another occupational pension scheme unless the other scheme meets prescribed conditions; (c) require ring-fenced bodies to establish new occupational pension schemes in prescribed circumstances; (d) provide that any provision of a relevant pension scheme that might prevent the making of the arrangements, other than a provision requiring the consent of the trustees or managers of the scheme, is not to have effect in prescribed circumstances; (e) make provision enabling the trustees or managers of a relevant pension scheme, with the consent of the employers in relation to the scheme, to modify the scheme by resolution for the purpose of enabling the arrangements to be made; (f) require the trustees or managers of a relevant pension scheme or any employer in relation to a relevant pension scheme to give notice of prescribed matters to prescribed persons; (g) make provision enabling the court, on an application made in accordance with the regulations by a ring-fenced body, if it appears to the court that the trustees or managers of a relevant pension scheme, or an employer in relation to such a scheme, have unreasonably refused their consent to any step that would enable the arrangements to be made, to order that the step may be taken without that consent; (h) confer exemption from any provision of the regulations in prescribed cases; (i) confer functions on the PRA; (j) provide that a ring-fenced body which contravenes a prescribed requirement of the regulations is to be taken to have contravened a requirement imposed by the PRA under this Act; (k) modify, exclude or apply (with or without modification) any primary or subordinate legislation. (7) The Treasury may by regulations require an authorised person who will or may be a ring-fenced body or an authorised person who will or may be a member of a ring-fenced body's group to do all it can to obtain from the Pensions Regulator a clearance statement in relation to any arrangements to be made for the purpose of complying with— (a) regulations under this section, or (b) any provision made by or under this Part (other than this section) when the provision comes into force. (8) A “clearance statement” is a statement issued by the Pensions Regulator under any of the following provisions— (a) section 42 of the Pensions Act 2004 (clearance statements relating to contribution notice under section 38); (b) section 46 of that Act (clearance statements relating to financial support directions); (c) Article 38 of the Pensions (Northern Ireland) Order 2005 (clearance statements relating to contribution notices under article 34); (d) Article 42 of that Order (clearance statements relating to financial support directions). (9) In relation to a ring-fenced body that is not a PRA-authorised person, references in subsection (6) to the PRA are to be read as references to the FCA. (10) Regulations under this section may not require ring-fenced bodies to achieve the results mentioned in subsection (1) before 1 January 2026, but this does not prevent the regulations requiring steps to be taken at any time after the regulations come into force. (142X) (1) The following provisions have effect for the interpretation of section 142W and this section. (2) “Relevant pension scheme” means an occupational pension scheme that is not a money purchase scheme. (3) “Occupational pension scheme” has the meaning given in section 1 of the Pension Schemes Act 1993 or section 1 of the Pension Schemes (Northern Ireland) Act 1993 and, in relation to such a scheme, “member” and “trustees or managers” have the same meaning as in Part 1 of the Pensions Act 1995 or Part 2 of the Pensions (Northern Ireland) Order 1995. (4) “Money purchase scheme” has the meaning given in section 181(1) of the Pension Schemes Act 1993 or section 176(1) of the Pension Schemes (Northern Ireland) Act 1993. (5) “Employer”, in relation to a relevant pension scheme, means— (a) a person who is for the purposes of Part 1 of the Pensions Act 1995 or Part 2 of the Pensions (Northern Ireland) Order 1995 an employer in relation to the scheme, and (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 Ireland) 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) in relation to England and Wales or Northern Ireland, the High Court, and (b) in relation to Scotland, the Court of Session. (142Y) (1) The 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) to 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) any 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) a 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 relevant 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 order; (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 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 specified 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) “Specified” means specified in the order. (142Z) (1) This section applies to an order containing provision made under any of the following provisions of this Part— (a) section 142A(2)(b); (b) section 142B(2) or (5); (c) section 142C; (d) section 142D(2) or (4); (e) section 142E; (f) section 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) subsection (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) Where 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 affecting 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 during which Parliament is dissolved or prorogued or during which either House is adjourned for more than 4 days. (142Z1) (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) Any 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), after 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) In 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—

“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) after 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) In 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, ”.

PRA annual report

5

• (1) In 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 complied 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 142D(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) the 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 acted 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 bodies 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 ”.

Ring-fencing transfer schemes

6

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

Building societies: power to make provision about ring-fencing

7

• (1) The Treasury may by regulations—

• (a) make 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 relation 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 FSMA 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) confer 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—

• “building society” has the same meaning as in the Building Societies Act 1986;

• “the relevant continuity provision” means—in the case of functions exercisable by the FCA, the continuity objective set out in section 1EA of FSMA 2000, orin the case of functions exercisable by the PRA, section 2B(3)(c) and (4A) of that Act.

Reviews

Independent review of operation of legislation relating to ring-fencing

8

• (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 legislation 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 by the FCA or the PRA;

• (d) section 192JA of FSMA 2000 (as inserted by section 133);

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

• (3) The initial period is the period of 2 years beginning with the first day on which section 142G of FSMA 2000 is fully in force.

• (4) The 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 to 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) must 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 chair of the Treasury Committee of the House of Commons.

• (7) The 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 functions) 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) The 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) making 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) Any expenses reasonably incurred in the conduct of the review are to be paid by the Treasury out of money provided by Parliament.

PRA review of proprietary trading

9

• (1) The PRA must carry out a review of proprietary trading engaged in (whether or not as a regulated activity) by relevant authorised persons, for the purpose of considering whether further restrictions on any kind of proprietary trading ought to be imposed.

• (2) The review must begin before the end of the 12 months beginning with the first day on which section 142G of FSMA 2000 is fully in force.

• (3) On completion of the review, the PRA must make a written report to the Treasury on—

• (a) the extent to which relevant authorised persons engage in proprietary trading;

• (b) whether proprietary trading engaged in by relevant authorised persons gives rise to any risks to their safety and soundness;

• (c) whether any kinds of proprietary trading are particularly likely to give rise to such risks;

• (d) anything done by the PRA to minimise risks to the safety and soundness of relevant authorised persons arising from proprietary trading engaged in by them;

• (e) any difficulties encountered by the PRA in seeking to minimise such risks.

• (4) The report must include an assessment by the PRA of each of the following—

• (a) whether the PRA's powers under FSMA 2000 are, and might be expected to continue to be, sufficient to enable it to advance its objectives in relation to relevant authorised persons who engage in proprietary trading;

• (b) the effectiveness of restrictions imposed in countries or territories outside the United Kingdom on proprietary trading by banks (so far as experience in those countries or territories appears to the PRA to be of relevance to the United Kingdom).

• (5) The report must be made within 9 months of the beginning of the review.

• (6) The Treasury must lay a copy of the report before Parliament.

• (7) The PRA must publish the report in such manner as it thinks fit.

• (8) The functions of the PRA under this section are to be taken for the purposes of FSMA 2000 to be functions under that Act.

• (9) This section is to be read with the interpretative provisions in section 11.

Independent review of proprietary trading

10

• (1) The Treasury must, after receiving the report of the PRA under section 9 but before the end of the initial period, appoint one or more persons (“the review panel”) to carry out a review of proprietary trading engaged in (whether or not as a regulated activity) by relevant authorised persons.

• (2) The initial period is the period of 2 years beginning with the first day on which section 142G of FSMA 2000 is fully in force.

• (3) The 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 to serve as members of the review panel.

• (4) In appointing the members of the review panel, the Treasury must have regard to the need to ensure that the review panel (considered as a whole) has the necessary experience to undertake the review.

• (5) Before appointing the members of the review panel, the Treasury must consult the chair of the Treasury Committee of the House of Commons.

• (6) The reference in subsection (5) 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 functions) 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.

• (7) If the review panel consists of two or more members, the Treasury must appoint one of them to be the chair of the panel.

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

• (a) stating whether the panel agrees with the conclusions reached by the PRA in its report under section 9,

• (b) stating whether the panel recommends any further restrictions on any kind of proprietary trading in relation to relevant authorised persons, and

• (c) making such other recommendations as the panel thinks fit.

• (9) The Treasury must—

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

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

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

• (11) This section is to be read with the interpretative provisions in section 11.

Reviews of proprietary trading: interpretation

11

• (1) This section has effect for the interpretation of sections 9 and 10.

• (2) A person engages in “proprietary trading” where the person trades in commodities or financial instruments as principal.

• (3) In subsection (2)—

• (a) “commodity” includes any produce of agriculture, forestry or fisheries, or any mineral, either in its natural state or having undergone only such processes as are necessary or customary to prepare the produce or mineral for the market;

• (b) “financial instrument” includes anything specified in Section C of Annex I to Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments.

• (4) “Relevant authorised person” means a PRA-authorised person which—

• (a) is a UK institution,

• (b) meets condition A or B, and

• (c) is not an insurer.

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

• (6) Condition B is that—

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

• (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.

• (7) In subsections (4) to (6)—

• (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 FSMA 2000 to carry on the regulated activity of effecting or carrying out contracts of insurance as principal;

• (c) “PRA-authorised person” and “PRA-regulated activity” have the same meaning as in FSMA 2000.

• (8) Subsections (5), (6)(b) and (7)(b) are to be read in accordance with section 22 of FSMA 2000, taken with Schedule 2 to that Act and any order under that section.

Right to obtain documents and information

12

• (1) A review panel appointed under section 8 or 10—

• (a) has a right of access at any reasonable time to all such documents as the panel 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 conferred 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

Depositor preference

Preferential debts: Great Britain

13

• (1) In Schedule 6 to the Insolvency Act 1986 (categories of preferential debts) after paragraph 15A insert—

(15B) 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 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. (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 Compensation 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 Accounts 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) In Part 1 of Schedule 3 to the Bankruptcy (Scotland) Act 1985 (list of preferred debts), after paragraph 6A insert—

(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 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.

• (4) In Part 2 of Schedule 3 to the Bankruptcy (Scotland) Act 1985 (interpretation of Part 1), after paragraph 9 insert—

(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) For 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

Discharge of functions by the scheme manager

14

After section 224 of FSMA 2000 insert—

(224ZA) (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 guarantees and indemnities and any other kind of financial assistance (actual or contingent).

Power to require information from scheme manager

15

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Scheme manager: appointment of accounting officer

16

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

• (2) In 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) in 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 — Bail-in stabilisation option

Bail-in stabilisation option

17

• (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 consequence of the application to building societies of the amendments made by this Part.

• (3) An order may, in particular—

• (a) enable the Bank of England, for the purpose of enabling it to exercise in relation to the business of a building society any of the powers exercisable as a result of the amendments made by this Part—

• (i) to convert the building society into a company, or

• (ii) to transfer the business of the building society to a company which immediately before the transfer is owned by the Bank or by a person of a description specified in the order;

• (b) enable the Bank of England, in connection with the exercise of a power conferred by virtue of paragraph (a), to cancel membership rights or shares in the building society;

• (c) provide for any power exercisable as a result of the amendments made by this Part to be exercisable in relation to the company—

• (i) into which the building society is converted, or

• (ii) to which the business of the building society is transferred;

• (d) enable the Bank of England, in a case where it has transferred the business of a building society by virtue of paragraph (a)(ii), to dissolve the building society at any time after the transfer;

• (e) confer functions on the Treasury, the Bank of England, the FCA, the PRA or a resolution administrator;

• (f) make further amendments of Part 1 of the Banking Act 2009;

• (g) amend or modify the effect of the Building Societies Act 1986 or 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) In this section—

• . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• “building society” has the same meaning as in section 84 of the Banking Act 2009;

• “company” means a company as defined in section 1(1) of the Companies Act 2006 which is a public company limited by shares.

• “resolution administrator” is to be read in accordance with sections 62B to 62E of the Banking Act 2009.

PART 4 — Conduct of persons working in financial services sector

Amendments of FSMA 2000

Functions for which approval is required

18

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

• (2) Omit subsection (5).

• (3) For subsection (6) substitute—

(6) The PRA may specify a description of function under subsection (3)(a) only if, in relation to the carrying on of a regulated activity by a PRA-authorised person, it is satisfied that the function is a senior management function as defined in section 59ZA.

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (5) Omit subsections (7) to (7B) and (11).

Senior management functions

19

After section 59 of FSMA 2000 insert—

(59ZA) (1) This section has effect for determining whether a function is for the purposes of section 59(6) or (6A) a senior management function. (2) A function is a “senior management function”, in relation to the carrying on of a regulated activity by an authorised person, if— (a) the function will require the person performing it to be responsible for managing one or more aspects of the authorised person's affairs, so far as relating to the activity, and (b) those aspects involve, or might involve, a risk of serious consequences— (i) for the authorised person, or (ii) for business or other interests in the United Kingdom. (3) In subsection (2)(a) the reference to managing one or more aspects of an authorised person's affairs includes a reference to taking decisions, or participating in the taking of decisions, about how one or more aspects of those affairs should be carried on.

Statements of responsibilities

20

• (1) Section 60 of FSMA 2000 (applications for approval) is amended as follows.

• (2) After subsection (2) insert—

(2A) If— (a) the application is for the approval of a person to perform a designated senior management function, and (b) the authorised person concerned is a relevant authorised person (see section 71A), the appropriate regulator must require the application to contain, or be accompanied by, a statement setting out the aspects of the affairs of the authorised person concerned which it is intended that the person will be responsible for managing in performing the function. (2B) A statement provided under subsection (2A) is known as a “statement of responsibilities”. (2C) In subsection (2A) “designated senior management function” means a function designated as a senior management function under section 59(6A) or (6B).

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vetting by relevant authorised persons of candidates for approval

21

After section 60 of FSMA 2000 insert—

(60A) (1) Before a relevant authorised person may make an application for a regulator's approval under section 59, the authorised person must be satisfied that the person in respect of whom the application is made (“the candidate”) is a fit and proper person to perform the function to which the application relates. (2) In deciding that question, the authorised person must have regard, in particular, to whether the candidate, or any person who may perform a function on the candidate's behalf— (a) has obtained a qualification, (b) has undergone, or is undergoing, training, (c) possesses a level of competence, or (d) has the personal characteristics, required by general rules made by the regulator in relation to persons performing functions of the kind to which the application relates. (3) For the meaning of “relevant authorised person”, see section 71A.

Determination of applications for approval

22

In section 61 of FSMA 2000 (determination of applications), in subsection (2)—

• (a) omit the “or” at the end of paragraph (b), and

• (b) after paragraph (c) insert

or (d) has the personal characteristics,

.

Power to give approval subject to conditions or for limited period

23

• (1) Section 61 of FSMA 2000 (determination of applications) is amended as follows.

• (2) For subsection (1) substitute—

(1) The regulator to which an application for approval is made under section 60 may grant the application only if— (a) it is satisfied that the person in respect of whom the application is made (“the candidate”) is a fit and proper person to perform the function to which the application relates, or (b) in a case where the application is for approval to perform a designated senior management function in relation to the carrying on of a regulated activity by a relevant authorised person (a “relevant senior management application”), it is satisfied that the condition in paragraph (a) will be met if the application is granted subject to one or more conditions (as to which, see subsection (2B)).

• (3) In subsection (2), for “deciding that question” substitute “ determining the application ”.

• (4) After subsection (2A) insert—

(2B) The regulator to which a relevant senior management application is made under section 60 may in particular— (a) grant the application subject to any conditions that the regulator considers appropriate, and (b) grant the application so as to give approval only for a limited period. (2C) A regulator may exercise the power under paragraph (a) or (b) of subsection (2B) only if— (a) where the regulator is the FCA, it appears to the FCA that it is desirable to do so in order to advance one or more of its operational objectives, and (b) where the regulator is the PRA, it appears to the PRA that it is desirable to do so in order to advance any of its objectives. (2D) Consent given by the FCA for the granting of the application may be conditional on the manner in which the PRA exercises its power under subsection (2B).

• (5) After subsection (3) insert—

(3ZA) In the case of a relevant senior management application, the reference in subsection (3)(a) to granting the application is a reference to granting it without imposing conditions or limiting the period for which the approval has effect.

• (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (7) In section 62 of FSMA 2000 (applications for approval: procedure and right to refer to Tribunal)—

• (a) in subsection (2), after “the application” insert “ , or to grant the application subject to conditions or for a limited period (or both) ”;

• (b) in subsection (3), after “the application” insert “ , or to grant the application subject to conditions or for a limited period (or both) ”;

• (c) in subsection (4), after “the application” insert “ , or to grant the application subject to conditions or for a limited period (or both) ”.

Changes in responsibilities of senior managers

24

After section 62 of FSMA 2000 insert—

(62A) (1) This section applies where— (a) an authorised person has made an application to the appropriate regulator for approval under section 59 for a person to perform a designated senior management function, (b) the application contained, or was accompanied by, a statement of responsibilities under section 60(2A), and (c) the application has been granted. (2) If, since the granting of the application, there has been any significant change in the aspects of the authorised person's affairs which the person is responsible for managing in performing the function, the authorised person must provide the appropriate regulator with a revised statement of responsibilities. (3) The appropriate regulator may require the authorised person— (a) to provide information which the person is required to give under this section in such form as the appropriate regulator may direct, or (b) to verify such information in such a way as the appropriate regulator may direct. (4) In this section— - “the appropriate regulator” has the same meaning as in section 60; - “designated senior management function” means a function designated as a senior management function under section 59(6A) or (6B).

Duty to notify regulator of grounds for withdrawal of approval

25

In section 63 of FSMA 2000 (withdrawal of approval), after subsection (2) insert—

(2A) At least once a year each relevant authorised person must, in relation to every person in relation to whom an approval has been given on the application of the authorised person— (a) consider whether there are any grounds on which a regulator could withdraw the approval under this section, and (b) if the authorised person is of the opinion that there are such grounds, notify the regulator of those grounds. (For the meaning of “relevant authorised person”, see section 71A.)

Variation of approval

26

After section 63 of FSMA 2000 insert—

(63ZA) (1) Where an application for approval under section 59 is granted subject to conditions, the authorised person concerned may apply to the appropriate regulator to vary the approval by— (a) varying a condition, (b) removing a condition, or (c) imposing a new condition. (2) “The appropriate regulator”— (a) in the case of an application for variation of an approval in a way described in subsection (1)(a) or (b), means whichever of the FCA or the PRA imposed the condition concerned; (b) in the case of an application for variation of an approval in the way described in subsection (1)(c), means the regulator who gave the approval. (3) The PRA must consult the FCA before determining an application under this section, unless the application relates to the variation or removal of a condition which was imposed by the PRA in exercise of its power under section 63ZB. (4) The regulator to which an application is made under this section must, before the end of the period for consideration, determine whether— (a) to grant the application; or (b) to give a warning notice under section 62(2). (5) “The period for consideration” means the period of 3 months beginning with the date on which the regulator receives the application. (6) The FCA may refuse an application under this section if it appears to the FCA that it is desirable to do so in order to advance one or more of its operational objectives. (7) The PRA may refuse an application under this section if it appears to the PRA that it is desirable to do so in order to advance any of its objectives. (8) The following provisions apply to an application made under this section for variation of an approval as they apply to an application for approval made under section 60— - section 60(2) to (8), - section 61(4) and (5), - section 62. (63ZB) (1) The FCA may vary an approval under section 59 given by the FCA or the PRA for the performance of a designated senior management function in relation to the carrying on of a regulated activity by a relevant authorised person if the FCA considers that it is desirable to do so in order to advance one or more of its operational objectives. (2) The PRA may vary an approval under section 59 for the performance of a designated senior management function in relation to the carrying on of a regulated activity by a relevant authorised person if— (a) either— (i) the PRA gave the approval, or (ii) the FCA gave the approval and the relevant authorised person is a PRA-authorised person, and (b) the PRA considers that it is desirable to do so in order to advance any of its objectives. (3) A regulator may vary an approval by— (a) imposing a condition, (b) varying a condition, (c) removing a condition, or (d) limiting the period for which the approval is to have effect. (4) Before one regulator varies an approval given by the other regulator, it must consult the other regulator. (5) In this section “designated senior management function” means a function designated as a senior management function under section 59(6A) or (6B). (6) For the meaning of “relevant authorised person”, see section 71A. (63ZC) (1) This section applies to an exercise, by either regulator, of the power to vary an approval under section 63ZB. (2) A variation takes effect— (a) immediately, if the notice given under subsection (4) states that that is the case, (b) on such date as is specified in the notice, or (c) if no date is specified in the notice, when the matter to which the notice relates is no longer open to review. (3) A variation may be expressed to take effect immediately (or on a specified date) only if the regulator concerned, having regard to the ground on which it is exercising the power to vary, reasonably considers that it is necessary for the variation to take effect immediately (or on that date). (4) If either regulator proposes to vary an approval or varies an approval with immediate effect, it must give each of the interested parties written notice. (5) The notice must— (a) give details of the variation, (b) state the regulator's reasons for the variation, (c) inform the interested parties that each of them may make representations to the regulator within such period as may be specified in the notice (whether or not any of the interested parties has referred the matter to the Tribunal), (d) inform the interested parties of when the variation takes effect, and (e) inform the interested parties of the right of each of them to refer the matter to the Tribunal. (6) “The interested parties”, in relation to an approval, are— (a) the person on whose application it was given (“A”), (b) the person in respect of whom it was given (“B”), and (c) the person by whom B's services are retained, if not A. (7) The regulator giving the notice may extend the period allowed under the notice for making representations. (8) If having considered the representations made by the interested parties, the regulator decides— (a) to vary the approval, or (b) if the variation has taken effect, not to rescind it, it must give each of the interested parties written notice. (9) If having considered the representations made by the interested parties, the regulator decides— (a) not to vary the approval, (b) to vary the approval in a different way, or (c) if the variation has taken effect, to rescind it, it must give each of the interested parties written notice. (10) A notice under subsection (8) must inform the interested parties of the right of each of them to refer the matter to the Tribunal. (11) A notice under subsection (9)(b) must comply with subsection (5). (12) If a notice informs the interested parties of the right to refer a matter to the Tribunal, it must give an indication of the procedure on such a reference. (13) For the purposes of subsection (2)(c), whether a matter is open to review is to be determined in accordance with section 391(8). (14) “Approval” means an approval under section 59.

Statement of policy

27

After section 63ZC of FSMA 2000 (inserted by section 26 above) insert—

(63ZD) (1) Each regulator must prepare and issue a statement of its policy with respect to— (a) its giving of approval under section 59 subject to conditions or for a limited period only, and (b) its variation under section 63ZA or 63ZB of an approval given under section 59. (2) A regulator may at any time alter or replace a statement issued by it under this section. (3) If a statement issued under this section is altered or replaced by a regulator, the regulator must issue the altered or replacement statement. (4) A statement issued under this section must be published by the regulator concerned in the way appearing to the regulator to be best calculated to bring it to the attention of the public. (5) A regulator may charge a reasonable fee for providing a person with a copy of a statement published under this section. (6) A regulator must, without delay, give the Treasury a copy of any statement which it publishes under this section. (63ZE) (1) Before issuing a statement of policy under section 63ZD, a regulator (“the issuing regulator”) must— (a) consult the other regulator, and (b) publish a draft of the proposed statement in the way appearing to the issuing regulator to be best calculated to bring it to the attention of the public. (2) The duty of the FCA to consult the PRA under subsection (1)(a) applies only in so far as the statement of policy applies to persons whose approval under section 59 relates to the performance of a function designated by the FCA as a senior management function under section 59(6A) in relation to the carrying on by PRA-authorised persons of regulated activities. (3) The draft must be accompanied by notice that representations about the proposal may be made to the issuing regulator within a specified time. (4) Before issuing the proposed statement, the issuing regulator must have regard to any representations made to it in accordance with subsection (3). (5) If the issuing regulator issues the proposed statement it must publish an account, in general terms, of— (a) the representations made to it in accordance with subsection (3), and (b) its response to them. (6) If the statement differs from the draft published under subsection (1) in a way which is in the opinion of the issuing regulator significant, the issuing regulator— (a) must before issuing it carry out any consultation required by subsection (1)(a), and (b) must (in addition to complying with subsection (5)) publish details of the difference. (7) The issuing regulator may charge a reasonable fee for providing a person with a draft published under subsection (1)(b). (8) This section also applies to a proposal to alter or replace a statement.

Extension of limitation periods for imposing sanctions

28

• (1) Section 63A of FSMA 2000 (power to impose penalties) is amended as follows.

• (2) In subsection (4), for “period of three years” substitute “ relevant period ”.

• (3) After subsection (5A) insert—

(5B) The relevant period” is— (a) in relation to the performance of a controlled function without approval before the day on which this subsection comes into force, the period of 3 years, and (b) in relation to the performance of a controlled function without approval on or after that day, the period of 6 years.

• (4) Section 66 of FSMA 2000 (disciplinary powers) is amended as follows.

• (5) In subsection (4), for “period of three years” substitute “ relevant period ”.

• (6) After subsection (5) insert—

(5ZA) The relevant period” is— (a) in relation to misconduct which occurs before the day on which this subsection comes into force, the period of 3 years, and (b) in relation to misconduct which occurs on or after that day, the period of 6 years.

Certification of employees by relevant authorised persons

29

After section 63D of FSMA 2000 insert—