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1 Financial Services (Banking Reform) Act 2013 CHAPTER
3 Financial Services (Banking Reform) Act 2013 CHAPTER 33 CONTENTS PART 1 RING-FENCING Ring-fencing 1 Objectives of Prudential Regulation Authority 2 Modification of objectives of Financial Conduct Authority 3 Amendment of PRA power of direction 4 Ring-fencing of certain activities 5 PRA annual report 6 Ring-fencing transfer schemes 7 Building societies: power to make provision about ring-fencing Reviews 8 Independent review of operation of legislation relating to ring-fencing 9 PRA review of proprietary trading 10 Independent review of proprietary trading 11 Reviews of proprietary trading: interpretation 12 Right to obtain documents and information PART 2 DEPOSITOR PREFERENCE AND THE FINANCIAL SERVICES COMPENSATION SCHEME Depositor preference 13 Preferential debts: Great Britain
4 ii Financial Services (Banking Reform) Act 2013 (c. 33) Financial Services Compensation Scheme 14 Discharge of functions by the scheme manager 15 Power to require information from scheme manager 16 Scheme manager: appointment of accounting officer PART 3 17 Bail-in stabilisation option BAIL-IN STABILISATION OPTION PART 4 CONDUCT OF PERSONS WORKING IN FINANCIAL SERVICES SECTOR Amendments of FSMA Functions for which approval is required 19 Senior management functions 20 Statements of responsibilities 21 Vetting by relevant authorised persons of candidates for approval 22 Determination of applications for approval 23 Power to give approval subject to conditions or for limited period 24 Changes in responsibilities of senior managers 25 Duty to notify regulator of grounds for withdrawal of approval 26 Variation of approval 27 Statement of policy 28 Extension of limitation periods for imposing sanctions 29 Certification of employees by relevant authorised persons 30 Rules of conduct 31 Requirement to notify regulator of disciplinary action 32 Definition of misconduct 33 Meaning of relevant authorised person 34 Recording information about senior managers 35 Consequential amendments relating to Part 4 Offence 36 Offence relating to a decision causing a financial institution to fail 37 Section 36: interpretation 38 Institution of proceedings PART 5 REGULATION OF PAYMENT SYSTEMS 39 Overview Overview The Payment Systems Regulator 40 The Payment Systems Regulator
5 Financial Services (Banking Reform) Act 2013 (c. 33) iii Payment system etc 41 Meaning of payment system 42 Participants in payment systems etc Designation as a regulated payment system 43 Designation orders 44 Designation criteria 45 Procedure 46 Amendment of designation order 47 Revocation of designation orders 48 Publication General duties of Regulator 49 Regulator s general duties in relation to payment systems 50 The competition objective 51 The innovation objective 52 The service-user objective 53 Regulatory principles Regulatory and competition functions 54 Directions 55 System rules 56 Power to require granting of access to payment systems 57 Variation of agreements relating to payment systems 58 Power to require disposal of interest in payment system 59 The Regulator s functions under Part 4 of the Enterprise Act Restrictions on exercise of functions under Part 4 of the Enterprise Act The Regulator s functions under the Competition Act Duty to consider exercise of powers under Competition Act Provision of information and assistance to a CMA group 64 Function of keeping markets under review 65 Exclusion of general duties 66 Concurrent competition powers: supplementary provision 67 Amendments relating to Regulator s competition powers Complaints 68 Complaints by representative bodies 69 Response by Regulator 70 Complaints: guidance Enforcement and appeals 71 Meaning of compliance failure 72 Publication of compliance failures etc 73 Penalties 74 Warning notices 75 Injunctions 76 Appeals: general 77 Appeals to Competition Appeal Tribunal 78 Appeals in relation to penalties
6 iv Financial Services (Banking Reform) Act 2013 (c. 33) 79 Appeals to Competition and Markets Authority 80 Enforcement of requirement to dispose of interest in payment system Information and investigation powers 81 Power to obtain information or documents 82 Reports by skilled persons 83 Appointment of persons to conduct investigations 84 Investigations: general 85 Powers of persons appointed under section Information and documents: supplemental provisions 87 Admissibility of statements made to investigators 88 Entry of premises under warrant 89 Retention of documents taken under section Enforcement of information and investigation powers Disclosure of information 91 Restrictions on disclosure of confidential information 92 Exemptions from section Offences relating to disclosure of confidential information 94 Information received from Bank of England 95 Disclosure of information by Bank to Regulator 96 Guidance 97 Reports Guidance Reports Relationship with other regulators 98 Duty of regulators to ensure co-ordinated exercise of functions 99 Memorandum of understanding 100 Power of Bank to require Regulator to refrain from specified action 101 Power of FCA to require Regulator to refrain from specified action 102 Power of PRA to require Regulator to refrain from specified action Consultation, accountability and oversight 103 Regulator s general duty to consult 104 Consultation in relation to generally applicable requirements 105 Independent inquiries 106 Investigations into regulatory failure 107 Competition scrutiny Miscellaneous and supplemental 108 Relationship with Part 8 of the Payment Services Regulations Exemption from liability in damages for FCA and PRA 110 Interpretation of Part
7 Financial Services (Banking Reform) Act 2013 (c. 33) v PART 6 SPECIAL ADMINISTRATION FOR OPERATORS OF CERTAIN INFRASTRUCTURE SYSTEMS Introductory 111 Financial market infrastructure administration 112 Interpretation: infrastructure companies 113 Interpretation: other expressions FMI administration orders 114 FMI administration orders 115 Objective of FMI administration 116 Application for FMI administration order 117 Powers of court 118 FMI administrators 119 Continuity of supply 120 Power to direct FMI administrator 121 Conduct of administration, transfer schemes etc. Restrictions on other insolvency procedures 122 Restriction on winding-up orders and voluntary winding up 123 Restriction on making of ordinary administration orders 124 Restriction on enforcement of security Financial support for companies in FMI administration 125 Loans 126 Indemnities 127 Interpretation of Part Interpretation Application of Part to Northern Ireland 128 Northern Ireland PART 7 MISCELLANEOUS Competition 129 Functions of FCA under competition legislation 130 Competition as a secondary objective of the PRA Consumers 131 Duty of FCA to make rules restricting charges for high-cost short-term credit 132 Role of FCA Consumer Panel in relation to PRA
8 vi Financial Services (Banking Reform) Act 2013 (c. 33) Parent undertakings 133 Power of FCA and PRA to make rules applying to parent undertakings Meetings with auditors 134 Duty to meet auditors of certain institutions Fees to meet Treasury expenditure 135 Fees to meet Treasury expenditure relating to international organisations Parliamentary control of statutory instruments under FSMA Amendments of section 429 of FSMA 2000 Bank of England 137 Accounts of Bank of England and its wholly-owned subsidiaries 138 Building societies Building societies Claims management services 139 Power to impose penalties on persons providing claims management services 140 Recovery of expenditure incurred by Office for Legal Complaints 141 Minor amendments Minor amendments PART 8 FINAL PROVISIONS 142 Orders and regulations: general 143 Orders and regulations: Parliamentary control 144 Interpretation 145 Power to make further consequential amendments 146 Transitional provisions and savings 147 Extent 148 Commencement and short title Schedule 1 Ring-fencing transfer schemes Schedule 2 Bail-in stabilisation option Part 1 Amendments of Banking Act 2009 Part 2 Modification of Investment Bank Special Administration Regulations 2011 Schedule 3 Consequential amendments relating to Part 4
9 Financial Services (Banking Reform) Act 2013 (c. 33) vii Schedule 4 The Payment Systems Regulator Schedule 5 Procedure for appeals to the CMA Schedule 6 Conduct of FMI administration Schedule 7 Financial market infrastructure transfer schemes Schedule 8 Functions of FCA under competition legislation Part 1 Amendments of Financial Services and Markets Act 2000 Part 2 Amendments of other legislation Schedule 9 Building societies Schedule 10 Minor amendments
11 ELIZABETH II c. 33 Financial Services (Banking Reform) Act CHAPTER 33 An Act to make further provision about banking and other financial services, including provision about the Financial Services Compensation Scheme; to make provision for the amounts owed in respect of certain deposits to be treated as a preferential debt on insolvency; to make further provision about payment systems and securities settlement systems; to make provision about the accounts of the Bank of England and its wholly owned subsidiaries; to make provision in relation to persons providing claims management services; and for connected purposes. [18th December 2013] B E IT ENACTED by the Queen s most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows: PART 1 RING-FENCING Ring-fencing 1 Objectives of Prudential Regulation Authority (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
12 2 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing (i) (ii) (iii) 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, 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 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 ringfenced 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 (c) (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 in subsection (4), for subsection (3)(a) substitute subsections (3)(a) and (3A). 2 Modification of objectives of Financial Conduct Authority After section 1I of FSMA 2000 insert 1IA Modifications applying if core activity not regulated by PRA Modifications applying if core activity not regulated by PRA (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)., and
13 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing 3 (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 Continuity objective (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 ringfenced 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). 3 Amendment of PRA power of direction 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.
14 4 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing 4 Ring-fencing of certain activities (1) After Part 9A of FSMA 2000 insert PART 9B RING-FENCING 142A Ring-fenced body Introductory (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 Core activities (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.
15 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing 5 (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 Core services (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 Excluded activities (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
16 6 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing 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 ringfenced 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 Power of Treasury to impose prohibitions (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;
17 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing 7 (b) provide for any exemption to be subject to conditions specified in the order. 142F Orders under section 142A, 142B, 142D or 142E (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. Ring-fenced bodies not to carry on excluded activities or contravene prohibitions 142G Ring-fenced bodies not to carry on excluded activities or contravene prohibitions (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.
18 8 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing 142H Ring-fencing rules Ring-fencing rules (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
19 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing 9 (e) (f) (g) (h) (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; provision requiring a ring-fenced body to act in accordance with a remuneration policy meeting specified requirements; provision requiring a ring-fenced body to act in accordance with a human resources policy meeting specified requirements; provision requiring arrangements made by the ring-fenced body for the identification, monitoring and management of risk to meet specified requirements; 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 (a) in relation to a PRA-authorised person, the PRA; (b) 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 I Powers of Treasury in relation to ring-fencing rules (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. 142J (3) Specified means specified in the order. Review of ring-fencing rules etc (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).
20 10 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing (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 Group restructuring powers Cases in which group restructuring powers become exercisable (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
21 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing L (a) (b) where the ring-fenced body is a PRA-authorised person, the PRA; where it is not, the FCA. Group restructuring powers (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;
22 12 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing (b) (c) 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; 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 ringfenced 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 Procedure: preliminary notices (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.
23 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing 13 (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 Procedure: warning notice and decision notice (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.
24 14 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing (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 References to Tribunal (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 Subsequent variation of requirement or direction (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 Consultation etc. between regulators (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.
25 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing R Relationship with regulators powers under Parts 4A and 12A (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 ringfenced 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 Failure of parent undertaking to comply with direction Power to impose penalty or issue censure (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.
26 16 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing (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 Procedure and right to refer to Tribunal (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 142V Duty on publication of statement 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). Imposition of penalties under section 142S: statement of policy (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.
27 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing 17 (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 Pension liabilities Pension liabilities (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
28 18 Financial Services (Banking Reform) Act 2013 (c. 33) Part 1 Ring-fencing (b) with P on commercial terms for one or more of the purposes in subsection (1), and 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;