Financial Services (Banking Reform) Bill
(10 years, 6 months ago)
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Lord McFall of Alcluith
“Whistleblowers’ compensation
(1) After section 206A of FSMA 2000 (suspending permission to carry on regulated activities) insert—
“206B Whistleblowers’ compensation
(1) If as a result of an investigation carried out in accordance with this Act the appropriate regulator is satisfied that an authorised person has mistreated a whistleblower, the appropriate regulator may require the authorised person to pay to the whistleblower compensation of an amount determined by the appropriate regulator to be appropriate having regard to the financial implications of the mistreatment for the whistleblower.
(2) In this section “whistleblower” means an individual who works or worked for the authorised person (whether or not as an employee) and who—
(a) gave information to the appropriate regulator for the purpose of initiating or facilitating the carrying out of an investigation in accordance with this Act, or(b) gave to a colleague information relating to any matter which might be relevant if the appropriate regulator were deciding whether to initiate the carrying out of such an investigation or were carrying out such an investigation.(3) In this section a reference to mistreatment includes a reference to any form of discriminatory or unfavourable treatment.
(4) A payment under subsection (1) is to be made only if the whistleblower chooses to accept it; and a whistleblower who accepts compensation under this section may not bring civil proceedings (including, but not limited to, proceedings before an employment tribunal) in respect of, or in reliance on, the mistreatment in respect of which the compensation is offered.
(5) The procedural provisions of this Act in relation to the imposition of a penalty under section 206 apply to an award of compensation under this section.””
Lord McFall of Alcluith (Lab)
My Lords, it is my pleasure to move Amendment 98 on behalf of my parliamentary banking standards colleagues, the noble Lords, Lord Lawson and Lord Turnbull. Essentially, the Parliamentary Commission on Banking Standards is saying that banks must put in place mechanisms for employees to raise concerns when they feel discomfort about products or practices, even where they are not making a specific allegation of wrongdoing. It is instructive to note that during the whole financial crisis, not one whistle was blown. Why was that? The issue of fear of damage to one’s career is central. Therefore, we must ensure that we have a system that rectifies those deficiencies.
One recommendation from the parliamentary commission is that a non-executive board member, preferably the chairman, should be given specific responsibility under the senior persons regime for the effective operation of the firm’s whistleblowing regime. We would like the Government to consider that. I am sure that the noble Lord, Lord Lawson, and I feel that that recommendation does not go far enough, particularly when one considers the situation in America. My noble friend Lord Brennan informed me earlier that under the Dodd-Frank Act, the SEC has an Office of the Whistleblower within individual companies. The United States is far ahead of us on that, and, if we do not allow the chairman to undertake this, we are ducking one of the main responsibilities that we want to give to the chairman, which is to accept individual accountability.
We were littered with examples of chairmen putting their hands up and saying, “Nothing to do with us. We didn’t know about the mis-selling scandals. We didn't know about the LIBOR scandal. We didn't know about the interest-rate scandals”, et cetera. If the system is to work properly, the chairman must be responsible. We consider that it is important that the chairman should be held personally accountable for protecting whistleblowers against detrimental treatment if we are to have a system that is worthy of the name in this area.
We recognise that whistleblowing reports should be subjected to an internal filter by the bank to identify those that should be treated as grievances. Banks should be given the opportunity to conduct and resolve their own investigations of substantial whistleblowing allegations.
The regulator should also have a part to play here. It should periodically examine a firm’s whistleblowing records in order both to inform itself about possible matters of concern and to ensure that firms are treating whistleblowers’ concerns appropriately.
The FSA’s evidence to the committee appeared to show little appreciation of the personal dilemma that whistleblowers face. It should regard it as its responsibility to support whistleblowers.
We also noted the regulator’s disquiet about the prospect of financially incentivising whistleblowing. As a commission, we call on the regulator to undertake research into the impact in the US of financial incentives in encouraging whistleblowing, exposing wrongdoing and promoting integrity and transparency. Two representatives of the SEC gave evidence at one of our hearings on how incentivising whistleblowing was going in the United States.
It is the financial sector that must undergo a significant shift in cultural attitudes towards whistleblowing, and change its view from one of distrust and hostility to a recognition that whistleblowing is an essential element of an effective compliance and audit regime.
We note that the Government did not reject our proposals, but do not propose to address them in the current legislation, instead placing the issue of whistleblowers in the context of a wider piece of work led by the Department for Business, Innovation and Skills. We feel that the FSA should be right at the centre of the issue. As a commission, we concluded that not only did internal compliance and formal control structures fail to uphold proper banking standards, but a culture of fear prevented employees from speaking out about serious wrongdoing.
There are a number of examples to which we could refer, but the FSA did its own investigation into Barclays at the time of LIBOR. In June 2012, it came out with its final notice in which it imposed a financial penalty of £59.5 million on that bank. Because,
“Barclays agreed to settle at an early stage … [it] … qualified for a 30% … discount under the FSA’s executive settlement procedures. Were it not for this discount, the FSA would have imposed a financial penalty of £85 million on Barclays”.
When we looked at the evidence that was presented to us on Barclays, we found that there were dozens of people in open trading desks for several years while this practice was going on. At UBS we found that there were up to 100 people who were there for a decade and that there was a clear e-mail trail on the issue. We could only conclude that if one is asked to do something wrong, there has to be whistleblowing so that the company can develop a better culture and better process to enable it to deal with it. We do not wish people to feel that their career will be threatened if they do whistleblow or, indeed, if they do not.
When we looked at the LIBOR situation at Barclays, we asked witnesses what this behaviour meant about the culture of Barclays and of the banking industry. As I mentioned, the final notice from the FSA painted a picture of a close-knit group of people who were colluding to try to manipulate LIBOR. For example, the following conversations were noted:
“Trader C requested low one month and three month US dollar LIBOR submissions”.
That was on 7 April 2006. Trader C was quoted as saying to his colleague:
“If it’s not too late, low 1m and 3m would be nice, but please feel free to say ‘no’ … Coffees will be coming your way either way, just to say thank you for your help in the past few weeks”.
Then the submitter replied:
“Done … for you big boy”.
In October 2006, an external trader stated in an e-mail to Trader G:
“If it comes in unchanged I’m a dead man”.
Trader G responded he would “have a chat”. Barclays’ submission on that day for three-month US dollar LIBOR was half a basis point lower than the day before, just as requested. The external trader thanked Trader G for Barclays’ LIBOR submission by saying:
“Dude. I owe you big time! Come over one day after work and I’m opening a bottle of Bollinger”.
Those are clear, open e-mails and no one can tell any of us, particularly the banking commission, that others in Barclays did not know what was going on with that situation. The noble Lord, Lord Turner, in one of the most understated comments, said that the actions over this period indicated a cultural weakness with Barclays. One might say: “You can say that again”. We read many submissions covering the direct exchanges. I will repeat just one more. Trader C said:
“The big day [has] arrived…My [New York desk] are screaming at me about an unchanged 3m libor. As always, any help wd be greatly appreciated. What do you think you’ll go for 3m?”.
The submitter said:
“I am going 90 altho 91 is what I should be posting”.
Trader C came back and said,
“when I retire and write a book about this business your name will be written in golden letters”.
The submitter, maybe with a little bit of common sense, replied:
“I would prefer this not be in any book!”.
Those comments are in e-mails—that is the trail. That is why we need whistleblowing. People were scared to give their point of view to those further up the management trail. Barclays is just a case study of all that has gone wrong with the culture. We on the commission are asking for disclosure of significant supervisory correspondence and matters considered. It would be helpful to know how many of these went to enforcement.
When I was investigating this in the last Parliament, I spoke to senior individuals in the FSA. They were very clear with me. They said that Barclays’ legal and compliance team were intimidated by Bob Diamond and others. They said that the senior legal and compliance team should be sacked because they knew about LIBOR and the capital raising for a long time. Not one legal or compliance officer at Barclays ever graced the door of the FSA to complain about that situation.
It happened down the line as well, particularly at the front-line, retail-desk level with PPI, with individuals being pressured in that regard. At a breakfast conference this morning, Martin Wheatley was very clear. He said that these individuals at the front-line level were trying to eke out a salary of £16,000 to £18,000 a year. They had been asked to sell PPI alongside loans and other products and would receive an extra couple of thousand pounds a year for doing so. At the top level, however, huge sums were involved. Distorted incentives led to a situation where, as a result of PPI mis-selling—deliberate mis-selling by companies—the banking industry could face a bill of £30 billion. Financial stability could be threatened as a result of these perverse incentives. The PPI scheme went on for 18 years. I suggest that if a rigorous, appropriate whistleblowing regime had been in place whereby individuals did not feel that whistleblowing would end their career, the PPI scandal could have been stopped well before that length of time had passed. As has been mentioned, a culture shift at the top in terms of accountability would help to increase confidence in this regard down the line. The chairman must be accountable and take responsibility in this area and must ensure that the whistleblowing regime works well.
Martin Wheatley said this morning that the Financial Services Authority had lost its focus on the moral compass and on being honest. Perhaps if we have an appropriate whistleblowing scheme we will start to reinject honesty into the system, to ensure a better culture and better ethics whereby individuals in a company feel free to serve the interests of the company and the customer and thereby help society.
Lord Phillips of Sudbury
Lord Phillips of Sudbury (LD)
My Lords, Amendments 98A and 98B stand in my name. They seek to tease out a little more detail in relation to the amendment just moved by the noble Lord, Lord McFall, on whistleblowing. I say at once that I am wholly in favour of that amendment. The position of whistleblowers in our country is not satisfactory. Amendment 98 would widen the portal to offer assistance and compensation for whistleblowers by giving the appropriate regulator the power of initiative with regard to getting appropriate compensation for whistleblowers.
My amendment is designed to widen the scope of that initiative as, at present, I feel that it is unnecessarily limited in that the whistleblower is defined by proposed new subsection (2) in Amendment 98 as a person who gives information directly to the appropriate regulator or gives it to a colleague. I notice that the amendment does not define “colleague”. Suffice it to say that many of the circumstances in which whistleblowers are sometimes encouraged—and feel morally compelled—to speak out are extraordinarily complex.
I have had the good fortune to do work for the charity Public Concern at Work. Indeed, I set it up 20 or so years ago. That charity continues to do extremely valuable work. I spoke to people at the charity a couple of days ago and, believe it or not, they had been approached by roughly 2,500 whistleblowers in the past year. Astonishingly, I think that scarcely any of the whistleblowers were from the City. There are particular issues around that and we can underestimate the extraordinary pressure that a whistleblower or would-be whistleblower feels under in the context of the City, particularly as it is a very tight community in many ways. At the moment, the only recompense that a whistleblower can get, if he or she is discriminated against and suffers loss, is by using the provisions of the Public Interest Disclosure Act 1998. However, the whistleblower has to take the initiative. This amendment, as I say, gives the initiative to the regulator, which can be of enormous help and assistance to the whistleblower.
The Public Interest Disclosure Act 1998 scores over this amendment by having a much wider entrée to the remedies than is provided by the amendment. In particular, my amendments put the words “directly or indirectly” into the beginning of the two subsections that define how a whistleblower gets into the circle of potential compensation when they talk about giving information to the appropriate regulator or to a colleague. This is because—and I have checked this with Public Concern at Work—a lot of those who want to speak out are really anxious, if not fearful. What very often happens is information gets to the regulator in a really indirect, round-the-houses way, sometimes anonymously. My simple amendment is designed to open up the door but it is also a probing amendment in the hope that between now and Report we can have discussions with the Government on the optimum way of finding the remedy which the amendment seeks to supply.
I finish by giving some idea of how much wider the Public Interest Disclosure Act is regarding “getting into the remedy”. Clause 1 of the Act inserts a four-page amendment into the Employment Rights Act 1996 and provides a multiplicity of definitions of who is a whistleblower for the purposes of the remedy. An example of its sensible provisions is that a “qualifying disclosure” is one that is made in good faith, is substantially true, is not made for personal gain and,
“in all the circumstances of the case, it is reasonable for him to make”,
and so on.
It may be possible, at the next stage of the Bill, to import some of the language of the 1998 Act or, indeed, insert this amendment as an amendment to the 1998 Act.
Lord Eatwell (Lab)
My Lords, I am sure that the Treasury has studied carefully the experience of a measure developed in the United States which is very similar to this and which has been remarkably successful over the past three or four years in bringing forward very important information to the regulatory authorities. When the noble Lord replies, perhaps he would reflect on the American experience and say how valuable it might be to replicate it here.
Lord Brennan (Lab)
My Lords, I support the amendment because it recognises the obligation of society to protect and deal justly with people who report serious wrongdoing, often at personal cost. The 1998 Act recognises that in its statutory effect. This modest amendment is designed to deal with the relationship between the whistleblower and his employer in relation to an employment claim. I invite the House to look at the question of whistleblowing in a much broader context. The more monolithic the organisation, the tighter its internal process controls, the less likely it is you will find out about wrongdoing. Almost paradoxically, the whistleblower becomes more important —single though that person usually is—according to the size of the enterprise about which he makes revelations. That explains to a considerable degree the point raised by the noble Lord, Lord Phillips of Sudbury, about the effects upon these people of taking such a step.
As I said at Second Reading, the four major banks are, in a broad sense, in charge of four times our gross domestic product. Whistleblowing in organisations as big as major banks is a highly exceptional event. In considering the role of the whistleblower in this context, the Government should, I suggest, have regard to public reaction if it is not seen to be the case that whistleblowers are not only protected but encouraged by legislation such as this. Regulators are there to regulate, not to police in the sense of investigation, detection and prosecution. That is not their usual role—certainly not historically—in this country. Therefore, the whistleblower in this country has even greater importance than he or she has in the United States.
In the United States, the Dodd-Frank Act—the US counterpart of this legislation—introduced special provisions for whistleblowing, not just in banking but in financial institutions generally. It provided for payment to whistleblowers according to the extent of the misconduct that the whistleblower had revealed, as assessed by the SEC—the equivalent of our regulators. So, for example, if a whistleblower had disclosed LIBOR, the payment would reflect the importance of the discovery in relation to the economic loss that had been suffered.
That is exceptionally important. The greater the danger to the whistleblower within his or her employment or in relation to their future and that of their family, the more they should be protected, including financially —but within reason, I accept. If you do not do that, you expose the whistleblower to what almost amounts to serious persecution. One has only to look at some of the events that have occurred in the National Health Service, where whistleblowers in different hospitals or hospital trusts have had their careers ruined, and there was even, I suspect, a suicide a year or two back. This is serious stuff. These are citizens revealing misconduct by great institutions, and no more civic an act could you expect an ordinary person to perform.
In the United States as a result of Dodd-Frank, which was enacted in 2011, in the financial year 2012—the first full year after its enactment—there were 3,000 reports to the SEC. My enthusiasm and that of my noble friend Lord McFall led us to misunderstand each other. The Office of the Whistleblower is a permanent office within the SEC, and its purpose is to investigate claims and to co-operate with and look after the whistleblower. It works. When the new chairman of the SEC said publicly, “Now we are not only felt; we are feared”, one of the main reasons was the whistleblower threat. If we want to change culture, this is a very effective way of doing so. Good intentions count for a lot, but in changing culture, an intuitive fear of finishing up in jail counts for a lot more.
Lord Watson of Invergowrie (Lab)
My Lords, I support my noble friend Lord McFall and his colleagues on Amendment 98. I am also in favour of the two amendments tabled by the noble Lord, Lord Phillips of Sudbury. My noble friend drew on his experience as a member of the banking commission when he talked eloquently about the serious matters behind LIBOR and the other issues that contribute to the need for serious whistleblowing legislation to protect those who are, in effect, doing the country a great service.
In reading out those e-mails, my noble friend Lord McFall described the situation very graphically. At one stage I thought that he was going to break into the voice of Robert de Niro or Al Pacino, but his dulcet Dunbartonshire tones were sufficiently menacing to get across the message that the people involved in this crime were playing no games at all, and that it was very serious.
The seriousness of the whole question of LIBOR was brought home to many of us yesterday when we opened our newspapers and saw photographs of people who had been appearing in court charged with offences related to the LIBOR scandal. The first thing that struck me was that the people were relatively young. The “ringleader”, if that is the appropriate term, is barely in his thirties now and was in his twenties in 2008 when the offences were committed, and the other two are not much older. Surely there were older, more experienced people further up the chain who must have known what was going on. If they did not know, they certainly should have done. That is the heart of the matter with regard to whistleblowing. Those responsible have to be held to account.
Amendment 98 works by adding excluded activities under FiSMA or the Financial Services Act 2012 to the list of justifications for making what is known as a qualified disclosure. As noble Lords may know already, the list includes reporting that someone’s health and safety is in danger, damage to the environment, and a criminal offence that a company is not obeying the law or that someone has covered up wrongdoing. Those are generic terms, but many of them would apply to the finance sector. For the new banking system to work well and be policed effectively, protections have to be in place for staff who believe that wrongdoing exists in their organisation and they are not prepared simply to sit on their hands or, as happens in many cases, simply leave the job in the hope of finding employment somewhere else because they fear the consequences of raising the issue.
This amendment is a further attempt to trigger a cultural change in financial services, which I think noble Lords on all sides have acknowledged is necessary. A bank employee may well wrestle with their conscience before deciding to break ranks; it is inevitable that they would. If an honest trader suspects that wrongdoing is under way and is considering informing the authorities, surely protections have to be in place for him or her to guard against a situation where they are held to be at fault. They are the victim because they perhaps lose their job, which in banking, of course, could be a very well paid job indeed. Once the word goes round that someone has left a bank or financial institution for this reason, how difficult will it be for him or her to find other employment?
The LIBOR scandal illustrates the importance of making it easier to report wrongdoing. At the time that we now know the LIBOR rate was being manipulated, certain newspapers did speculate about the accuracy of those claims, and indeed about the accuracy of the LIBOR rate itself. But as we know, no one came forward because no one had the confidence, even if they had the evidence, to break the surface and bring the scandal out into the open. It would have been much easier had it been brought into the open then rather than when it eventually emerged. Surely it is essential that people feel confident about being able to do that in the future.
Amendment 98 simply seeks to bolster the maintenance of law and order, something that I suggest we are entitled to expect that the Minister and his colleagues would agree with. The amendment would make it easier for the regulator and banks’ own compliance teams to do their job. We have heard from my noble friend Lord Brennan that this is being done very effectively in the USA. How could the coalition oppose it being introduced in this country as well?
Lord Newby (LD)
My Lords, the amendment would introduce a system under which the regulators would be able to award compensation against a firm that mistreated a whistleblower. Whistleblowing is an important issue and the Government agree that we need to have a proper system for protecting whistleblowers in the financial services industry as elsewhere. However, I do not think that the noble Lord’s amendment would be a helpful addition to the legislative framework, particularly at this point. Let me explain why.
In the summer, the Government launched a call for evidence on the whistleblowing framework to see whether there was a case for reforming the law protecting whistleblowers. This will be able to take account of submissions from the financial services regulators as well as from other interested parties. The call for evidence closes on 1 November and, once the evidence has been assessed, the Government will consider what if any action needs to be taken. It would not be sensible to prejudge the outcome of the call for evidence and implement changes without first looking at all the evidence available to support any changes. Moreover, the Government do not think that it would be appropriate to have different laws or protections for whistleblowers in different sectors. It would not be right to suggest that whistleblowers were more deserving of protection in some sectors than in others. I am sure that this is not what the noble Lord intended, but there is a risk that giving the regulators a special role in protecting whistleblowers in the financial services sector will be seen as special treatment for that sector.
Finally, this power does not seem consistent with the role and competence of the financial services regulators. There is a comprehensive system of protection for employees in employment law, which applies across the board, protecting workers in every sector. It provides a route of redress using employment tribunals for individuals who have suffered a detriment or dismissal as a result of blowing the whistle.
Lord Lawson of Blaby (Con)
I think my noble friend may have slightly missed the point. It is well documented that what happens normally is not that the whistleblower is dismissed—then, of course, there is the protection of employment law—but that he is stuck in that job and will never ever have any further promotion. I may be wrong, but I do not think there is any redress under employment law for that.
Lord Newby
My Lords, to the extent that there is or is not redress for that, the review which is under way will be looking at that element of the system as well as everything else. The evidence submitted, including by those who are keen to see the law changed and strengthened in that respect, will be able to take account of all that.
Lord Phillips of Sudbury
I am sorry to interrupt my noble friend again but it is important for the House to know a little more about this public consultation. I suspect that not one single person here tonight is aware that there is a consultation out there and that it is closing in a matter of a few days. Can the Minister tell us how widely this has been advertised, because it is news to me?
Lord Newby
My Lords, I am very happy to write to the noble Lord about the process that has been followed up until now. The whole process of this Bill has demonstrated, as the noble Lord has said, that there is tremendous activity—whether in terms of the regulators producing documents or of other regulatory initiatives, which are very hard to keep up with. I will ensure that we write as a matter of urgency to all noble Lords about this exercise.
Before coming on to what the regulators are already doing in this area, I want to stress the basic point about this review. First, it is wide ranging. Secondly, it aims to beef up the current system. Thirdly, it will apply across the board because the Government do not believe that the financial services sector has a different status in terms of whistleblowing to, say, the oil and gas sector or the pharmaceutical sector. What we need is a common approach across all sectors.
The FCA is already extremely active in supporting and encouraging whistleblowing. The number of whistleblowing contacts received is growing rapidly. There was a 370% increase between 2007 and 2012. The SEC has done very well. It received 3,001 reports in 2012. In the same year, the FSA received 3,929 reports. The impression has been given that the Americans have this system which is generating huge quantities of people coming forward and that the City is absolutely in fear to the extent that no one is coming forward. The figures totally contradict that view. I am not saying for a minute that the system is perfect, cannot be improved or will not be improved, but that the numbers of people coming through in the City are higher than is the case in the States. The FCA’s whistleblowing procedures have been revised to actively track whistleblowing outcomes across the FCA while cases are actively monitored to provide feedback, wherever legally possible, to whistleblowers.
On the point that the noble Lord, Lord Brennan, raised, the regulators have a role in enforcement and protection. The Dodd-Frank Act brought in protections for whistleblowers which, to a considerable extent, already existed in the United Kingdom. The American scheme is of course not what is proposed in the UK, as the noble Lord said. Under that scheme, whistleblowers can receive a proportion of any penalty received from successful enforcement action arising from tips that they provide. That is different from what this amendment proposes. Although the PCBS said that it would like research to be undertaken in this area, it did not suggest an incentive scheme. The regulators are undertaking research, as requested by the parliamentary commission.
The regulators are therefore already doing a lot, including undertaking research, while the Government are undertaking a review of the whole issue across all the sectors. In the light of that, I hope that the noble Lord will withdraw his amendment.
Lord McFall of Alcluith
My Lords, the Government’s response to every amendment is, “Manana, manana”. There is nothing in the response but, “Tomorrow, tomorrow”. There is, for example, a public consultation that we know nothing about. As noble Lords have said tonight, this is a very modest proposal. The Minister really has the wrong end of the stick here when he asks why we should protect whistleblowers in the financial services industry and what is different here from in the oil and gas industry. The Government themselves think that it is different. Why? Because they appointed the noble Lords, Lord Lawson and Lord Turnbull, and me to a Parliamentary Commission on Banking Standards, along with Members of the House of Commons. We spent a year of our lives—10,000 questions and 180 hours in committee—before presenting a report to the Government. That is why the financial services industry is different from others.
Lord Newby
My Lords, is the noble Lord seriously suggesting that whistleblowing in the financial services sector—we are talking about whistleblowing here—is of a different order of public interest from whistleblowing in, say, the pharmaceutical or oil industry?
Lord McFall of Alcluith
We have had the biggest financial crisis ever but not one whistleblower. That is the magnitude of the problem which the Minister does not grasp and that is why we looked at this issue. Goodness gracious, look at the fines: £85 million for Barclays and £13 billion for JP Morgan today. There is a litany we could go through, so what is the problem?
The Government set up a commission to look at culture and standards. What did the Parliamentary Commission on Banking Standards find? It found that the culture was rotten and the standards were abysmally low. This whistleblowing amendment—a modest amendment—is being put forward to ensure that we have a better culture, and that we have legal and compliance teams in companies that might have the nerve and confidence to go the FCA and say, “Look, there is wrongdoing in this company and we do not feel that we can assuage our conscience on this. We need to report it to the FCA to ensure that we have a better organisation here”. This has failed totally. That is the magnitude of the problem facing us and that is why we have this modest amendment.
The USA was mentioned. We had two witnesses before us from the USA who were very clear that we did not scrape the ground with the FSA. My noble friend Lord Brennan has given his wisdom on the situation in the USA tonight. We are asking the Government and the FCA to look at the experience in the USA to see if that aspect can be adapted. As the noble Lord, Lord Phillips, said, his charity did not have one person from the City. That backs up the evidence that we heard and gives the initiative to the FCA. That is the purpose of this amendment.
We received representations from trade unions in a sub-committee evidence session. The trade unions were very clear to us that their members at the grass-roots level felt pressurised but were scared stiff to do anything about it. I have a number of examples but will give the Minister one in particular. An individual I have known in my own town of Dumbarton for years, who worked in one of the banks for 25 years, left to become a care worker at less than half the salary. I asked her why she left. She said, “John, I was being forced every week to sell products that were not only unsuitable for people but were making their lives miserable. I could not partake in that, so I left”. There was someone who had been committed for 25 years being pressured on issues like that. Surely we should have a system to say “That person has given loyal service. That’s a person who wants to serve their bank and their community. Let’s establish an appropriate structure so that we protect that person, and also make the company better”.
I suggest to the Minister that there is a link between the almost £30 billion that we will be paying out in fines for PPI and the conduct of a company. If the proper procedure was in place and that information came up from the bottom, we probably would not have the abysmal situation we have with the £30 billion.
This amendment is about not just changing the culture and standards but helping the safety and soundness of companies. It was a responsibility given to us, the Parliamentary Commission on Banking Standards, by the Government to give recommendations to change the culture. This is a sound way of doing that and I would have expected a more sympathetic and engaging response from the Minister than we received tonight.
Lord Phillips of Sudbury
My Lords, I should quickly make clear that the whistleblowing charity, Public Concern at Work, is not mine; I was merely the lawyer who set it up. However, it does wonderful work. I am delighted to hear that there is a public consultation. I am very anxious indeed that it may not have reached the parts that it should have reached. I ask the Minister if it possible for him to look into that and, if necessary, extend the consultation period for, say, a month.
Lord Lawson of Blaby
“Abolition of UKFI
(1) All property, rights and liabilities of UKFI are, by virtue of this section, transferred to the Treasury.
(2) Immediately after the transfer effected by subsection (1) UKFI is dissolved.
(3) “UKFI” means UK Financial Investments Limited, company registered number 06720891.”
Lord Lawson of Blaby
My Lords, the noble Lords, Lord Turnbull and Lord McFall, also have their names to this amendment. It is the simplest amendment that we have before us. It may be because it is so simple that it was the first one that my right honourable friend the Chancellor rejected after the commission had published its recommendations. I think that he was hasty and I therefore hope that the Government will reconsider this.
Briefly, as a result of the crisis that broke in 2008, the Government felt obliged to rescue a number of our biggest banks. The Government took control of these banks to the extent of more than 80% in the Royal Bank of Scotland, which was their biggest stake. This was the previous, Labour Government, and instead of straightforwardly taking this stake which the taxpayer owned—and the Government is a trustee for the taxpayer—they interposed this curious body called UK Financial Investments Ltd. We all know why this was done; I fully understand it and am extremely sympathetic. There is always a fear that a Labour Government might be engaged in a policy of bank nationalisation. In order to demonstrate that this was just a rescue operation and not bank nationalisation, they created this body, UKFI, to stand between the Government and the bank itself.
Clearly, that no longer applies. There is no longer a thought that somehow this is nationalisation by the back door. Whatever else the coalition may be guilty of, it is not seeking to do that. So the whole rationale—the whole raison d’être—of UKFI has gone. Incidentally, not only was it a conclusion of the commission that UKFI should be abolished but it was also the strong view of the previous Governor of the Bank of England, now the noble Lord, Lord King. He made it absolutely plain.
The reason is clear. UKFI gets the Government off the hook in a way that they should not be off the hook and obscures what can really go on. What has happened in practice is that when the Government have had difficult decisions to take, they say, “Oh, we can’t do it. UKFI owns the controlling stake”. When, however, the Government want to intervene—for example, the removal of Stephen Hester from the job of chief executive of RBS—they use their muscle. When it is convenient to act directly, they do; when it is not convenient, they have this charade of UKFI to give them an excuse for not doing what needs to be done.
If, as a Government, you have the responsibility of the controlling shareholding, that should be quite clear and you should exercise that responsibility properly and be held to account for it. The Government say, “But we don’t have banking expertise”. Of course they do not have banking expertise. It does not matter because they can appoint the right people to the boards of the banks that they hold and, as we have suggested, they can also have a cadre of banking experts within the Treasury who can advise them on how to handle the situation.
Like the previous Governor of the Bank of England, we have said that quite simply UKFI should be abolished. I suspect that many people secretly—or at least without admitting it—realise that that should have been done long ago, but it is not too late. The case of the Royal Bank of Scotland is particularly to the point. If UKFI had not existed, the Government would have had to face up earlier to the question of what to do about the Royal Bank of Scotland Group. The commission has said that there is a very strong case, which we have advocated, for the classic good bank/bad bank split. The good bank/bad bank split is a classic technique for dealing with major banking problems: put all the bad loans into the bad bank, as was done with Northern Rock, and not only can the good bank be privatised much more quickly than the group as a whole, it can get back to lending to SMEs much more effectively.
One of the biggest economic problems we have is the difficulty of lending to SMEs. Some people say, “Money is very cheap. The rates could not go any lower: they are 0.5%”. They are not 0.5% for SMEs. A good SME is lucky if the rate of interest, including the charges it has to pay, is in single figures. Very often it is 10%, 11% or 12%. There is a real problem in this country that the banks have so much bad debt on their books, and are so scared of having any further bad debts—particularly since they have been told they have to strengthen their balance sheets and so on—that they are far too reluctant to lend. This is a real problem for the British economy.
I am very glad that my right honourable friend the Chancellor has said that he will set up an inquiry and that he has asked the Rothschild Group to look into this, given that that was the recommendation of the banking commission. I hope that this evening my noble friend the Minister can tell us the outcome of the Rothschild investigation and what the Government’s intentions are. This is important to the British economy, bearing in mind the huge size of the Royal Bank of Scotland Group.
As we have recommended, the way to clean this up is to abolish UKFI, which was there for a purpose that no longer exists. I very much hope that the Government will reconsider the Chancellor of the Exchequer’s overly hasty rejection of the modest and sensible recommendation of the commission. I beg to move.
Lord Garel-Jones (Con)
My Lords, I rise with some trepidation to take part in this debate. Earlier in Committee my noble friend Lord Lawson referred to Paul Volcker as a “wise old bird”. Someone like me is bound to observe that most of the wise old birds in this particular field in our country have taken part in this Committee, so I feel slightly out of my depth. I want to introduce a small piece of anecdotal evidence that casts some dubiety on the amendment just moved by my noble friend.
I also declare an interest, in that I work for UBS. UBS was one of the lead banks in the recent transaction that placed £3.2 billion of shares in Lloyds Bank into the market, although I was not part of the team working on that transaction. When it was all over I spoke to one of the team and congratulated him on the success of the operation. Without any prompting, and for no reason at all, he said to me that UKFI had played a crucial part throughout the whole process. He had no need to say that to me; I had no connection with UKFI whatever. Although I am simply an observer in these matters and no expert, it makes sense to me for there to be some sort of independent buffer between the banks themselves and the Treasury. Your Lordships will no doubt be aware that UKFI has recently recruited James Leigh-Pemberton, who has a distinguished career in the City, as its chairman. I very much hope that the Minister will convey the message that UKFI is well regarded and has a secure future.
Baroness Noakes (Con)
My Lords, I will comment briefly on this amendment and will not comment, of course, from the perspective of the Royal Bank of Scotland. I will take your Lordships back to when I first worked at the Treasury, many years ago, when I was on secondment from my firm at the time. That was when there were lots of nationalised industries in the public sector. Worthy civil servants—and worthy Treasury civil servants, too—thought they knew how to manage the relationships between these large, complex, commercial organisations. They did not do it well. It was the right decision, therefore, when the previous Labour Government started to accrete new, substantial holdings in commercial organisations, to set up an arm’s length relationship to professionalise the handling of those organisations and their ultimate disposal, and to recognise, as that Government did at the time, that those holdings were not to be long-term holdings. I criticised the previous Government because it was not set up by statute, but in a shroud of secrecy without proper accountability arrangements in place. I believe, however, that the principle that civil servants are not the right people to manage these complex relationships with sophisticated organisations is the right one.
Lord Turnbull (CB)
My Lords, there was a similar organisation set up in my time, the Shareholder Executive. The Shareholder Executive is a body attached to BIS, as it is now called, and it creates a centre of expertise for the management of shareholders. What it does not do is claim to be the decision-maker. It is all very well to have the expertise—we need the expertise—but there is a pretence that decisions relating to RBS and LBG are being taken by UKFI as opposed to being taken by the Treasury on the advice of UKFI. It is a pretence that when it suits you, you can decide, and when it suits you, you can hand it on to someone else.
At the moment, with the change of leadership in RBS—the noble Baroness, Lady Noakes, may not want to comment on this—we do not know whether that was a decision of the RBS board, UKFI or the Treasury. It ought to be clear who took that decision. You can have an advisory body—in this case, almost an executive body—but not one that claims to be the decision-maker, which is the pretence of the UKFI situation.
The Commercial Secretary to the Treasury (Lord Deighton) (Con)
My Lords, the intention of the amendment is to transfer into HM Treasury the function of managing the Government’s shareholdings, in particular in RBS and Lloyds. As my noble friend Lord Lawson has pointed out, the Chancellor of the Exchequer, in his Mansion House speech in June, has already made it clear that he rejects this particular PCBS recommendation.
As has been pointed out in a number comments already, UKFI was not a creature set up by this Government; it was set up by the previous Government when they made the initial capital injections into RBS, Lloyds, Northern Rock and Bradford and Bingley, with the idea of being able to manage these investments on an arm’s-length commercial basis. So that was the genesis.
This group works closely with the management of RBS and Lloyds to assure itself of their approach to the strategy and to hold management to account for their performance. RBS and Lloyds are led by their management and board in the interests of all shareholders, including the taxpayer. So, while it may be possible to imagine different arrangements to fulfil these objectives—you can make the arguments and the pros and cons of the different ways of doing it—the current ones work well, as my noble friend Lord Garel-Jones has said, and it would not make sense to change them at this stage. So, just as my noble friend Lord Lawson said it is a simple amendment, there is a simple reason to reject it—it does not make any practical sense. UKFI is working fine and the time and effort it would take to pull it back into the Treasury and to reorient all that work there would distract our efforts on the important work that is currently going on.
My noble friend Lord Lawson referred to the review at RBS in particular, which we are two-thirds of the way through, and the bad bank/good bank option. I am afraid I am going to disappoint my noble friend. I am not going to tell him what the result is but it will be ready this autumn and we will announce the outcome and the rationale behind it. The matter is being pursued with great urgency and the last thing we want to do at the moment is to destabilise the arrangements for conducting that important analysis, which is really the most important thing.
I reiterate that UKFI is staffed by some very good top people. I have worked with them and I have seen the work that they do. Frankly, we have been able to recruit top-class people to do this work on our behalf. I can assure the Committee that the Government continue to value the role that they play. It was demonstrated again, as my noble friend pointed out, by the role they played in advising the Chancellor on the successful divestment of 15.5% of the Government’s shareholding in Lloyds at 75p per share. They will carry on looking at the full range of options for RBS and managing the timing of the subsequent tranches of the sale of Lloyds back into private ownership.
I am grateful to the PCBS and the noble Lord for raising these issues, but the Government consider that UKFI has a vital role to play which it is performing well. I therefore cannot support the amendment and I urge the noble Lord to withdraw it.
Lord Lawson of Blaby
My noble friend will not be surprised to hear that I am wholly unconvinced by his reply; nevertheless I shall please him by withdrawing the amendment.
Lord Eatwell
“Duty of care
At all times when carrying out core activities, a ring-fenced body shall—(a) be subject to a fiduciary duty towards its customers in the operation of core services; and(b) be subject to a duty of care towards its customers across the financial services sector.”
Lord Eatwell
My Lords, Amendment 101 in my name and the names of my noble friends Lord Tunnicliffe and Lord McFall goes to the heart of the change in culture which all of us wish to see in the relationship between banks and their customers, particularly their retail customers. Our objective is for banks to see their relationship with their retail customers as ensuring the financial success and security of those customers as far as may be possible, rather than seeing them as entities from which to make profits. A ring-fenced body should have a fiduciary duty towards its customers in the operation of core services, and a duty of care towards its customers across the financial services sector with respect to other duties.
Following the passing of the Financial Services and Markets Act 2000, the Financial Services Authority developed the notion that customers should be treated fairly. It did an enormous amount of work developing various rules, instructions and procedures whereby customers would be treated fairly. This was a dismal failure. PPI and the interest rate swap stories demonstrate that beyond all reasonable doubt. This was not a failure because of the failure of the regulators as such and their intentions. They were well intentioned, and they were focused on important issues. It was a failure because the culture of the banks was to see customers as entities with which to trade and from which profits would be made. We need to change that.
The amendment will put us in tune with developments that have also been perceived to be necessary in the United States, where the SEC now has the authority to impose a fiduciary duty on brokers who give investment advice. It is the same thematic development. A stronger duty of care would ensure that industry has to take customers’ interests into account when designing products and has to provide advice and support throughout the product life cycle, something which has clearly been lacking in recent scandalous events. This will increase consumer protection and help to restore confidence of the retail customer in banks. It will raise standards of conduct because banks will know they are responsible for acting according to these duties.
I am well aware that there is a general common law responsibility for duty of care, but the importance of this amendment is that the fiduciary duty would be reflected in the activities, responsibilities and powers of the regulators, not simply something enforceable under common law. That is why a fiduciary responsibility akin to that elsewhere in financial legislation, but here expressed generally within the context of the ring-fenced bank, would add significantly not just to consumer protection but to the character, behaviour and culture of ring-fenced banks. I beg to move.
Baroness Noakes
Can the noble Lord, Lord Eatwell, explain how this fiduciary duty and duty of care would be enforced? I think he mentioned a moment ago that it would somehow draw regulators in, but I cannot find anything in his amendment that places any corresponding powers or duties on regulators. I cannot see that a duty of care will make any difference whatever if ordinary consumers—ordinary customers of the banks—are expected to litigate personally on the basis of it.
Lord Eatwell
Surely the point is that by establishing a fiduciary duty a regulated entity would be expected to pursue exactly those duties. Therefore a regulated entity or other authorised person would be deemed by the regulator to be required to follow exactly those duties. If the noble Baroness thinks that this is too weak, I will be very happy to bring a stronger duty of care back on Report.
Lord Phillips of Sudbury
My Lords, the noble Lord, Lord Eatwell, asked an extraordinary question because there is no more onerous duty than the fiduciary duty. It is a novel and maybe a highly effective way of dealing with a great many of the concerns that have occupied this House over the last few days in Committee. An important part of the amendment is that the core activities and services are subject to a fiduciary duty, and other services to a duty of care. Given the big difference in responsibility, is it sufficiently clear what is and what is not a core duty?
Lord McFall of Alcluith
My Lords, I will briefly speak in support of this amendment. My noble friend Lord Eatwell spoke of treating customers fairly. I remember, going back to 2002, when the FSA, bless its heart, introduced this to the industry. The FSA told me that it was a hugely uphill struggle. I well remember having a conversation with the chairman of one of the banks, who said to me, “Treating customers fairly? I don’t know what that FSA is up to, because I’ve always treated my customers fairly”. The gap between what the FSA was trying to do and the mentality of some people in the industry was huge. I remember being at a seminar with John Kay, who has written a great article in today’s Financial Times that I have already referred to. He said that a duty of care, if it was imposed on the banks, would be “transformational”. I think he said that for the following reason. There is today an imbalance between the customer and the bank—the term for that is symmetry of knowledge—which has led to many of the scandals.
Time after time on the parliamentary banking standards commission, when we ask chairmen and chief executives exactly why mis-selling occurred or why the grievous omissions took place in their organisation, they say that they did not know anything about it. There is, therefore, a hiatus between the top and below. One of the amusing aspects of my time as chair of the Treasury Committee was speaking informally to senior executives in the banks who came along to the Treasury Committee and said, “What you did to the chairman today was good because it allows us to educate him”—or her, although it is largely him—“about what is happening in the organisation”. A lot of them do not know what is happening. If we had this duty of care, that responsibility would lie at the very top.
During the deliberations of the parliamentary banking standards commission, I suggested that there should be an annual meeting between the chairmen and chief executives of these institutions, and the regulatory authorities, so that there was a sign-off on how they do their duty and how they serve the interests of their institution and their employees in the wider society. That information is not made public, but at least there is that accountability at the top between the regulator and the chief executive. At present, we do not have that. Having the duty of care would make those at the top much more alive to what is going on in their organisation. I have received evidence in the banking commission, particularly from the lawyers who were advising us, that the term “duty of care” has a specific legal meaning in the law of torts, and tests to establish whether a duty of care exists and whether it has been breached are a fundamental tenet of common law. In the context of banks and their customers, it is not clear what a duty of care would look like in practice. I know that there are huge legal hurdles to overcoming that, but there is a basic, common-sense and moral purpose to the concept of duty of care, and I think it is one that we will refer to again on Report.
I would like the Minister seriously to consider this amendment and ensure in some way or other that, as the Parliamentary Commission on Banking Standards stated in paragraph 416:
“Banks need to demonstrate that they are fulfilling a duty of care to their customers, embedded in their approach to designing products, providing understandable information to consumers and dealing with complaints”.
Lord Brennan
My Lords, perhaps I may take up the points raised by the noble Baroness, Lady Noakes. Paragraph (a) of the proposed new clause refers to a “fiduciary duty” by the ring-fenced body. In practical terms that means a duty exercised by, ultimately, the board of directors. The body acts through it. The practical consequences of such a duty, which does not involve enforceability by the regulators, are twofold. First, if the board of a bank breaches its fiduciary duty to customers in this way, it is perfectly reasonable for the shareholders to refuse to indemnify it in respect of any claims made by customers on the basis that it has breached a statutory duty, which could not conceivably be said to have been acting in the shareholders’ interests. That is the first practical consequence. It is a deterrent. Secondly, although I have not checked this yet, I suspect that in the field of commercial insurance you would not be able to get D&O insurance for protection in respect of a fiduciary duty until you have satisfied the insurability test of having acted reasonably and in accordance with commonly accepted standards of probity and good behaviour in the commercial sector. Therefore, the point is answered, I suspect, by practical consequences.
Lord Deighton
My Lords, this amendment is an opportunity to revisit the imposition of fiduciary duties or duties of care on financial services firms. The other place debated the same amendment at the Committee and Report stages of this Bill. Of course, no one in this House is going to disagree with the proposition that customers need a better deal from their banks, whether we call it treating customers fairly, having better standards or putting customers first. The Government have been keen, for example, to see more competition between banks as another way of addressing this concern. We all want to see better standards in the banking industry and a return to the days when the customer relationship mattered and the customer came first. We want the leadership of banks to appreciate that it is also in their long-term interests in building successful banking businesses. The Government’s amendments so far, which implement the recommendations of the PCBS, will be an important step in the round in that respect.
However, I note that the commission did not itself recommend the introduction of either a fiduciary duty or a duty of care. To cut to the chase, the Government do not consider that the introduction of either a fiduciary duty or a duty of care in legislation would help to drive up these standards within ring-fenced banks. First, banks are already subject to a wide range of legal duties. Most obviously, they are subject to contractual obligations to their customers. Any banking relationship or transaction is subject to a contract between the bank and the customer. Of course, a bank is subject to obligations under FiSMA and the regulator’s rules. Further, the Government’s amendment on banking standards rules means that in future senior managers and ordinary employees will also be subject to conduct rules. Therefore, it is not clear that imposing a fiduciary obligation on a bank would add any value. The fiduciary obligation is the kind of obligation that a director owes to a company, or a trustee owes to a beneficiary under a trust. It is an appropriate obligation when one person is acting on behalf of another or dealing with another’s property on their behalf. However, deposits with a bank are not property held on trust, so a fiduciary obligation would have no place in the contractual relationship between a bank and its customer.
Similarly, it is not clear what a duty of care—
Lord Phillips of Sudbury
I hesitate to interrupt my noble friend at this time of night, but there is an important issue in relation to what he said that needs clarification. He said a couple of times that the relationship between a bank and its customer is a contractual one, and therefore that that was sort of QED. The problem is that until not long ago all banks, in the small print of their contracts, which they knew full well that customers would not read, put material which, had the customers read it, would have led them to not agree the contract. In that situation, the contract said such and such, but the purport was wholly antithetical to the real interests of the customer. How does my noble friend deal with that situation, if he is rejecting the fiduciary concept?
Lord Deighton
It is clear that the essential contractual relationship still exists, regardless of the fine print. It is not clear what a duty of care would add to the existing contractual obligations or regulatory requirements to which the ring-fenced body is subject. The primary duty of a ring-fenced bank is to repay its borrowings, such as deposits, when they fall due, in accordance with the terms of its contracts. If a ring-fenced bank does that and complies with its regulatory obligations, such as those relating to ring-fencing or leverage, it is hard to see what a duty of care would do to make it care more for its customers, inside or outside the financial services industry.
Therefore, the Government firmly believe that it would be better to impose specific and focused requirements, and standards of business, on banks, than to rely on high-level, generic concepts such as a duty of care. Banks can comply more easily with specific requirements. Customers and regulators can more effectively hold to account the banks, and, if appropriate, their senior managers, when they do not comply. Moreover, if our ultimate objective is to improve the deal that customers get from their banks, one of the most effective and direct ways to achieve this is surely by enhancing competition. Banks must be spurred to treat their customers better by the threat of the customers voting with their feet. Through the introduction of the measures in this Bill, including the changes to the regulator’s objectives and powers, and the new payments regulator, we believe that a better deal can be achieved.
Imposing a duty of care or a fiduciary duty would not give banks or their senior managers a clear understanding of what conduct is expected of them. It would not provide a viable and effective means of holding banks to account, and it would not benefit consumers. Therefore, I hope that the noble Lord will agree to withdraw the amendment.
Lord McFall of Alcluith
On the duty of care, at the present moment if an individual opens a bank account, they get 170 pages of dense text to look through. No one is going to look through that. If a duty of care were imposed, does the Minister not think that banks would look at that again and perhaps fillet a lot of the information, so that the information that went to the customer would be readily understood?
Lord Deighton
I certainly agree with the noble Lord’s observation that sometimes the way in which business is done clearly is not in the interests of the customer. However, the Government do not believe that the duty of care is the right way to address those kinds of problems.
Lord Eatwell
My Lords, that was a very unsatisfactory answer. It was both analytically weak and unsatisfactory in terms of the noble Lord’s argument. Let us first deal with the economics. As the noble Lord well knows, in the face of asymmetric information, competition is not necessarily efficient. He knows that: he learnt that at Cambridge. In those circumstances, to argue simply that competition will be an effective means of establishing a satisfactory relationship between the bank and its customers is simply analytically wrong. We ought to take that into account.
Then the noble Lord said that there was a series of relationships: contractual duties, the relationships set out in FiSMA and the senior manager regulations. The first two of those have existed since 2000. They did not work, so let us not rely on contractual duties which have been there all the time and have been happily beavering away. Did they protect the customer from PPI? No, they did not do that successfully. Did they protect the customer from interest rate swap selling? No, they did not do that either. It is no good relying on these contractual duties or on various elements of treating customers fairly in FiSMA. The senior manager regime, although it stiffens up the responsibilities of managers, does not change the actual structure of the relationship.
The noble Lord said something towards the end of his reply that was really quite extraordinary. He said that if bankers were told that they had a fiduciary duty and a duty of care, they would not have a clear understanding of what they were required to do. I find that quite astonishing. I have a sense that trustees have a very clear understanding of the fiduciary issue of what they have to do and all these terribly clever bankers ought to be able to suss that out as well. The idea that they do not have a clear understanding is just unbelievable.
Then the noble Lord said, “But of course, the trustee relationship applies to a situation which is appropriate only when one person is acting for another”. The majority of retail customers who deposit their money in the bank think the bank is going to be operating for them. They think that is what is happening. I know that many bankers therefore regard them as naïve, but that is what people actually believe. That is what we, on this side, believe should actually be the case. The noble Lord then said, “Well, of course, I do agree there should be a duty of care, but it should be specific and focused”. We all know that when you try to make specific lists of issues, the endeavour goes wrong because of the things left off the list. The things that are left off the list are the areas where we will see further consumer scandals appearing.
It is the responsibility of this Government to protect consumers in this country and to protect bank depositors within ring-fenced banks. It is a responsibility that this Government are clearly shirking. This amendment would provide a significant cultural change within the banking system—a cultural change which is desperately needed. I can assure the noble Lord that we will return to this forcefully on Report. For the moment, I beg leave to withdraw the amendment.
Lord Eatwell
“Sale of state-owned banking assets
(1) Before any sale of banking assets in the ownership of HM Treasury, the Treasury shall lay before Parliament a report setting out—
(a) the manner in which the best interests of the taxpayer are to be protected in connection with such sale;(b) the expected impact that any sale might have on competition for the provision of core services, customer choice and the rate of economic growth; and (c) an appraisal of the options for potential structural changes in the bank concerned including—(i) the separation of the provision of core services from the provision of investment activities,(ii) the retention of a class of assets in the ownership of HM Treasury,(iii) the impact of any sale on the creation of a regional banking network.(2) A copy of the report in subsection (1) shall be laid before Parliament and sufficient time shall be given for the appropriate committees of both Houses of Parliament to consider its findings before any sale decision.”
Lord Eatwell
My Lords, I have commented on a number of occasions that despite all the considerable endeavours since the financial crisis by the Treasury itself, by the FSA as it then was—not by the Bank of England—by the Independent Commission on Banking and now by the parliamentary commission, there has been no significant thought applied to the manner in which the banking system could be fundamentally restructured. All those discussions have taken place within the context of the banking system as it is currently structured. There has been no, let us say, Standard Oil approach to breaking up that company or an AT&T approach to say that there should be some fundamental restructuring of the overall banking system. Instead, we have taken the structure as it is and examined how we can make it work better: for example, by a ring-fence, bail-in clauses, resolution regimes or whatever. The only significant change in the structure of the banking industry—the separation of TSB from Lloyds—was done under the instructions of the European Union. It was not a policy developed here in the UK.
This amendment does not propose anything dramatic such as a break-up of the larger banks so that they are small enough to fail, but instead says that when there are sales of banking assets which are in Treasury ownership, the Treasury ought at least to go away and think about this. It ought to tell us how the structure of the sale is in the best interests of the taxpayer and think about the impact on competition—I am sure the noble Lord would like that—on customer choice and, indeed, on the rate of economic growth. It ought also to look at the relationship to the ring-fence and whether there might be a development of regional banking, an idea suggested by a number of commentators. All that the amendment seeks is to say, “Let us please have some thought about the overall structure of the banking industry in this respect”.
We know that the industry consists of entities which are too big to fail. We have one degree of separation with the TSB. There is an endeavour to encourage entry into the banking industry but we all know that it will take a long time for new entities to achieve the scale to be significantly competitive, except perhaps in the occasional niche of the industry. Before we rush further into selling the state-owned banking assets, let us at least consider whether those assets could be used and deployed in a significant restructuring of the banking industry. That would achieve the goals of making the industry more stable and a more effective entity in the overall operation of the UK economy. I beg to move.
Lord Deighton
Noble Lords will know that the Chancellor has already set out at the Mansion House the next stage of the Government’s plan to take the banking system from rescue to recovery. For Lloyds, the Chancellor has taken the first steps to return Lloyds to the private sector and will continue to consider options for further share sales. Value for money for the taxpayer will be the overriding consideration for disposals. There is no pre-fixed timescale for share sales and, given the size of the taxpayer’s stake in Lloyds, the disposal process is likely to involve further multiple stages over time.
For RBS, however, share sales are still some way off. We discussed this earlier when we debated my noble friend Lord Lawson’s amendment. The Treasury is currently examining the case for creating a bad bank for RBS risky assets. As discussed, this review is still ongoing and will be published later in the autumn. Setting out public options for structural change may be advisable in some cases, as the Chancellor’s announcement of the RBS bad bank review makes clear. However, the Government will need to judge in each case whether to do so, given the risk of generating uncertainty and speculation about likely outcomes.
Similarly, selling large numbers of shares in the market is a very commercially sensitive matter: for example, in the case of Lloyds. Any communications from government in advance of placing shares could be destabilising and affect the price that the Government get for the shares. Publication of a report as outlined in the proposed amendment could undermine the Government’s ability to sell shares quickly in favourable market conditions. This could significantly reduce value for money for the taxpayer in that case.
The Government firmly agree that all the topics set out in the amendment need to be carefully considered by any Government in making their decisions relating to the sale of banking assets. UKFI, which we talked about earlier, was established with a very clear emphasis on value for money in executing its core mandate of devising means of exiting the Government’s shareholdings in the banks. In doing so, it is required to pay due regard to the maintenance of financial stability and act in a way that promotes competition.
The amendment seeks to improve accountability. Many mechanisms already provide accountability. On value for money, the Government are scrutinised against the general principles set out in the Green Book. UKFI is also accountable to Parliament through the Chancellor of the Exchequer, and has a mandate to secure value for money for the taxpayer. Moreover, the Treasury and UKFI are accountable directly, through the accounting officer mechanism, to the National Audit Office and to the Public Accounts Committee. Indeed, UKFI published a report, following the sale of Northern Rock, setting out the rationale for returning the bank to the private sector at that time. The National Audit Office completed a review of the sales process and published a lengthy report on it, which was considered at a session of the Public Accounts Committee.
The sale of Northern Rock demonstrated the Government’s commitment to transparency on the sale of their banking assets and the ability for bodies such as the National Audit Office and Parliament to scrutinise the decisions of government on these matters. Finally, the Government are accountable for their decision to Parliament, including through the Treasury Select Committee and in public debate. Overall, it is not clear what value would be added by this mandatory reporting requirement and it might well be detrimental to the objectives it aims to deliver, particularly to value for money. I hope that the noble Lord will therefore agree to withdraw the amendment.
Lord Turnbull (CB)
The first half of a paragraph in the PCBS report asked for a report on the good bank/bad bank option by September: it is going to be a bit late but we are told it is coming soon. The next two or three sentences were on the same subject as the amendment: looking at a wider range of options. Is the Minister telling the House that the Government will fulfil the first half of this PCBS recommendation but not the second half?
Lord Deighton
The Government will announce the conclusions of the good bank/bad bank review and the rationale for why that is the option being pursued. We will be addressing the second half of the undertaking in describing the rationale.
Lord Turnbull
The Government have got to good bank status with RBS. Are they not proposing to do any further analysis on what might happen to the good bank bit that remains?
Lord Deighton
The first thing we have to determine is what we are proposing to do with the good bank/bad bank. Does the split make sense and on what basis does it work? We will subsequently look at what we do with the separate parts.
Lord Eatwell
My Lords, that was not a very satisfactory answer. First, market sensitivity is an extraordinary red herring. Whoever wrote that bit should not be allowed to write any bits again. This is not about market sensitivity: it is about the overall structure of the banking sector and any issues of market sensitivity would, of course, be kept carefully out. Anybody would do that, so it is a really silly argument.
Turning to the good bank/bad bank story, value for money with respect to the disposal of assets is obviously an important component, but so is the future of the banking industry and its performance in relation to the UK economy as a whole, especially its support of the real economy in the provision of financial services. That aspect does not seem to have been considered. After all, the good bank/bad bank story is essentially a defensive move. It is dealing with a bank which is hampered—or potentially hampered; we will see what the report says—by its current mixture of assets and liabilities, particularly non-performing assets. The good bank/bad bank split is a defensive measure; a device for ensuring that you have an operation in the good bank which we hope can start increasing lending, as the noble Lord, Lord Lawson, said, particularly to the SME sector.
However, Amendment 103 is asking for something different, which the Minister did not actually address. It is asking for some thought about what the structure of the banking industry should look like in future. Are we simply going to repair what we have in the best way we can or do we want something really different? Could progress towards that “something different” be made in the sale of state-owned assets? It seems to me that that was what the noble Lord, Lord Turnbull, was talking about when he referred to the second element of the banking commission’s recommendations. Clearly, this recommendation has not been taken on board by the Government. Perhaps it has simply been overlooked; they might look at it now and think more seriously about it. I am sure that we will be returning to this issue later. In the mean time, I beg leave to withdraw the amendment.
Lord Eatwell
“Portable account numbers
(1) Within 12 months of the passing of this Act, the Treasury shall lay before Parliament a report considering—
(a) the adequacy of voluntary arrangements made by UK ring-fenced bodies to facilitate easier customer switching of bank account services; and(b) legislative options for the introduction of portable account numbers and sort codes for retail bank accounts provided by UK ring-fenced bodies.(2) The Chancellor of the Exchequer may, by affirmative resolution procedure, confer powers upon the appropriate regulator to require UK ring-fenced bodies to comply with any specified scheme to establish the use of portable account numbers and sort codes.”
Lord Eatwell
My Lords, this amendment refers to portable account numbers. I am sure that noble Lords will have read in yesterday’s Financial Times the story about the voluntary endeavour by the banks to increase the possibility of customers switching their accounts from one bank to another. The current switching drive does not include portability of account numbers. As the Financial Times boldly declared:
“Account switching drive fails to dislodge customers”.
The general assessment is that the complications associated with the non-portability of account numbers—that is, the complications of changing account numbers—are a significant disincentive to customers to switch their account from one bank to another. This is of course a considerable diminution of competition. The Government have argued very strongly that they are in favour of competition and choice in the retail sector. The noble Lord has repeated that position in discussing some of the amendments that we have already looked at this evening. However, here there is a clear opportunity to increase the possibility of competition in a very concrete way through the portability of account numbers.
The noble Lord will recall how successful this process has been in the telephone industry. The portability of telephone numbers has very evidently provided a significant competitive boost, which suggests that being able to move a number would increase competition significantly in the banking industry as well. I understand that this would be more difficult within the banking industry. For example, the amendment refers specifically to both portable account numbers and sort codes. That makes the issue more difficult because two individuals who bank at different banks may have the same account number but, of course, different sort codes; their entire identification is in the combination of the two. Therefore, a new means of identifying the core bank would have to be developed, and I understand that that would have various knock-on effects.
However, the idea that this would all cost £5 billion, as has been argued by the banking industry, seems to be vastly overstated. We had the same situation with telephony. We were told that this process was going to cost an enormous amount but, in the end, introducing transferable telephone numbers resulted in a tiny proportion of the costs which the industry had said it would need to incur.
Therefore, if we are really going to get competition and choice for the consumer, this seems to be a necessary step. The attempt to develop such competition through facilitating switching but without portability has, it seems, failed. Given that, if the Government are really going to put themselves on the side of the consumer in a competitive market, it is their responsibility to require the possibility of portable account numbers. I beg to move.
Lord Newby
My Lords, it goes without saying that the Government are fully behind the objective of increasing competition in banking and making sure that customers who wish to switch banks can do so without impediment. The notion of portable account numbers was considered by the Independent Commission on Banking and in its final report the ICB chose to recommend a new account switching service over portable account numbers. It considered that such a service, if designed correctly, would provide the majority of the same benefits as portability, but with significantly reduced risk and cost.
The Government acted quickly on this recommendation to secure a commitment from the banking industry to deliver current account switching in two years. This was an ambitious timetable for such a big project, but the banks have met the challenge. The new current account switching service was launched on schedule in September and covers almost 100% of the current account market. It has been designed to meet all the ICB’s criteria for tackling customer concerns over switching and to give customers the confidence they need to make the banks improve their services by ensuring that their customers can vote with their feet.
However, it is important that the new system delivers on its promises. That is why the Government continue to engage closely with the Payments Council, which has delivered the service on behalf of the industry, on the progress of switching.
Lord McFall of Alcluith
The noble Lord mentioned the Parliamentary Commission on Banking Standards and talked about account portability. But that was not as firm a recommendation as he has suggested, because one of the questions we asked was: why can the banks not allocate an account number that works in the way that mobile telephone numbers do, so that people can swap them around in the same way? The banks replied that the IT costs would be too high, but a cursory examination—that is all we did—of the IT aspect indicated that there were legacy problems with the IT. As we have seen with the horrendous examples involving RBS and others, the IT system is in a very poor state. So now is the ideal time to raise our ambitions and ensure that we get for bank customers the portability that telephone customers have.
Lord Newby
My Lords, I did not mention the parliamentary commission; I was referring to the Independent Commission on Banking. None the less, I shall come to the substantive point that the noble Lord has just made.
As I was saying, to aid transparency we have asked the Payments Council to publish statistics regularly, including switching volumes on a monthly basis and more detailed statistics every quarter, which include data on awareness and confidence in the new service. The Government consider that making this information public is the best way to hold the current account switching service to account. As has been mentioned, the Payments Council has just published the first set of data, covering the four-week period following the switching service becoming fully operational. The numbers show that 89,000 switches were completed—an 11% increase on the 80,000 completed during the same period last year. I am a great fan of the Financial Times, but to describe a scheme that has been running for a month as a failure, when it has already got 9,000 extra people to switch, is clearly complete rubbish.
Account portability is a more complicated issue. I am not necessarily disagreeing with the noble Lord, Lord McFall, but the only way to make a properly informed assessment as to whether, or how, steps towards portable account numbers should be taken is to conduct a comprehensive analysis. I must say, almost in parenthesis, that I do not believe that the analogy with telephone numbers takes us as far as might appear at first sight. For a start, as an individual I am quite happy if lots of people know my telephone number —but I am very unhappy if anybody knows my bank account details. This means that I have a completely different view about how I want to deal with that account. That is one of a number of different reasons why this is a complicated issue. It is not, however, an issue that the Government have just pushed to one side. We have made a commitment to ask the new payment systems regulator to undertake the comprehensive analysis that is required.
There has not yet been a proper study of account portability in the UK, but it is clear that operating the payments systems alongside account portability would be one of the significant challenges. That is why we think that the payment systems regulator is the right body to carry out this work. It will have the appropriate expertise and will be able to give an independent view. To be clear, the payment systems regulator will have the powers described in subsection (2) of the proposed new clause. There would be no need to confer new powers on the regulator in order to implement the recommendations of a review. In order to get a complete picture of what benefits account portability could bring, the experience of the current account switching service will need to be fully considered. Therefore, the Government expect the success of the switching service to be firmly within the scope of the payment systems regulator’s view of portability. The switching service is new and the regulator is not yet established. In our view, the logical step is to let them both become properly established and bedded in and then have a proper and comprehensive analysis. On the basis of that, a decision can be taken.
Lord Eatwell
The noble Lord just said that the payment systems regulator is going to be asked to do this. What timetable is the regulator going to be given?
Lord Newby
The regulator will be asked to make this one of its top priorities once it has been established, but it is impossible to say at this point that it will have to do it within three or six months. We think that that would be overly prescriptive. However, it is one of the priority tasks that it will be given from its inception.
Lord Eatwell
My Lords, that is why the amendment specifies 12 months. It seems that what the Government are saying is that they are behind the concept of competition but they are not behind the means of making that concept actually work. However, I must say that it is encouraging that the payment systems regulator is being asked to study this matter. It would be more encouraging if we were given some clarity that this will not simply be kicked into touch but will actually be presented to Parliament within a given timescale.
This is a matter of considerable importance if the Government are serious about competition and giving competitive advantage to consumers. It is therefore a matter to which we must inevitably return. In the mean time, I beg leave to withdraw the amendment.
Lord Sharkey
“High-cost credit agreements
(1) The Secretary of State shall by order provide for each local authority in England and Wales to regulate high cost credit agreements entered into by any person whose registered address for the purpose of obtaining credit is within the area of that authority.
(2) An order under this section shall—
(a) set a maximum level for—(i) the amount of any loan;(ii) the rate of interest that may be charged; and(iii) the associated fees that may be leviedas part of any such agreement;(b) limit the number of times and specify the terms on which such an agreement can be rolled over for any individual to whom this section applies; and(c) require the lender to demonstrate that the borrower has no outstanding high-cost loans.(3) Any local authority choosing not to exercise its powers of regulation once an order is made under this section shall publish a report setting out its reasons for not doing so, and shall make a similar report in each subsequent year in which it chooses not to exercise its powers of regulation.
(4) For the purposes of this section—
(a) “high-cost credit agreement” means a regulated credit agreement as defined by section 137C of the Financial Services and Markets Act 2000 (as inserted by the Financial Services Act 2012) that provides for—(i) the payment by the borrower of charges of a description from time to time specified by the FCA; or(ii) the payment by the borrower over the duration of the agreement of charges that, taken with the charges paid under one or more other agreements which are treated by the FCA’s rules as being connected with it, exceed, or are capable of exceeding, an amount specified by the FCA;(b) “charges” means charges payable, by way of interest or otherwise, in connection with the provision of credit under the regulated credit agreement, whether or not the agreement itself makes provision for them and whether or not the person to whom they are payable is a party to the regulated credit agreement or an authorised person;(c) “authorised person” has the same meaning as in the Financial Services and Markets Act 2000.(5) An order under this section shall be made by statutory instrument subject to approval by resolution of each House of Parliament.”
Lord Sharkey (LD)
My Lords, I will briefly argue in favour of four propositions. The first is that payday loan charges are much too high; secondly, that the current action on payday loans, although it is welcome, will not fix the central problem; thirdly, that we already have plenty of evidence for how to fix this problem; and fourthly, it is possible to act now to benefit payday loan customers and there is no need to wait.
The first proposition is that payday loan charges are much too high, and there is probably no need for me to argue the point extensively in this Chamber. Many Members of the Committee will agree that the scale of the charges amounts to exploitation of the poorest and the most desperate, and perhaps even that these charges are an affront to social justice, or even a sense of common humanity. In fact, there are established markets where the payday loan business flourishes with much smaller charges, of which the United States is a prime example. I shall talk more about the regulatory regime in the United States in a moment.
The second proposition is that the current action, although it is welcome, will not fix the central problem. The FCA, which will take over regulatory responsibility for the sector in April next year, published a consultation paper earlier this month. The paper noted that:
“We consider that the high-cost short-term credit sector poses a potentially high risk to consumers in financial difficulty”.
It put forward five key proposals that would require lenders to,
“assess the potential for a loan to adversely affect the customer’s financial situation; limit the number of times they can seek payment using a continuous payment authority; limit the number of times a loan can be ‘rolled over’; inform customers about sources of debt advice before refinancing a loan; put risk warnings on loan adverts”.
All these requirements were broadly welcomed, but there was no proposal to address the very high cost of payday loans themselves. The FCA confined itself to saying only that:
“After we start regulating consumer credit, our supervision teams will consider firms’ fees and charges practices to decide if we need to intervene further”.
That was it, but it is these fees and charges that are the cause of the present hardship and difficulty. Why wait until next April? The charges are obviously too high. They are lower elsewhere, and they could be lower here, too.
My third proposition is that we already have plenty of evidence about how to fix the high charge problem. I have heard it said that, in fact, self-regulation by payday loan lenders is the best way forward. Quite apart from the fact that it is difficult to see this bringing down costs, the evidence at the moment is that self-regulation is not working. Earlier this month, BIS published a large-scale and comprehensive review of how well the payday loan industry had been complying with its revised July 2012 customer charter and codes of practice. What BIS found was this:
“Overall, the results of the survey show that 9 months after the industry said they would comply fully with the charter and the improved codes of practice, self-regulation is not working effectively and compliance with key provisions is not good enough … lenders appear to fall down significantly in meeting the requirements … overall in relation to rollovers, Continuous Payment Authority (CPA) and the treatment of customers in financial difficulty”.
Lord Eatwell
My Lords, I am delighted that the Liberal Democrats are coming behind the proposals developed by my noble friend Lord Mitchell. I hope they acknowledge his success in having the various clauses limiting payday loans and high-cost credit agreements inserted during the passage of the Financial Services Act 2012.
Given that that Act is now in place and the measures advanced by my noble friend Lord Mitchell are on the statute book, the argument of the noble Lord, Lord Sharkey, as I understand it, is about why nothing is happening and why there is a lack of movement towards getting appropriate regulation in place. If he is indeed correct that things are moving so slowly—I have no reason to believe that he is not—the Government owe him an explanation as to why that is the case. Obviously, one is sympathetic to getting my noble friend Lord Mitchell’s measures going as fast as possible, but I have a couple of questions about the amendment.
First, do we really feel that there is a simple read-over between state government in the United States and a local authority in the UK? It seems that we pile responsibilities on local authorities without giving them sufficient funding, in many cases, to fulfil their responsibilities. I do not see that the amendment provides for any resources to go to local authorities to enable them to do the job.
Secondly, as far as I understand it, quite a lot of payday lending is done online. The amendment will do absolutely nothing to address loans that are made online because it is all geographically defined. A payday lender may have a registered address but that may have absolutely nothing to do with the location of the customers of that payday lender. The disjuncture between the registered address and the location of the customers suggests that knowledge of local needs would not necessarily be very relevant in such a case.
I am very sympathetic to the need to get things moving and look forward to the Government telling noble Lords how energetic they are being and giving us some concrete evidence of how my noble friend Lord Mitchell’s measures are being effectively brought into being. I would also like the Government to consider whether the noble Lord, Lord Sharkey, has, with the notion of the local authority—or indeed any other authority—identified a means of getting things moving more quickly.
Lord Newby
My Lords, the Government wholeheartedly agree with my noble friend that consumers must be protected when they borrow from payday lenders and use other high-cost forms of credit. As noble Lords have pointed out, the Government fundamentally reformed the regulatory system governing these lenders to protect borrowers by transferring the regulation of consumer credit to the Financial Conduct Authority in the Financial Services Act 2012.
The FCA takes up this new regulatory responsibility on 1 April but has already demonstrated that it is serious about cracking down on high-cost lenders. It is absolutely unfair on it to say that nothing has happened since the Act was passed last year.
On 3 October, as the noble Lord, Lord Sharkey, has pointed out, the FCA set out an action plan on high-cost lending to protect consumers, with tough new rules covering a number of issues, including a limit on rollovers and restricting the use of continuous payment authorities. These proposals have won widespread support and will profoundly change how this industry operates. I completely agree with the noble Lord, Lord Sharkey, that self-regulation has failed, but the industry is not going to be self-regulated any more.
Turning now to the noble Lord’s amendment specifically, I am surprised that he thinks that local authorities should be given additional responsibility for regulating high-cost lenders. I can see why it might work in the States, and having looked at the Florida scheme I completely agree that it has been an extremely successful scheme there. I hope that there are a number of additional elements of that scheme that might, in time, be introduced into the UK. However, I frankly cannot see the case for duplicating regulatory effort within such a small geographic area of the UK, especially as consumers will find this confusing. Nor can this be considered a good use of public funds, given that the FCA, which is fully funded by the industry, already has this responsibility.
Most payday lenders have a national reach, especially the biggest players which dominate the market and, by definition, those which are online, so it does not make sense to permit scores of local authorities, in addition to the FCA, to all regulate the same lender. We believe that a well-resourced and empowered single national regulator will provide the best outcome for consumers. Consumers will be better protected by having a regulator with the resources, expertise and national consistency of the FCA. I am not convinced of the benefits for consumers of a federal approach to regulation. In fact, this could lead to more consumer harm; payday lenders are more likely to target consumers in local authority areas where the authority is less active.
The nub of the amendment is, of course, that the noble Lord has framed it to ensure that the Secretary of State imposes a cap on the cost of high-cost credit. While I entirely support the noble Lord’s ambition to bring down the cost of such loans, I am not convinced that the best way to do that is via a mandatory cap. The Government do not believe that current evidence provides sufficient justification to support a cap on the cost of credit.
The noble Lord has referred to the work commissioned by the Government from the University of Bristol. It does not, as he says, say that the main arguments against a cap on the rate relate to loan sharks. It does point out that although that may happen in some cases, lenders may try to bypass the cap by introducing other charges or fees which are not subject to it. Evidence shows that, with a cap in place, lenders may be less likely to show understanding if customers get into repayment difficulties.
While the Government are not convinced that a mandatory cap is the best overall solution for consumers now, they have made it clear that the FCA has a specific power to impose a cap in future, should it decide that it is needed to protect consumers. The FCA has already committed to start analysis on use of this power from April 2014.
Capping the cost of credit is a major intervention with potentially profound consequences for consumers, so it is right that the FCA contemplates use of this power in a responsible and evidence-based way, which is what it will now do. Noble Lords should not be in any doubt about the FCA’s commitment to using its powers to protect consumers whenever it feels it is necessary. The Government stand ready to support the FCA to ensure the best overall outcome for consumers.
I know it is extremely frustrating that we have not got a comprehensive solution in place, but the Government have moved with considerable alacrity in setting up a new, effective regulatory framework. The regulator has acted quickly to set out proposals and on that basis, I hope that the noble Lord will feel able to withdraw his amendment.
Lord Sharkey
I am happy to acknowledge the achievements of the noble Lord, Lord Mitchell. As the noble Lord, Lord Eatwell, may know, when I spoke to the noble Lord, Lord Mitchell, about my amendment, he said that, if he could, he would be happy to speak in support—qualified support, no doubt.
The question of local authorities is a red herring. I would happily trade off local authorities for the FCA if the Government would agree to the substance of the amendment. I do not intend to pursue the notion or the comments that have been made about local authorities by the noble Lord, Lord Eatwell, and my noble friend the Minister.
I am puzzled by the notion of there not being sufficient evidence to introduce a cap. I am hard put to understand how the situation in the United States—we mentioned only Florida but there are 17 other states with low interest rate caps; these systems work well—does not constitute something close to entirely sufficient evidence. I note in passing that Australia introduced the same system last year and there is evidence available from there as well. I also note in passing that this issue about payday lenders being able to avoid any cap by writing in additional charges is explicitly dealt with in the regulations that exist in Florida and the other states that cap these things. It is the total cost of any charges connected in any way with the loan that is capped; it is not just the interest rate.
I listened carefully to what my noble friend the Minister said and I will read it carefully again tomorrow morning. If we can dismiss the notion of local authorities for the moment, there may be merit in returning to this issue and of getting something done more quickly than April and afterwards so that we do not continue to have people taking on these loans at appalling costs. There may be merit in returning to that on Report but in the mean time I beg leave to withdraw.
Lord McFall of Alcluith
“Restriction on disclosure of confidential information by FCA, PRA etc
In section 348 of FSMA 2000 (restriction on disclosure of confidential information by (FCA, PRA) etc), after subsection (4)(b) insert—“(c) it is made available, without imposing any requirement of confidentiality, to a consumer (as defined in section 425A), or to a person imitating a consumer, or to persons who include consumers;”.”
Lord McFall of Alcluith
My Lords, while many aspects of competition, culture and behaviour in the industry are addressed by the Financial Services (Banking Reform) Bill, these amendments focus on the lack of transparency and public disclosure of poor products, practices, individuals and institutions, which remains unaddressed. The focus of these amendments is to open up this aspect of transparency. The amendments would enable the FCA to publish the instructions it gives to firms when it finds that consumers have been unfairly treated. It would improve the accountability of the regulator and of the regulated firms.
Most people are agreed that the FSA was not a transparent regulator. Indeed, in 2009, when the Treasury Select Committee investigated the treatment of customers in mortgage arrears, it concluded that,
“the balance between disclosure to the public and the need to protect firms before they have been found guilty of wrongdoing may have tilted too far towards the interests of the industry”.
More importantly, Section 348 of FiSMA placed a blanket prohibition on the FSA publishing information received from firms without the firms’ permission. The question has to be asked: are any banks going to voluntarily agree to the publication of their poor practice? I would suggest that is highly unlikely.
I will give one example. In the case of PPI, HFC Bank was fined by the FSA in 2007 for mis-selling of PPI. It issued instructions about the steps the bank needed to take to contact customers and review its previous conduct. However, when consumer groups asked for full details of the instructions, the answer given was that the instructions issued by the FSA contained information from HFC and the FSA was therefore prohibited from disclosing them by Section 348 of FiSMA.
This amendment empowers the FCA to release the instructions given to firms. Genuinely confidential information still will be protected, but the regulator will no longer be able to use Section 348 as an excuse for not disclosing the instructions it gives to firms. There are safeguards for firms, requiring the regulator to consult firms on the notice it will issue and to take account of their representations. Indeed, when the managing director of supervision at that time, Jon Pain of the FSA, appeared before the Commons Treasury Committee in March 2010, he was asked if he would like to have the ability to publish names of firms to which the FSA has sent a warning notice on disciplinary process. He said that that process struck the right balance between transparency and process.
The FSA itself would like that facility to be looked at. Indeed, when the Parliamentary Commission on Banking Standards looked into it, we stated that:
“Amendment of Section 348 … is likely to be required to facilitate the publication of appropriate information about the quality of service and price transparency.”
The amendment argues that the definition of “confidential information” should be modified to exclude firm-specific results of mystery-shopping exercises and thematic work. That would prevent consumers being kept in the dark and ensure that firms are not able to get away with not treating their customers fairly without suffering any practical penalty.
The definition should also be modified to exclude price data for certain markets, such as annuities—a very hot topic at the moment—which would make it easier for consumers to shop around to get the best rate and spot when they are getting a bad deal. It would also assist consumer organisations in warning consumers about products to avoid.
Complaints data for individual firms should also be excluded, which would allow the FCA to react swiftly to emerging problems by disclosing specific information about individual product areas to consumers. The legacy of mis-selling which exists happened because of a lack of speed in telling consumers and ensuring that individual companies undertook the remedies which the then FSA asked them to undertake.
If the definition also excluded enforcement activity against firms, that would allow for greater regulatory transparency. That must include the FCA publishing information on the number of cases referred to enforcement, broken down by subject—including product and practice involved—and industry sector; the outcome of cases, including how many resulted in a fine, public censure or were dealt with informally; and the names of firms and individuals involved in cases.
As I said on an earlier amendment, the balance is tilted too much towards the industry. The asymmetry of knowledge is in the industry’s favour. This amendment would help redress that by improving transparency. I ask the Minister to consider the long-standing commitment that I have had to that.
Lord Eatwell
My Lords, my noble friend has made a very strong case. He needed to add one other element to persuade the Government, which is that this would enhance competition. If one improved information in this way, then, given the enhancement of consumer choice, the competitive objective of the Government would be better served. This would be a diminution of some of the severe problems of asymmetric information that distort competition in financial services, especially retail financial services. If it was developed with care it would be a considerable boost to the overall efficiency of retail financial services in this country.
It is very easy to say, “The time is not ripe; it is not really quite the time; there are unintended consequences”. All that is required is a consistent bias towards transparency. The Government should approach this issue by saying, “In principle, we are in favour of transparency”. The argument should be made for not being transparent. In other words, the strong case has to be made for not revealing something. The fundamental prejudice should be that this information should be transparent. Effective transmission of information is a key element in creating an efficient market and enhancing the competitive goal that the Government claim to be their own.
Lord Newby
My Lords, as the noble Lord, Lord McFall, pointed out, we debated this issue at great length during proceedings on the previous Financial Services Bill. Sections 348 and 349 of FiSMA govern the treatment of confidential information obtained by the regulators and the ability of the regulators to disclose such confidential information. The noble Lord argued at the time, and repeated today, that there was inadequate transparency and insufficient disclosure of information in the financial services regulatory regime. This led to the argument that Section 348 should be amended to make it as unrestricted as possible.
In response, the Treasury undertook a careful review of Section 348 and its associated provisions. The review concluded, first, that it would be difficult to amend Section 348 without negative consequences. Scaling back Section 348 would increase the risk that firms would become less willing to share information with the regulators, undermining those important relationships and the regulators’ ability to protect consumers. Secondly, even with Section 348 in place, the FCA could and should do more to increase transparency.
With that in mind, the Government decided at the time not to amend or delete Section 348 but agreed with the FSA, as it then was, for it to carry out a fundamental review of how transparency would be embedded in the new FCA regime. This was published as a consultation in April of this year and received positive feedback from consumer groups—that is, the very people the new or changed approach was intended to benefit. The review covered use of disclosure as a regulatory tool by the regulator, disclosure of information by firms, both voluntarily and as a result of FCA rules, and transparency on the part of the regulator.
In terms of publishing details of enforcement action, the FCA is already required to publish details and information about decisions and final notices that it considers appropriate. It can also publish the fact that a warning notice has been issued in respect of disciplinary action. In response to the recent PCBS recommendation that it should require firms to publish more information, the FCA has outlined its plans to issue a call for evidence next year on data that it should require firms to publish to help consumers better understand the firm and product quality.
I hope the noble Lord will agree that this is exactly what the PCBS was seeking to achieve and that it can be done without further amendment to Section 348.
Lord McFall of Alcluith
My Lords, again the Government’s response is a little timid. However, the hour is late. It is an appropriate time to say, “Mañana” and we will fight it another day.
Lord Turnbull
“Definition of “bank”
(1) In sections (Meetings between regulators and bank auditors, Leverage ratio, Proprietary trading, Remuneration code, Powers of regulator where Bank receiving State support, Special measures, and Regulatory accounts) “bank” means a UK institution which—
(a) has permission under Part 4A of FSMA 2000 (permission to carry on regulated activities) to carry on the regulated activity of accepting deposits; or(b) is an investment firm within the meaning of that Act (see section 424A of that Act).(2) But “bank” does not include an insurer.
(3) In this section—
(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 this Act to carry on the regulated activity of effecting or carrying out contracts of insurance as principal. (4) Subsections (1)(a) and (3)(b) are to be read in accordance with section 22, taken with Schedule 2 and any order under section 22.”
Lord Turnbull
My Lords, this is an amendment to which we have returned on a number of occasions and which is quite fundamental to the Bill. It raises the question of what is a bank and defines who comes within the scope of the various regimes, sanctions, penalties, or whatever. There was a feeling when we last discussed this that defining a bank around whether it took deposits was too narrow and that there could be people who could conduct, for example, trading activities without taking deposits and who ought to be subject to the senior managers’ regime, the criminal sanction or the remuneration regime.
The amendment is an attempt to widen that scope. It was tabled before the letter dated 22 October from the noble Lord, Lord Newby, to the noble Lord, Lord Eatwell, with its offer to set out a note. I think that that will probably deal with the question. I do not think that there is any real difference between us about what we want to cover. We want to make sure that we are covering not only ring-fenced banks but people running major investment bank trading operations, whether they be domestic, such as BarCap, or UBS or whatever.
Lord Eatwell
Perhaps I can be of help to the noble Lord. I do not know whether he has had the opportunity to see the Bank of England response to the final report published today, where the Bank of England provides the answer which the noble Lord, Lord Newby, was unable to provide. It says:
“For the present, the Government’s legislative proposals in this area will apply only to deposit takers”—
Earl Attlee (Con)
My Lords, we are slightly out of order because the noble Lord has not moved his amendment and started the debate. Perhaps the noble Lord would like to finish moving his amendment.
Lord Turnbull
I thought that I had started by begging to move Amendment 104E, but if I have not I shall do so now, and if that allows the noble Lord, Lord Eatwell, to offer his clarification I should be very grateful. I beg to move.
Lord Eatwell
I usually try to be difficult. When I try to be helpful I am stopped. I was referring to the Bank of England response, published today, in which it says that,
“the Government’s legislative proposals in this area”—
this is referring to the senior persons regime which we talked about last time—
“will apply only to deposit takers but not to investment banks and insurance companies”.
So the Bank of England is clear that both the senior persons regime and, I presume, also the offences issue—for which I remember the same issue arose as to the definition of a bank—do not apply to investment banks.
Lord Turnbull
My response to that is that it is completely unsatisfactory. We shall need to come back to it. I hope that there can be some discussion, maybe with officials in the Bill team. I am not satisfied that applying these various provisions simply to deposit takers covers all the areas of conduct that really need to be covered.
One other issue came to light in the course of this evening’s discussions about the remuneration regime. The noble Lord, Lord Newby, read out a list of people who are covered. Those are the people who are covered by the current remuneration regime. What was being proposed in my amendment was in effect a senior tier particularly for banking. Once you do that, you have to find a definition of a bank. I thought that we were a bit nearer to getting an answer until I heard from the noble Lord, Lord Eatwell. It is something we need to sort out, otherwise we shall find a serious area of misconduct in an investment banking area only to be told that when we legislated we forgot to cover these kinds of people. That would be completely unacceptable.
Lord Newby
My Lords, I thought that I read out virtually verbatim last week what the noble Lord has read out from the Bank of England. We are going to confirm that in a letter. However the most important point is the one that the noble Lord, Lord Turnbull, raised about the scope of the senior managers regime and the criminal offence that goes with it. I can confirm now what I attempted to say last time, that my Treasury colleagues are considering the scope of the new regime and of the new criminal offence of reckless misconduct in the management of a bank in the light of the previous debate. I can assure the House that they take your Lordships’ views extremely seriously.
Lord Turnbull
I infer that I should pay more attention to the letter of the noble Lord, Lord Newby, of 22 October than I should pay to the Bank of England’s response, because I think the former is a more constructive response than that of the Bank of England. On that basis, I beg leave to withdraw Amendment 104E.
Lord Newby
ScheduleBail-in stabilisation optionPart 1Amendments of Banking Act 20091 The Banking Act 2009 is amended as follows.
New stabilisation option: bail-in2 After section 12 insert—
“12A Bail-in option
(1) The third stabilisation option is exercised by the use of the power in subsection (2).
(2) The Bank of England may make one or more resolution instruments (which may contain provision or proposals of any kind mentioned in subsections (3) to (6)).
(3) A resolution instrument may—
(a) make special bail-in provision with respect to a specified bank; (b) make other provision for the purposes of, or in connection with, any special bail-in provision made by that or another instrument.(4) A resolution instrument may—
(a) provide for securities issued by a specified bank to be transferred to a bail-in administrator (see section 12B) or another person;(b) make other provision for the purposes of, or in connection with, the transfer of securities issued by a specified bank (whether or not the transfer has been or is to be effected by that instrument, by another resolution instrument or otherwise).(5) A resolution instrument may set out proposals with regard to the future ownership of a specified bank or of the business of a specified bank, and any other proposals (for example, proposals about making special bail-in provision) that the Bank of England may think appropriate.
(6) A resolution instrument may make any other provision the Bank of England may think it appropriate to make in exercise of specific powers under this Part.
(7) Provision made in accordance with subsection (4) may relate to—
(a) specified securities, or(b) securities of a specified description.(8) Where the Bank of England has exercised the power in subsection (4) to transfer securities to a bail-in administrator, the Bank of England must exercise its functions under this Part (see, in particular, section 48V) with a view to ensuring that any securities held by a person in the capacity of a bail-in administrator are so held only for so long as is, in the Bank of England’s opinion, appropriate having regard to the special resolution objectives.
(9) References in this Part to “special bail-in provision” are to provision made in reliance on section 48B.
12B Bail-in administrators
(1) The Bank of England may, in a resolution instrument, appoint an individual or body corporate as a bail-in administrator.
(2) A bail-in administrator is appointed—
(a) to hold any securities that may be transferred or issued to that person in the capacity of bail-in administrator;(b) to perform any other functions that may be conferred under any provision of this Part.(3) The Bank of England may appoint more than one bail-in administrator to perform functions in relation to a bank (but no more than one of them may at any one time be authorised to hold securities as mentioned in subsection (2)(a)).
(4) Securities held by a bail-in administrator (in that capacity, and whether as a result of a resolution instrument or otherwise) are to be held in accordance with the terms of a resolution instrument that transfers those, or other, securities to the bail-in administrator.
(5) For example, the following provision may be made by virtue of subsection (4)—
(a) provision that specified rights of a bail-in administrator with respect to all or any of the securities are to be exercisable only as directed by the Bank of England;(b) provision specifying rights or obligations that the bail-in administrator is, or is not, to have in relation to some or all of the securities.(6) A bail-in administrator must have regard, in performing any functions of the office, to any objectives that may be specified in a resolution instrument.
(7) Where one or more objectives are specified in accordance with subsection (6), the objectives are to be taken to have equal status with each other, unless the contrary is stated in the resolution instrument.
(8) See sections 48I to 48K for further provision about bail-in administrators.”
3 After section 8 insert—
“8A Specific condition: bail-in
(1) The Bank of England may exercise a stabilisation power in respect of a bank in accordance with section 12A(2) only if satisfied that the condition in subsection (2) is met.
(2) The condition is that the exercise of the power is necessary, having regard to the public interest in—
(a) the stability of the financial systems of the United Kingdom,(b) the maintenance of public confidence in the stability of those systems,(c) the protection of depositors, or(d) the protection of any client assets that may be affected.(3) Before determining whether that condition is met, and if so how to react, the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(4) The condition in this section is in addition to the conditions in section 7.”
Further provision about the bail-in option4 After section 48A insert—
“Bail-in option48B Special bail-in provision
(1) “Special bail-in provision”, in relation to a bank, means any of the following (or any combination of the following)—
(a) provision cancelling a liability owed by the bank;(b) provision modifying, or changing the form of, a liability owed by the bank;(c) provision that a contract under which the bank has a liability is to have effect as if a specified right had been exercised under it.(2) A power to make special bail-in provision—
(a) may be exercised only for the purpose of, or in connection with, reducing, deferring or cancelling a liability of the bank;(b) may not be exercised so as to affect any excluded liability.(3) The following rules apply to the interpretation of subsection (1).
1. The reference to cancelling a liability owed by the bank includes a reference to cancelling a contract under which the bank has a liability.2. The reference to modifying a liability owed by the bank includes a reference to modifying the terms (or the effect of the terms) of a contract under which the bank has a liability.3. The reference to changing the form of a liability owed by the bank, includes, for example—(a) converting an instrument under which the bank owes a liability from one form or class to another,(b) replacing such an instrument with another instrument of a different form or class, or(c) creating a new security (of any form or class) in connection with the modification of such an instrument.(4) Examples of special bail-in provision include—
(a) provision that transactions or events of any specified kind have or do not have (directly or indirectly) specified consequences or are to be treated in a specified manner for specified purposes;(b) provision discharging persons from further performance of obligations under a contract and dealing with the consequences of persons being so discharged. (5) The form and class of the instrument (“the resulting instrument”) into which an instrument is converted, or with which it is replaced, do not matter for the purposes of paragraphs (a) and (b) of rule 3 in subsection (3); for instance, the resulting instrument may (if it is a security) fall within Class 1 or any other Class in section 14.
(6) The following liabilities of the bank are “excluded liabilities”—
(a) liabilities representing protected deposits;(b) any liability, so far as it is secured;(c) liabilities that the bank has by virtue of holding client assets;(d) liabilities with an original maturity of less than 7 days owed by the bank to a credit institution or investment firm;(e) liabilities arising from participation in designated settlement systems and owed to such systems or to operators of, or participants in, such systems;(f) liabilities owed to central counterparties recognised by the European Securities and Markets Authority in accordance with Article 25 of Regulation (EU) 648/2012 of the European Parliament and the Council; (g) liabilities owed to an employee or former employee in relation to salary or other remuneration, except variable remuneration;(h) liabilities owed to an employee or former employee in relation to rights under a pension scheme, except rights to discretionary benefits;(i) liabilities owed to creditors arising from the provision to the bank of goods or services (other than financial services) that are critical to the daily functioning of the bank’s operations.(7) The following special rules apply in cases involving banking group companies—
(a) a liability mentioned in subsection (6)(d) is not an excluded liability if the credit institution or investment firm to which the liability is owed is a banking group company in relation to the bank (see section 81D);(b) in subsection (6)(i) the reference to creditors does not include companies which are banking group companies in relation to the bank.48C Meaning of “protected deposit”
(1) A deposit is “protected” so far as it is covered by the Financial Services Compensation Scheme.
(2) A deposit is “protected” so far as it is covered by a scheme which—
(a) operates outside the United Kingdom, and(b) is comparable to the Financial Services Compensation Scheme.(3) If one or both of subsections (1) and (2) apply to a deposit, the amount of the deposit “protected” is the highest amount which results from either of those subsections.
(4) In subsections (1) and (2) and section 48B(6)(a), “deposit” has the meaning given by article 5(2) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544), but ignoring the exclusions in article 6.
48D General interpretation of section 48B
(1) In section 48B—
“client assets” means assets which the bank has undertaken to hold on trust for, or on behalf of, a client;“contract” includes any instrument;“credit institution” means any credit institution as defined in Article 4.1(1) of Regulation (EU) No 575/2013 of the European Parliament and of the Council, other than an entity mentioned in Article 2.5(2) to (23) of Directive 2013/36/EU of the European Parliament and of the Council; “designated settlement system” means a system designated in accordance with Directive 98/26/EC of the European Parliament and of the Council (as amended by Directives 2009/44/EC and 2010/78/EU);“employee” includes the holder of an office;“investment firm” means an investment firm as defined in Article 4.1(2) of Regulation (EU) No 575/2013 of the European Parliament and of the Council that is subject to the initial capital requirement specified in Article 28(2) of Directive 2013/36/EU of the European Parliament and of the Council;“pension scheme” includes any arrangement for the payment of pensions, allowances and gratuities;“secured” means secured against property or rights, or otherwise covered by collateral arrangements.(2) In subsection (1)—
“assets” has the same meaning as in section 232(4) (ignoring for these purposes section 232(5A)(b));“collateral arrangements” includes arrangements which are title transfer collateral arrangements for the purposes of section 48.(3) For the purposes of section 48B(6)(h), a benefit under a pension scheme is discretionary so far as the employee’s right to the benefit was a result of the exercise of a discretion.
48E Report on special bail-in provision
(1) This section applies where the Bank of England makes a resolution instrument containing special bail-in provision (see section 48B(1)).
(2) The Bank of England must report to the Chancellor of the Exchequer stating the reasons why that provision has been made in the case of the liabilities concerned.
(3) If the provision departs from the insolvency treatment principles, the report must state the reasons why it does so.
(4) The insolvency treatment principles are that where an instrument includes special bail-in provision—
(a) the provision made by the instrument must be consistent with treating all the liabilities of the bank in accordance with the priority they would enjoy on a liquidation, and(b) any creditors who would have equal priority on a liquidation are to bear losses on an equal footing with each other.(5) A report must comply with any other requirements as to content that may be specified by the Treasury.
(6) A report must be made as soon as reasonably practicable after the making of the resolution instrument to which it relates.
(7) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.
48F Power to amend definition of “excluded liabilities”
(1) The Treasury may by order amend section 48B(6) by—The Treasury may by order amend section 48C or 48D.
(a) adding to the list of excluded liabilities;(b) amending or omitting any paragraph of that subsection, other than paragraphs (a) to (c).(3) The powers conferred by subsections (1) and (2) include power to make consequential and transitional provision.
(4) An order under this section—
(a) must be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.(5) The Treasury must consult before laying a draft order under this section before Parliament.
48G Priority between creditors
(1) The Treasury may, for the purpose of ensuring that the treatment of liabilities in any instrument that contains special bail-in provision is aligned to an appropriate degree with the treatment of liabilities on an insolvency, by order specify matters or principles to which the Bank of England is to be required to have regard in making any such instrument.
(2) An order may, for example, specify the insolvency treatment principles (as defined in section 48E(4)) or alternative principles.
(3) An order may specify the meaning of “insolvency” for one or more purposes of the order.
(4) An order may amend sections 44C(4) and 48E(4).
(5) An order —
(a) is to be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.48H Business reorganisation plans
(1) A resolution instrument may require a bail-in administrator, or one or more directors of the bank, to—
(a) draw up a business reorganisation plan with respect to the bank, and(b) submit it to the Bank of England within the period allowed by (or under) the instrument.(2) “Business reorganisation plan” means a plan that includes—
(a) an assessment of the factors that caused Condition 1 in section 7 to be met in the case of the bank,(b) a description of the measures to be adopted with a view to restoring the viability of the bank, and(c) a timetable for the implementation of those measures.(3) Where a person has submitted a business reorganisation plan to the Bank of England under subsection (1) (or has re-submitted a plan under subsection (4)), the Bank of England—
(a) must approve the plan if satisfied that the plan is appropriately designed for meeting the objective mentioned in subsection (2)(b);(b) must otherwise require the person to amend the plan in a specified manner.(4) Where the Bank of England has required a person to amend a business re-organisation plan, the person must re-submit the amended plan within the period allowed by (or under) the resolution instrument.
(5) Before deciding what action to take under subsection (3) the Bank of England must (for each submission or re-submission of a plan) consult—
(a) the PRA, and(b) the FCA.(6) A business reorganisation plan may include recommendations by the person submitting the plan as to the exercise by the Bank of England of any of its powers under this Part in relation to the bank.
(7) Where a resolution instrument contains provision under subsection (1), the instrument may—
(a) specify further matters (in addition to those mentioned in subsection (2)) that must be dealt with in the business reorganisation plan;(b) make provision about the timing of actions to be taken in connection with the making and approval of the plan;(c) enable any provision that the Bank of England has power under paragraph (a) or (b) to make in the instrument to be made instead in an agreement between the Bank of England and the bail-in administrator.(8) For the purposes of subsection (2)(b) the viability of a bank is to be assessed by reference to whether the bank satisfies, and (if so) for how long it may be expected to continue to satisfy, the threshold conditions (as define in section 55B of the Financial Services and Markets Act 2000).
48I Bail-in administrator: further functions
(1) A resolution instrument may—
(a) authorise a bail-in administrator to manage the bank’s business (or confer on a bail-in administrator any other power with respect to the management of the bank’s business);(b) authorise a bail-in administrator to exercise any other powers of the bank;(c) confer on a bail-in administrator any other power the Bank of England may consider appropriate;(d) provide that the exercise of any power conferred by the instrument in accordance with this section is to be subject to conditions specified in the instrument.(2) A resolution instrument may require a bail-in administrator to make reports to the Bank of England—
(a) on any matter specified in the instrument, and(b) at the times or intervals specified in the instrument.(3) If a resolution instrument specifies a matter in accordance with subsection (2)(a), it may provide for further requirements as to the contents of the report on that matter to be specified in an agreement between the Bank of England and the bail-in administrator.
(4) A resolution instrument may—
(a) require a bail-in administrator to consult specified persons before exercising specified functions (and may specify particular matters on which the specified person must be consulted);(b) provide that a bail-in administrator is not to exercise specified functions without the consent of a specified person.48J Bail-in administrator: supplementary
(1) A bail-in administrator may do anything necessary or desirable for the purposes of or in connection with the performance of the functions of the office.
(2) A bail-in administrator is not a servant or agent of the Crown (and, in particular, is not a civil servant).
(3) Where a bail-in administrator is appointed under this Part, the Bank of England—
(a) must make provision in a resolution instrument for resignation and replacement of the bail-in administrator;(b) may remove the bail-in administrator from office only (i) on the ground of incapacity or misconduct, or (ii) on the ground that there is no further need for a person to perform the functions conferred on the bail-in administrator.48K Bail-in administrator: money
(1) A resolution instrument may provide for the payment of remuneration and allowances to a bail-in administrator.
(2) Provision made under subsection (1) may provide that the amounts are—
(a) to be paid by the Bank of England, or (b) to be determined by the Bank of England and paid by the bank. (3) A bail-in administrator is not liable for damages in respect of anything done in good faith for the purposes of or in connection with the functions of the office (subject to section 8 of the Human Rights Act 1998).
48L Powers in relation to securities
(1) A resolution instrument may—
(a) cancel or modify any securities to which this subsection applies;(b) convert any such securities from one form or class into another.(2) Subsection (1) applies to securities issued by the bank that fall within Class 1 in section 14.
(3) A resolution instrument may—
(a) make provision with respect to rights attaching to securities issued by the bank;(b) provide for the listing of securities issued by the bank to be discontinued. (4) The reference in subsection (1)(b) to converting securities from one form or class into another includes creating a new security in connection with the modification of an existing security.
(5) The provision that may be made under subsection (3)(a) includes, for example—
(a) provision that specified rights attaching to securities are to be treated as having been exercised;(b) provision that the Bank of England, or a bail-in administrator, is to be treated as authorised to exercise specified rights attaching to securities;(c) provision that specified rights attaching to securities may not be exercised for a period specified in the instrument.(6) In subsection (3)(b) the reference to “listing” is to listing under section 74 of the Financial Services and Markets Act 2000.
(7) The provision that may be made under this section in relation to any securities is in addition to any provision that the Bank of England may have power to make in relation to them under section 48B.
48M Termination rights, etc
(1) In this section “default event provision” has the same meaning as in section 22.
(2) A resolution instrument may provide for subsection (3) or (4) to apply (but need not apply either).
(3) If this subsection applies, the resolution instrument is to be disregarded in determining whether a default event provision applies.
(4) If this subsection applies, the resolution instrument is to be disregarded in determining whether a default event provision applies except so far as the instrument provides otherwise.
(5) In subsections (3) and (4) a reference to the resolution instrument is a reference to—
(a) the making of the instrument,(b) anything that is done by the instrument or is to be, or may be, done under or by virtue of the instrument, and(c) any action or decision taken or made under this or another enactment in so far as it resulted in, or was connected to, the making of the instrument.(6) Provision under subsection (2) may apply subsection (3) or (4)—
(a) generally or only for specified purposes, cases or circumstances, or(b) differently for different purposes, cases or circumstances.(7) A thing is not done by virtue of a resolution instrument for the purposes of subsection (5)(b) merely by virtue of being done under a contract or other agreement rights or obligations under which have been affected by the instrument.
48N Directors
(1) A resolution instrument may enable the Bank of England—
(a) to remove a director of a specified bank;(b) to vary the service contract of a director of a specified bank;(c) to terminate the service contract of a director of a specified bank;(d) to appoint a director of a specified bank.(2) Subsection (1) also applies to a director of any undertaking which is a banking group company in respect of a specified bank.
(3) Appointments under subsection (1)(d) are to be on terms and conditions agreed with the Bank of England.
48O Directions in or under resolution instrument
(1) A resolution instrument may—
(a) require one or more directors of the bank to comply with any general or specific directions that may be set out in the instrument; (b) enable the Bank of England to give written directions (whether general or specific) to one or more directors of the bank.(2) A director—
(a) is not to be regarded as failing to comply with any duty owed to any person (for example, a shareholder, creditor or employee of the bank) by virtue of any action or inaction in compliance with a direction given under subsection (1)(a) or (b);(b) is to be immune from liability in damages in respect of action or inaction in accordance with a direction.(3) A director must comply with a direction within the period of time specified in the direction, or if no period of time is specified, as soon as reasonably practicable.
(4) A direction under subsection (1)(a) or (b) is enforceable on an application made by the Bank of England, by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.
48P Orders for safeguarding certain financial arrangements
(1) In this section “protected arrangements” means security interests, title transfer collateral arrangements, set-off arrangements and netting arrangements.
(2) In subsection (1)—
“netting arrangements” means arrangements under which a number of claims or obligations can be converted into a net claim or obligation, and includes, in particular, “close-out” netting arrangements, under which actual or theoretical debts are calculated during the course of a contract for the purpose of enabling them to be set off against each other or to be converted into a net debt;“security interests” means arrangements under which one person acquires, by way of security, an actual or contingent interest in the property of another;“set-off arrangements” means arrangements under which two or more debts, claims or obligations can be set off against each other;“title transfer collateral arrangements” means arrangements under which Person 1 transfers assets to Person 2 on terms providing for Person 2 to transfer assets if specified obligations are discharged.(3) The Treasury may by order—
(a) restrict the exercise of any power within the scope of this paragraph in cases that involve, or where the exercise of the power might affect, protected arrangements;(b) impose conditions on the exercise of any power within the scope of this paragraph in cases that involve, or where the exercise of the power might affect, protected arrangements;(c) require any instrument that makes special bail-in provision to include specified provision, or provision to a specified effect, in respect of or for purposes connected with protected arrangements;(d) provide for an instrument to be void or voidable, or for other consequences to arise, if or in so far as the instrument is made or purported to be made in contravention of a provision of the order (or of another order under this section);(e) specify principles to which the Bank of England is to be required to have regard in exercising specified powers—(i) that involve protected arrangements, or(ii) where the exercise of the powers might affect protected arrangements.(4) References to exercising a power within the scope of paragraph (a) or (b) of subsection (3) are to making an instrument containing provision made in reliance on section 12A(3)(a) or 44B (special bail-in provision).
(5) An order may apply to protected arrangements generally or only to arrangements—
(a) of a specified kind, or (b) made or applying in specified circumstances.(6) An order may include provision for determining which arrangements are to be, or not to be, treated as protected arrangements; in particular, an order may provide for arrangements to be classified not according to their description by the parties but according to one or more indications of how they are treated, or are intended to be treated, in commercial practice.
(7) In this section “arrangements” includes arrangements which—
(a) are formed wholly or partly by one or more contracts or trusts;(b) arise under or are wholly or partly governed by the law of a country or territory outside the United Kingdom;(c) wholly or partly arise automatically as a matter of law;(d) involve any number of parties;(e) operate partly by reference to other arrangements between parties.(8) An order—
(a) is to be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.48Q Continuity
(1) A resolution instrument may provide for anything (including legal proceedings) that relates to anything affected by the instrument and is in the process of being done immediately before the instrument takes effect to be continued from the time the instrument takes effect.
(2) A resolution instrument may modify references (express or implied) in an instrument or document.
(3) A resolution instrument may require or permit any person to provide information and assistance to the Bank of England or another person, for the purposes of or in connection with provision made or to be made in that or another resolution instrument.
48R Execution and registration of instruments etc
(1) A resolution instrument (other than an instrument that provides for securities to be transferred) may permit or require the execution, issue or delivery of an instrument.
(2) A resolution instrument may provide for any provision in the instrument to have effect irrespective of—
(a) whether an instrument has been produced, delivered, transferred or otherwise dealt with;(b) registration.(3) A resolution instrument may provide for the effect of an instrument executed, issued or delivered in accordance with the resolution instrument.
(4) A resolution instrument may—
(a) entitle a person to be registered in respect of a security;(b) require a person to effect registration.48S Resolution instruments: general matters
(1) Provision made in a resolution instrument takes effect despite any restriction arising by virtue of contract or legislation or in any other way.
(2) A resolution instrument may include incidental, consequential or transitional provision.
(3) In relying on subsection (2) a resolution instrument—
(a) may make provision generally or only for specified purposes, cases or circumstances, and(b) may make different provision for different purposes, cases or circumstances.48T Procedure
(1) As soon as is reasonably practicable after making a resolution instrument in respect of a bank the Bank of England must send a copy to—
(a) the bank,(b) the Treasury,(c) the PRA, (d) the FCA, and(e) any other person specified in the code of practice under section 5.(2) As soon as is reasonably practicable after making a resolution instrument the Bank of England must publish a copy—
(a) on the Bank’s internet website, and(b) in two newspapers, chosen by the Bank of England to maximise the likelihood of the instrument coming to the attention of persons likely to be affected.(3) Where the Treasury receive a copy of a resolution instrument under subsection (1) they must lay a copy before Parliament.
48U Supplemental resolution instruments
(1) This section applies where the Bank of England has made a resolution instrument (“the original instrument”) with respect to a bank.
(2) The Bank of England may make, with respect to the bank, one or more resolution instruments designated by the Bank of England as supplemental resolution instruments.
(3) Sections 7 and 8A do not apply to a supplemental resolution instrument (but it is to be treated in the same way as a resolution instrument for all other purposes, including for the purposes of the application of a power under this Part).
(4) Before making a supplemental resolution instrument the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(5) The possibility of making a supplemental resolution instrument in reliance on subsection (2) is without prejudice to the possibility of making a new instrument in accordance with section 12A(2) (and not in reliance on subsection (2) above).
48V Onward transfer
(1) This section applies where the Bank of England has made a resolution instrument (“the original instrument”) providing for securities issued by a specified bank to be transferred to any person.
(2) The Bank of England may make one or more onward transfer resolution instruments.
(3) An onward transfer resolution instrument is a resolution instrument which—
(a) provides for the transfer of—(i) securities which were issued by the bank before the original instrument and have been transferred by the original instrument or a supplemental resolution instrument, or(ii) securities which were issued by the bank after the original instrument;(b) makes other provision for the purposes of, or in connection with, the transfer of securities issued by the bank (whether the transfer has been or is to be effected by that instrument, by another instrument or otherwise).(4) An onward transfer resolution instrument may not transfer securities to the transferor under the original instrument.
(5) Sections 7 and 8A do not apply to an onward transfer resolution instrument (but it is to be treated in the same way as any other resolution instrument for all other purposes, including for the purposes of the application of a power under this Part).
(6) Before making an onward transfer resolution instrument the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(7) Section 48U applies where the Bank of England has made an onward transfer resolution instrument.
48W Reverse transfer
(1) This section applies where the Bank of England has made an instrument (“the original instrument”) that is either—
(a) a resolution instrument providing for the transfer of securities issued by a bank to a person (“the transferee”), or(b) an onward transfer resolution instrument (see section 48V) providing for the transfer of securities issued by a bank to a person (“the onward transferee”).(2) In a case falling within subsection (1)(a) the Bank of England may make one or more reverse transfer resolution instruments in respect of securities issued by the bank and held by the transferee (whether or not they were transferred by the original instrument).
(3) In a case falling within subsection (1)(b), the Bank of England may make one or more reverse transfer resolution instruments in respect of securities issued by the bank and held by the onward transferee.
(4) A reverse transfer resolution instrument is a resolution instrument which—
(a) provides for transfer to the transferor under the original instrument;(b) makes other provision for the purposes of, or in connection with, the transfer of securities which are, or could be or could have been, transferred under paragraph (a).(5) Except where subsection (6) applies, the Bank of England may make a reverse transfer resolution instrument under subsection (2) only with the written consent of the transferee.
(6) This subsection applies where the transferee is—
(a) a bail-in administrator, or(b) a person who is not to be authorised to exercise any rights attaching to the securities except on the Bank of England’s instructions.(7) The Bank of England may make a reverse transfer resolution instrument under subsection (3) only with the written consent of the onward transferee.
(8) Sections 7 and 8A do not apply to a reverse transfer resolution instrument (but it is to be treated in the same way as any other resolution instrument for all other purposes including for the purposes of an application of a power under this Part).
(9) Before making a reverse transfer resolution instrument the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(10) Section 48U applies where the Bank of England has made a reverse transfer resolution instrument.”
Transfers of property5 (1) After section 41 insert—
“41A Transfer of property subsequent to resolution instrument
(1) This section applies where the Bank of England has made a resolution instrument.
(2) The Bank of England may make one or more property transfer instruments in respect of property, rights or liabilities of the bank.
(3) Sections 7 and 8A do not apply to a property transfer instrument under subsection (2).
(4) Before making a property transfer instrument under subsection (2) the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.”(2) In section 42 (supplemental property transfer instruments)—
(a) in subsection (1) for “12(2)” substitute “12(2) or 41A(2)”;(b) in subsection (4) for “and 8” substitute “, 8 and 8A”;(c) in subsection (6) for “or 12(2)” substitute “, 12(2) or 41A(2)”.(3) After section 44 insert—
“44A Bail in: reverse property transfer
(1) This section applies where the Bank of England has made a property transfer instrument in accordance with section 41A(2) (“the original instrument”).
(2) The Bank of England may make one or more bail-in reverse property transfer instruments in respect of property, rights or liabilities of the transferee under the original instrument.
(3) A bail-in reverse property transfer instrument is a property transfer instrument which—
(a) provides for a transfer to the transferor under the original instrument;(b) makes other provision for the purposes of, or in connection with, the transfer of property, rights or liabilities which are, or could be or could have been, transferred under paragraph (a) (whether the transfer has been or is to be effected by that instrument or otherwise).(4) The Bank of England may make a bail-in reverse property transfer instrument only with the written consent of the transferee under the original instrument.
(5) Sections 7 and 8A do not apply to a bail-in reverse property transfer instrument (but it is to be treated in the same way as any other property transfer instrument for all other purposes, including for the purposes of the application of a power under this Part).
(6) Before making a bail-in reverse property transfer instrument the Bank of England must consult—
(a) the PRA,(b) the FCA, and(c) the Treasury.(7) Section 42 (supplemental instruments) applies where the Bank of England has made a bail-in reverse property transfer instrument.
44B Property transfer instruments: special bail-in provision
(1) A property transfer instrument under section 12(2) or 41A(2) may make special bail-in provision with respect to the bank (see section 48B).
(2) In the case of a property transfer instrument under section 12(2), the power under subsection (1) to make the provision described in section in section 48B(1)(b) (see also rule 3(a) and (b) of section 48B(3)) includes power to make provision replacing a liability (of any form) of the bank mentioned in subsection (1) with a security (of any form or class) of the bridge bank mentioned in section 12(1).
(3) Where securities of the bridge bank (“B”) are, as a result of subsection (2), held by a person other than the Bank of England, that does not prevent B from being regarded for the purposes of this Part (see particularly section 12(1)) as being wholly owned by the Bank of England, as long as the Bank of England continues to hold all the ordinary shares issued by B.
44C Report on special bail-in provision
(1) This section applies where the Bank of England makes a property transfer instrument containing provision made in reliance on section 44B.
(2) The Bank of England must report to the Chancellor of the Exchequer stating the reasons why that provision was made in the case of the liabilities concerned.
(3) If the provision departs from the insolvency treatment principles, the report must state the reasons why it does so.
(4) The insolvency treatment principles are that where an instrument includes special bail-in provision—
(a) the provision made by the instrument must be consistent with treating all the liabilities of the bank in accordance with the priority they would enjoy on a liquidation, and(b) any creditors who would have equal priority on a liquidation are to bear losses on an equal footing with each other.(5) A report must comply with any other requirements as to content that may be specified by the Treasury.
(6) A report must be made as soon as reasonably practicable after the making of the property transfer instrument to which it relates.
(7) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.”
(4) In section 48A (creation of liabilities), in subsection (1), after “44(4)(c)” insert “, 44A(3)(b)”.
Compensation6 (1) In section 49 (orders)—
(a) in subsection (1), for “three” substitute “four” and for “and property transfer instruments” substitute “, property transfer instruments and orders and resolution instruments”;(b) after subsection (2) insert—“(2A) A “bail-in compensation order” is an order establishing a scheme for determining, in accordance with section 52A, whether any transferors or others should be paid compensation.”
(2) After section 52 insert—
“52A Bail-in option
(1) Subsection (2) applies if the Bank of England makes—
(a) a resolution instrument under section 12A(2),(b) a property transfer instrument under section 41A(2), or(c) a supplemental resolution instrument under section 48U(2).(2) The Treasury must make a bail-in compensation order (see section 49(2A)).
(3) A bail-in compensation order may include provision for—
(a) an independent valuer (in which case sections 54 to 56 are to apply);(b) valuation principles (in which case section 57(2) to (5) is to apply).”(3) In section 53 (onward and reverse transfers), in subsection (1)—
(a) after paragraph (f) insert—“(fa) the Bank of England makes a reverse property transfer instrument under section 44A(2),(fb) the Bank of England makes a supplemental property transfer instrument by virtue of section 44A(7),”;(b) omit the “or” after paragraph (g);(c) after paragraph (h) insert—“(i) the Bank of England makes an onward transfer resolution instrument under section 48V(2),(j) the Bank of England makes a reverse transfer resolution instrument under section 48W(2) or (3), or(k) the Bank of England makes a supplemental resolution instrument by virtue of section 48V(7) or 48W(10).”(4) In section 54 (independent valuer)—
(a) in subsection (1), after “compensation scheme order” insert “or bail-in compensation order”;(b) in subsection (4)(b), after “order” insert “or bail-in compensation order”.(5) In section 56 (independent valuer: money), in subsection (2)(b) for “or third party compensation order” substitute “, third party compensation order or bail-in compensation order”.
(6) In section 57 (valuation principles), in subsection (1), after “order” insert “or bail-in compensation order”.
(7) After section 60 insert—
“60A Further mandatory provision: bail-in provision
(1) The Treasury may make regulations about compensation arrangements in the case of—
(a) resolution instruments under section 12A(2) and supplemental resolution instruments under section 48U(2), and(b) instruments (made under any provision) that include special bail-in provision.(2) Regulations may—
(a) require a compensation scheme order, a third party compensation order or a bail-in compensation order to include provision of a specified kind or to specified effect;(b) make provision that is to be treated as forming part of any such order (whether (i) generally, (ii) only if applied, (iii) unless disapplied, or (iv) subject to express modification).(3) Regulations may provide for whether compensation is to be paid, and if so what amount is to be paid, to be determined by reference to any factors or combination of factors; in particular, the regulations may provide for entitlement—
(a) to be contingent upon the occurrence or non-occurrence of specified events;(b) to be determined wholly or partly by an independent valuer (within the meaning of sections 54 to 56) appointed in accordance with a compensation scheme order or bail-in compensation order.(4) Regulations may make provision about payment including, in particular, provision for payments—
(a) on account subject to terms and conditions;(b) by instalment.(5) Regulations—
(a) are to be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.60B Principle of no less favourable treatment
(1) In making regulations under section 60A the Treasury must, in particular, have regard to the desirability of ensuring that pre-resolution shareholders and creditors of a bank do not receive less favourable treatment than they would have received had the bank entered insolvency immediately before the coming into effect of the initial instrument.
(2) References in this section to the initial instrument are—
(a) in relation to compensation arrangements in the case of property transfer instruments under section 12(2), to the first instrument to be made under that provision with respect to the bank;(b) in relation to compensation arrangements in other cases, to the first resolution instrument to be made under section 12A with respect to the bank.(3) The “pre-resolution shareholders and creditors” of a bank are the persons who held securities issued by the bank, or were creditors of the bank, immediately before the coming into effect of the initial instrument.
(4) References in this section to insolvency include a reference to (i) liquidation, (ii) bank insolvency, (iii) administration, (iv) bank administration, (v) receivership, (vi) composition with creditors, and (vii) a scheme of arrangement.”
(8) In section 61(1) (sources of compensation),—
(a) omit the “and” at the end of paragraph (c);(b) after paragraph (c) insert—“(ca) bail-in compensation orders,”;(c) after paragraph (d) insert, “, and(e) regulations under section 60A.”(9) In section 62(1) (procedure), omit the “and” at the end of paragraph (b), and after that paragraph insert—
“(ba) bail-in compensation orders, and”.Groups7 (1) After section 81B insert—
“81BA Bail-in option
(1) The Bank of England may exercise a stabilisation power in respect of a banking group company in accordance with section 12A(2) if the following conditions are met.
(2) Condition 1 is that the PRA is satisfied that the general conditions for the exercise of a stabilisation power set out in section 7 are met in respect of a bank in the same group.
(3) Condition 2 is that the Bank of England is satisfied that the exercise of the power in respect of the banking group company is necessary, having regard to the public interest in—
(a) the stability of the financial systems of the United Kingdom,(b) the maintenance of public confidence in the stability of those systems,(c) the protection of depositors, or(d) the protection of any client assets that may be affected.(4) Condition 3 is that the banking group company is an undertaking incorporated in, or formed under the law of any part of, the United Kingdom.
(5) Before determining whether Condition 2 is met, and if so how to react, the Bank of England must consult—
(a) the Treasury,(b) the PRA, and(c) the FCA.(6) In exercising a stabilisation power in reliance on this section the Bank of England must have regard to the need to minimise the effect of the exercise of the power on other undertakings in the same group.”
(2) After section 81C insert—
“81CA Section 81BA: supplemental
(1) This section applies where the Bank of England has power under section 81BA to exercise a stabilisation power in respect of a banking group company.
(2) The provisions relating to the stabilisation powers and the bank administration procedure contained in this Act (except sections 7 and 8A) and any other enactment apply (with any necessary modifications) as if the banking group company were a bank.
(3) Where the banking group company mentioned in subsection (1) is a parent undertaking of the bank mentioned in section 81BA(2) (“the bank”)—
(a) the provisions in this Act relating to resolution instruments are to be read in accordance with the general rule in subsection (4), but(b) that is subject to the modifications in subsection (5);and provisions in this Act and any other enactment are to be read with any modifications that may be necessary as a result of paragraphs (a) and (b).(4) The general rule is that the provisions in this Act relating to resolution instruments (including supplemental resolution instruments) are to be read (so far as the context permits)—
(a) as applying in relation to the bank as they apply in relation to the parent undertaking, and(b) so, in particular, as allowing any provision that may be made in a resolution instrument in relation to the parent undertaking to be made (also or instead) in relation to the bank.(5) Where the banking group company mentioned in subsection (1) is a parent undertaking of the bank mentioned in section 81BA(2) (“the bank”)—
(a) section 41A (transfer of property subsequent to resolution instrument) applies as if the reference in subsection (2) to the bank were to the parent undertaking, the bank and any other bank which is or was in the same group; (b) section 48V (onward transfer)—(i) applies as if the references in subsection (3) to “the bank” included the bank, the parent undertaking and any other bank which is or was in the same group, and with the omission of subsection (4) of that section, and(ii) is to be read as permitting the transfer of securities only if they are held by (or for the benefit of) the parent undertaking or a subsidiary company of the parent undertaking;(c) section 48W (reverse transfer) applies as if the references in subsections (2) and (3) to “the bank” included the bank, the parent undertaking and any other bank which is or was in the same group.(6) Where section 48B (special bail-in provision) applies in accordance with subsection (4) (so that section 48B applies in relation to the bank mentioned in section 81BA(2) as it applies in relation to the parent undertaking mentioned in subsection (3)), the provision that may be made in accordance with section 48B(1)(b) (see also rule 3(a) and (b) of section 48B(3)) includes provision replacing a liability (of any form) of that bank with a security (of any form or class) of the parent undertaking.
(7) Where the banking group company mentioned in subsection (1) is a parent undertaking of the bank mentioned in section 81BA(2)—
(a) section 214B of the Financial Services and Markets Act 2000 (contribution to costs of special resolution regime) applies, and(b) the reference in subsection (1)(b) of that section to the bank, and later references in that section, are treated as including references to any other bank which is a subsidiary undertaking of the parent undertaking (but not the parent undertaking itself).”(3) In section 81D (interpretation: “banking group company” etc)—
(a) in subsection (6), for “, 81C” substitute “to 81CA”;(b) in subsection (7) for “section 81B” substitute “sections 81B to 81CA”.Banks regulated by the Financial Conduct Authority8 In section 83A (modifications of Part 1 as it applies to banks not regulated by the Prudential Regulation Authority), in the table in subsection (2) insert the following entries at the appropriate places—
“Section 8A | Subsection (3)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
“Section 41A | Subsection (4)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
“Section 44A | Subsection (6)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
“Section 48H | Subsection (5)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person. |
Section 48U | Subsection (4)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person. |
Section 48V | Subsection (6)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person. |
Section 48W | Subsection (9)(a) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
“Section 81BA | Subsection (5)(b) does not apply unless the bank has as a member of its immediate group a PRA-authorised person.” |
(a) in subsection (1), before paragraph (a) insert— “(za) subsection (1A),”;(b) after subsection (1) insert—“(1A) The provisions relating to the third stabilisation option (bail-in) are to be disregarded in the application of this Part to recognised central counterparties.”;
(c) in subsection (2), in the substituted section 13(1), for “third” substitute “fourth”.Insolvency proceedings10 In section 120 (notice to Prudential Regulation Authority of preliminary steps to certain insolvency proceedings)—
(a) in subsection (7)(b)(ii), after “Part 1” insert “(and Condition 5 has been met, if applicable)”;(b) after subsection (8) insert—“(8A) Condition 5—
(a) applies only if a resolution instrument has been made under section 12A with respect to the bank in the 3 months ending with the date on which the PRA receives the notification under Condition 1, and(b) is that the Bank of England has informed the person who gave the notice that it consents to the insolvency procedure to which the notice relates going ahead.”(c) in subsection (10), omit the “and” at the end of paragraph (b), and after paragraph (c) insert “, and(d) if Condition 5 applies, the Bank of England must, within the period in Condition 3(a), inform the person who gave the notice whether or not it consents to the insolvency procedure to which the notice relates going ahead.”;(d) After subsection (10) insert—“(11) References in this section to the insolvency procedure to which the notice relates are to the procedure for the determination, resolution or appointment in question (see subsections (1) to (4)).”
State aid11 After section 256 insert—
“State aid256A State aid
(1) This section applies where—
(a) the Treasury are of the opinion that anything done, or proposed to be done, in connection with the exercise in relation to an institution of one or more of the stabilisation powers may constitute the granting of aid to which any of the provisions of Article 107 or 108 of the Treaty on the Functioning of the European Union applies (“State aid”), and(b) section 145A (power to direct bank administrator) does not apply.(2) The Treasury may, in writing, direct any bail-in administrator, or any director of the institution, to take specified action to enable the United Kingdom to pursue any of the purposes specified in subsection (3) of section 145A (read with subsection (9) of that section).
(3) Before giving a direction under this section the Treasury must consult the person to whom the direction is to be given.
(4) The person must comply with the direction within the period of time specified in the direction, or, if no period of time is specified, as soon as is reasonably practicable.
(5) A direction under this section is enforceable on an application made by the Treasury, by injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.”
Other amendments of the Act12 (1) Section 1 (overview) is amended as follows.
(2) In subsection (2)(a), for “three” substitute “four”.
(3) For subsection (3) substitute—
“(3) The four “stabilisation options” are—
(a) transfer to a private sector purchaser (section 11), (b) transfer to a bridge bank (section 12),(c) the bail-in option (section 12A), and(d) transfer to temporary public ownership (section 13).”(4) In subsection (4)—
(a) for “three” substitute “four”;(b) before paragraph (a) insert—“(za) the resolution instrument powers (sections 12A(2) and 48U to 48W),”;(c) in paragraph (b), after “33” insert “, 41A”.13 In section 13 (temporary public ownership), in subsection (1), for “third” substitute “fourth”.
14 In section 17 (share transfers: effect)—
(a) in subsection (1), after “order” insert, “or by a resolution instrument”;(b) in subsection (5), after “order” insert “or a resolution instrument”;(c) in subsection (6), after “order” insert “or a resolution instrument”.15 In section 18 (share transfers: continuity), after subsection (5) insert—
“(6) This section applies to a resolution instrument that provides for a transfer of securities as it applies to a share transfer instrument (and references to transfers, transferors and transferees are to be read accordingly).”
16 In section 21 (ancillary instruments: production, registration etc), after subsection (5) insert—
“(6) This section applies to a resolution instrument that provides for a transfer of securities as it applies to a share transfer instrument.”
17 In section 44 (reverse property transfer)—
(a) in subsection (2), after “more” insert “bridge bank”;(b) in subsection (3), after “more” insert “bridge bank”;(c) in subsection (4), for “A reverse” substitute “A bridge bank reverse”;(d) in subsection (4A)—(i) after “make a” insert “bridge bank”, and(ii) in paragraph (b), for “the reverse” substitute “the bridge bank reverse”;(e) in subsection (5), for “a reverse” substitute “a bridge bank reverse”;(f) in subsection (6), for “a reverse” substitute “a bridge bank reverse”;(g) in subsection (7), for “a reverse” substitute “a bridge bank reverse”;(h) in the heading, for “Reverse” substitute “Bridge bank: reverse”.18 In section 63 (general continuity obligation: property transfers), in subsection (1)(a), for “or 12(2)” substitute “, 12(2) or 41A(2)”.
19 In section 66 (general continuity obligation: share transfers)—
(a) in subsection (1)(a), after “13(2)” insert “, or which falls within subsection (1A)”;(b) in subsection (1)(d)(i), after “11(2)(a)” insert “, or in a case falling within subsection (1A)”;(c) after subsection (1) insert—“(1A) A bank falls within this subsection if a resolution instrument (or supplemental resolution instrument) has changed the ownership of the bank (wholly or partly) by providing for the transfer, cancellation or conversion from one form or class to another of securities issued by the bank (and the reference in subsection (1)(b) to “the transfer” includes such a cancellation or conversion).”
20 In section 67 (special continuity obligation: share transfers), in subsection (4)(c), after “order” insert “or resolution instrument”.
21 In section 68 (continuity obligations: onward share transfers), in subsection (1)(a), after “transferred by” insert “a resolution instrument under section 12A(2) or supplemental resolution instrument under section 48U(2) or a”.
22 In section 71 (pensions), in subsection (1)—
(a) omit the “and” at the end of paragraph (b);(b) after paragraph (c) insert “, and(d) resolution instruments.”23 In section 72 (enforcement), in subsection (1)—
(a) omit the “or” at the end of paragraph (b);(b) after paragraph (c) insert “, or(d) a resolution instrument.”24 In section 73 (disputes), in subsection (1)—
(a) omit the “and” at the end of paragraph (b);(b) after paragraph (c) insert “, and(d) resolution instruments.”25 In section 74 (tax), in subsection (6), for “or 45” substitute “, 45, 48U or 48V”.
26 After section 80 insert—
“80A Transfer for bail-in purposes: report
(1) This section applies where the Bank of England makes one or more resolution instruments under section 12A(2) in respect of a bank.
(2) The Bank of England must, on request by the Treasury, report to the Chancellor of the Exchequer about—
(a) the exercise of the power to make a resolution instrument under section 12A(2),(b) the activities of the bank, and(c) any other matters in relation to the bank that the Treasury may specify.(3) In relation to the matters in subsection (2)(a) and (b), the report must comply with any requirements that the Treasury may specify.
(4) The Chancellor of the Exchequer must lay a copy of each report under subsection (2) before Parliament.”
27 In section 81A (accounting information to be included in reports under sections 80 and 81)—
(a) in subsection (1), for “or 81” substitute “, 80A(2)(b) or 81”;(b) in the heading, for “and 81” substitute “, 80A(2)(b) and 81”.28 In section 85 (temporary public ownership), in subsection (1), for “third” substitute “fourth”.
29 In section 136 (overview), in the Table in subsection (3), for “152” substitute “152A”.
30 After section 152 insert—
“152A Property transfer from transferred institution
(1) This section applies where the Bank of England—
(a) makes a resolution instrument that transfers securities issued by a bank (or a bank’s parent undertaking), in accordance with section 12A(2), and(b) later makes a property transfer instrument from the bank or from another bank which is or was in the same group as the bank, in accordance with section 41A(2).(2) This Part applies to the transferor under the property transfer instrument made in accordance with section 41A(2) as to the transferor under a property transfer instrument made in accordance with section 12(2).
(3) For that purpose this Part applies with any modifications specified by the Treasury in regulations; and any regulations—
(a) are to be made by statutory instrument, and(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.”31 In section 220 (insolvency etc), after subsection (4) insert—
“(4A) The fact that ownership of an authorised bank is transferred or otherwise changed as a result of a resolution instrument (or an instrument treated as a resolution instrument) does not itself prevent the bank from relying on section 213.”
32 In section 259 (statutory instruments)—
(a) in the Table in subsection (3), in Part 1, in the entry relating to section 60 for “Third party compensation” substitute “Third party compensation: partial property transfers”;(b) in the Table in subsection (3), in Part 1, at the appropriate places insert—
“48F(1) and (2) | Power to amend definition of “excluded liabilities” | Draft affirmative resolution |
48G | Insolvency treatment principles | Draft affirmative resolution |
48P | Safeguarding of certain financial arrangements | Draft affirmative resolution |
52A | Bail-in compensation orders | Draft affirmative resolution” |
“60A | Third party compensation: instruments containing special bail-in provision | Draft affirmative resolution”; |
“152A | Property transfer from transferred institution | Draft affirmative resolution”; |
“Bail-in compensation order | 49” |
“Resolution instrument | 12A” |
“Special bail-in provision | 48B”. |
(2) In subsection (1) “the relevant 3-month period” means the 3 months ending with the date on which the FCA receives the notification under Condition 1 in regulation 8 of the regulations.
(3) In their application to those cases, the regulations have effect with the modifications in sub-paragraph (4); and any enactment that refers to the regulations is to be read accordingly.
(4) In regulation 8 (in its application to those cases)—
(a) in paragraph (5)(c)(ii), for “appropriate regulator” substitute “Bank of England” and after “notice” insert “and the appropriate regulator”;(b) in paragraph (6), omit sub-paragraph (a) (but continue to read “that” in sub-paragraph (b) as a reference to the insolvency procedure to which the notice relates);(c) after paragraph (6) insert—“(6A) Where the FCA receives notice under Condition 1, it must also inform the Bank of England of the contents of the notice.
(6B) Where the Bank of England receives notice under subsection (6A), it must, within the period in Condition 3, inform the person who gave the notice and the appropriate regulator whether or not it consents to the insolvency procedure to which the notice relates going ahead.””
Lord Newby
ScheduleConsequential amendments relating to Part 4Financial Services and Markets Act 20001 (1) Section 59 of FSMA 2000 (approval for particular arrangements) is amended as follows.
(2) In subsection (1), for the words from “the appropriate regulator” to the end substitute “that person is acting in accordance with an approval given by the appropriate regulator under this section.”
(3) In subsection (2), for the words from “the appropriate regulator” to the end substitute “that person is acting in accordance with an approval given by the appropriate regulator under this section.”
2 (1) Section 59A of FSMA 2000 (specifying functions as controlled functions: supplementary) is amended as follows.
(2) In subsection (1)(a) and (b), for “significant-influence” substitute “senior management”.
(3) After subsection (3) insert—
“(3A) “Senior management function” has the meaning given by section 59ZA.””
3 (1) Section 63 of FSMA 2000 (withdrawal of approval) is amended as follows.
(2) In subsection (1A)(a), for “significant-influence function” substitute “relevant senior management function”.
(3) For subsection (1B) substitute—
“(1B) In subsection (1A) “relevant senior management function” means a function which the PRA is satisfied is a senior management function as defined in section 59ZA (whether or not the function has been designated as such by the FCA).”
4 In section 63A of FSMA 2000 (power to impose penalties), in subsection (2), for paragraph (b) substitute—
“(b) P, when performing the function, is not acting in accordance with an approval given under section 59.”5 (1) Section 66 of FSMA 2000 (disciplinary powers) is amended as follows.
(2) In subsection (3), for paragraph (ab) (and the “or” following it) substitute—
“(ab) impose, for such period as it considers appropriate, any conditions in relation to any such approval which it considers appropriate;(ac) limit the period for which any such approval is to have effect;”.(3) In subsection (3A), for “restriction” substitute “condition”.
(4) In subsection (3B), for “or restriction” substitute “, condition or limitation”.
(5) In subsection (3C), for “restriction” substitute “condition”.
(6) In subsection (3D)—
(a) in paragraph (a), for “or restriction” substitute “, condition or limitation”,(b) omit the “or” at the end of paragraph (a),(c) in paragraph (b), for “restriction” substitute “condition”, and(d) after that paragraph insert—“(c) vary a limitation so as to increase the period for which the approval is to have effect.” (7) In subsection (9), for “restriction” substitute “condition”.
6 (1) Section 67 of FSMA 2000 (disciplinary measures: procedure and right to refer to Tribunal) is amended as follows.
(2) In subsection (1), for “or (ab)” substitute “, (ab) or (ac)”.
(3) In subsection (2A), for “restriction” (in both places) substitute “condition”.
(4) After subsection (2A) insert—
“(2B) A warning notice about a proposal to limit the period for which an approval is to have effect must state the length of that period.”
(5) In subsection (4), for “or (ab)” substitute “, (ab) or (ac)”.
(6) In subsection (5A), for “restriction” (in both places) substitute “condition”.
(7) After subsection (5A) insert—
“(5B) A decision notice about limiting the period for which an approval is to have effect must state the length of that period.”
(8) In subsection (7), for “or (ab)” substitute “, (ab) or (ac)”.
7 In section 69 of FSMA 2000 (statement of policy), in subsection (1)—
(a) in paragraph (a), for “or restrictions” substitute “, conditions or limitations”;(b) omit the “and” at the end of paragraph (b);(c) in paragraph (c), for “restrictions” substitute “conditions”;(d) at the end of paragraph (c) insert “; and(d) the period for which approvals under section 59 are to have effect as a result of a limitation under section 66.”8 In section 138A of FSMA 2000 (modification or waiver of rules), in subsection (2), before paragraph (a) insert—
“(za) rules made by either regulator under section 64A (rules of conduct);”.9 In section 138D of FSMA 2000 (actions for damages), in subsection (5), before paragraph (a) insert—
“(za) rules under section 64A (rules of conduct);”.10 In section 140A of FSMA 2000 (interpretation), in the definition of “regulating provisions”—
(a) in paragraph (a)—(i) omit sub-paragraph (iii), and(ii) in sub-paragraph (iv), omit “64 or”;(b) in paragraph (b), omit sub-paragraphs (ii) and (iii).11 In section 347 of FSMA 2000 (the record of authorised persons etc.), for subsection (9) substitute—
“(9) “Relevant authorised person”, in relation to an approved person, means the person on whose application approval was given.”
12 In section 387 of FSMA 2000 (warning notices), in subsection (1A), for “or 55I(8)” substitute “, 55I(8) or 61(2D)”.
13 In section 388 of FSMA 2000 (decision notices), in subsection (1A), for “or 55I(8)” substitute “, 55I(8) or 61(2D)”.
14 In section 395 of FSMA 2000 (supervisory notices), in subsection (13), after paragraph (a) insert—
“(aa) 63ZC(4), (8) or (9)(b);”.15 (1) Section 415B of FSMA 2000 (consultation in relation to taking certain enforcement action) is amended as follows.
(2) In subsection (4)—
(a) in paragraph (b), for “significant-influence” substitute “relevant senior management”, and(b) omit the definitions appearing after that paragraph.(3) After subsection (4) insert—
“(5) In subsection (4)—
“arrangement” has the same meaning as in section 59; “relevant senior management function” means a function which the FCA is satisfied is a senior management function as defined in section 59ZA (whether or not it has been designated as such under section 59(6B) or (6C)).”16 In Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority), in paragraph 8(3)—
(a) in paragraph (b), omit “64 or”;(b) in paragraph (c)(i)— (i) after “section” insert “63ZD,”, and(ii) omit “64,”.17 In Schedule 1ZB to FSMA 2000 (the Prudential Regulation Authority), in paragraph 16(3)—
(a) omit paragraph (b);(b) in paragraph (c)(i)— (i) after “section” insert “63ZD,”, and(ii) omit “64,”.Financial Services Act 201218 In section 14 of the Financial Services Act 2012, omit subsection (4).
19 (1) Section 85 of the Financial Services Act 2012 (relevant functions in relation to complaints scheme) is amended as follows.
(2) In subsection (4)—
(a) in paragraph (b), omit “64 or”;(b) in paragraph (c)(i)— (i) after “section” insert “63ZD,”, and(ii) omit “64,”.(3) In subsection (5)—
(a) omit paragraph (b);(b) in paragraph (c)(i)— (i) after “section” insert “63ZD,”, and(ii) omit “64,”.”
ScheduleThe Payment Systems RegulatorIntroductory1 In this Schedule—
(a) “the Regulator” means the Payment Systems Regulator;(b) references to the functions of the Regulator are to functions conferred on it by or under this Part.Constitution2 (1) The constitution of the Regulator must provide for it to have a board whose members are the directors of the Regulator.
(2) The board is to consist of the following members—
(a) a member to chair it, appointed by the FCA with the approval of the Treasury;(b) a member to be the Managing Director, appointed by the FCA with the approval of the Treasury;(c) one or more other members appointed by the FCA.(3) The persons who may be appointed under sub-paragraph (2) include persons who are members of the FCA’s governing body.
(4) A person may be appointed under sub-paragraph (2) only if the person has knowledge or experience which is likely to be relevant to the exercise by the Regulator of its functions.
(5) A person appointed under sub-paragraph (2)(a) or (b) is liable to removal from office by the FCA (acting with the approval of the Treasury).
(6) A person appointed under sub-paragraph (2)(c) is liable to removal from office by the FCA.
Status3 (1) The Regulator is not to be regarded as exercising functions on behalf of the Crown.
(2) The officers and staff of the Regulator are not to be regarded as Crown servants.
Budget4 (1) The Regulator must adopt an annual budget which has been approved by the FCA.
(2) The budget must be adopted—
(a) in the case of the Regulator’s first financial year, as soon as reasonably practicable after it is established, and(b) in the case of each subsequent financial year, before the start of the financial year.(3) The Regulator may, with the approval of the FCA, vary the budget for a financial year at any time after its adoption.
(4) Before adopting or varying a budget, the Regulator must consult—
(a) the Treasury, and(b) such other persons (if any) as the Regulator considers appropriate.(5) The Regulator must publish each budget, and each variation of a budget, in the way it considers appropriate.
Arrangements for discharging functions5 (1) The Regulator may make arrangements for any of its functions to be discharged by—
(a) a committee, sub-committee, officer or member of staff of the Regulator;(b) an officer or member of staff of the FCA.This is subject to sub-paragraphs (2) to (4).(2) In exercising any functions within sub-paragraph (3), the Regulator must act through its board.
(3) The functions referred to in sub-paragraph (2) are—
(a) giving general directions under section (Directions);(b) imposing requirements under section (System rules) that apply to all operators of regulated payment systems.(4) The function of issuing general guidance may not be discharged by an officer or member of staff of the Regulator or of the FCA.
Annual plan6 (1) The Regulator must in respect of each of its financial years prepare an annual plan which has been approved by the FCA.
(2) The plan must be prepared—
(a) in the case of the Regulator’s first financial year, as soon as reasonably practicable after it is established, and(b) in the case of each subsequent financial year, before the start of the financial year.(3) The Regulator may, with the approval of the FCA, vary the plan in respect of a financial year at any time after its preparation.
(4) An annual plan in respect of a financial year must set out—
(a) the aims of the Regulator for the year,(b) how the extent to which each of those aims is met is to be determined,(c) the relative priorities of each of those aims, and(d) how its resources are to be allocated among the activities to be carried on in connection with the discharge of its functions.(5) In sub-paragraph (4) references to aims for a financial year include aims for a longer period that includes that year.
(6) Before preparing or varying an annual plan, the Regulator must consult—
(a) the Treasury, and(b) such other persons (if any) as the Regulator considers appropriate.(7) The Regulator must publish each annual plan, and each variation of an annual plan, in the way it considers appropriate.
Annual report7 (1) At least once a year, the Regulator must make a report to the FCA in relation to the discharge of its functions.
(2) The report must—
(a) set out the extent to which the Regulator has met its aims and priorities for the period covered by the report,(b) set out the extent to which the Regulator has advanced its payment systems objectives,(c) include a copy of its latest accounts, and(d) comply with any requirement specified in rules made by the FCA.(3) The Regulator must publish each report in the way it considers appropriate.
(4) Nothing in this paragraph requires the Regulator to make a report at any time in the period of 12 months beginning with its establishment.
(5) The Treasury may—
(a) require the Regulator to comply with any provision of the Companies Act 2006 about accounts and their audit which would not otherwise apply to it, or(b) direct that any provision of that Act about accounts and their audit is to apply to the Regulator with such modifications as are specified in the direction, whether or not the provision would otherwise apply to it.(6) Compliance with any requirement under sub-paragraph (5)(a) or (b) is enforceable by injunction or, in Scotland, an order for specific performance under section 45 of the Court of Session Act 1988.
(7) Proceedings under sub-paragraph (6) may be brought only by the Treasury.
(8) The FCA’s power to make rules under sub-paragraph (2)(d) is to be treated as if it were a power of the FCA to make rules under FSMA 2000 (and rules made under sub-paragraph (2)(d) are to be treated accordingly).
Audit of accounts8 (1) The Regulator must send a copy of its annual accounts to the Comptroller and Auditor General and the Treasury as soon as is reasonably practicable.
(2) The Comptroller and Auditor General must—
(a) examine, certify and report on accounts received under this paragraph, and(b) send a copy of the certified accounts and the report to the Treasury.(3) The Treasury must lay the copy of the certified accounts and the report before Parliament.
(4) The Regulator must send a copy of the certified accounts and the report to the FCA.
(5) Except as provided for by paragraph 7(5), the Regulator is exempt from the requirements of Part 16 of the Companies Act 2006 (audit) and its balance sheet must contain a statement to that effect.
(6) In this paragraph “annual accounts” has the meaning given by section 471 of the Companies Act 2006.
Funding9 (1) In this paragraph “the relevant costs” means—
(a) the expenses incurred, or expected to be incurred, by the Regulator in connection with the discharge of its functions,(b) the expenses incurred by the FCA in establishing the Regulator,(c) any other expenses incurred by the FCA in connection with the discharge of its functions under this Part, and(d) any expenses incurred, or expected to be incurred, by the FCA in connection with the discharge of the Regulator’s functions by an officer or member of staff of the FCA under arrangements made under paragraph 5. For the purposes of paragraph (b) it does not matter when the expenses were incurred.(2) For the purpose of meeting the relevant costs the FCA may make rules requiring participants in regulated payment systems to pay to the FCA specified amounts or amounts calculated in a specified way.
(3) Before making any rules under sub-paragraph (2) the FCA must consult the Treasury.
(4) The amounts to be paid under the rules may include a component to cover the expenses of the FCA in collecting the payments (“collection costs”).
(5) The FCA must pay to the Regulator the amounts that it receives under the rules, apart from the following amounts (which it may keep)—
(a) amounts in respect of expenses falling within sub-paragraph (1)(b) to (d);(b) amounts in respect of its collection costs.(6) In this paragraph “specified” means specified in the rules.
(7) The FCA’s power to make rules under this paragraph is to be treated as if it were a power of the FCA to make rules under FSMA 2000 (and rules made under this paragraph are to be treated accordingly).
Penalty receipts10 (1) The Regulator must in respect of each of its financial years pay to the Treasury any amounts received by it during the year by way of penalties imposed under section (Penalties).
(2) The Treasury may give directions to the Regulator as to how it is to comply with its duty under sub-paragraph (1).
(3) The directions may in particular—
(a) specify the time when any payment is required to be made to the Treasury, and(b) require the Regulator to provide the Treasury at specified times with information relating to penalties that the Regulator has imposed under section (Penalties).(4) The Treasury must pay into the Consolidated Fund any sums received by them under this paragraph.
Records11 The Regulator must maintain satisfactory arrangements for—
(a) recording decisions made in the exercise of its functions, and(b) the safe-keeping of those records which it considers ought to be preserved.Exemption from liability in damages12 (1) None of the following is to be liable in damages for anything done or omitted in the discharge, or purported discharge, of the Regulator’s functions—
(a) the Regulator;(b) any person (“P”) who is, or is acting as, an officer or member of staff of the Regulator;(c) any person who could be held vicariously liable for things done or omitted by P, but only in so far as the liability relates to P’s conduct.(2) If the Regulator has made arrangements under paragraph 5 for any of its functions to be discharged by an officer or member of staff of the FCA, references in sub-paragraph (1) to a person who is an officer or member of staff of the Regulator include references to the officer or member of staff of the FCA.
(3) Anything done or omitted by a person mentioned in sub-paragraph (1)(b) or (c) while acting, or purporting to act, as a result of an appointment under section (Reports by skilled persons) or (Appointment of persons to conduct investigations) is to be taken for the purposes of sub-paragraph (1) to have been done or omitted in the discharge or (as the case may be) purported discharge of the Regulator’s functions.
(4) Sub-paragraph (1) does not apply—
(a) if the act or omission is shown to have been in bad faith, or(b) so as to prevent an award of damages made in respect of an act or omission on the ground that the act or omission was unlawful as a result of section 6(1) of the Human Rights Act 1998.”
ScheduleProcedure for appeals to the CMAFunctions of CMA to be discharged by group1 Except where specified otherwise in this Schedule, the functions of the CMA with respect to an appeal are to be carried out on behalf of the CMA by a group constituted for the purpose by the chair of the CMA under Schedule 4 to the Enterprise and Regulatory Reform Act 2013.
2 (1) Schedule 4 to the Enterprise and Regulatory Reform Act 2013 is amended as follows.
(2) In paragraph 35(1) (membership of CMA panel), after paragraph (c) insert—
“(ca) at least one person (a “payment systems panel member”) appointed to the CMA panel under paragraph 1(1)(b) for the purpose of being available for selection as a member of a group constituted to carry out functions on behalf of the CMA with respect to an appeal made in accordance with section (Appeals to Competition and Markets Authority) of the Financial Services (Banking Reform) Act 2013 (a “specialist payment systems group”);”.(3) In paragraph 38 (membership of CMA groups), after sub-paragraph (5) insert—
“(5A) In the case of a specialist payment systems group, the group must include at least one payment systems member.”(4) In paragraph 48 (performance of functions of chair with respect to constitution etc of CMA group), in sub-paragraph (4)(c), at the end insert—
“(v) Schedule (Procedure for appeals to the CMA) to the Financial Services (Banking Reform) Act 2013.”Application for permission to bring appeal3 (1) An application for permission to bring an appeal may be made only by sending a notice to the CMA requesting the permission.
(2) An application for permission to appeal must be accompanied by all such information as may be required by appeal rules.
(3) Appeal rules may require information contained in an application for permission to appeal to be verified by a statement of truth.
(4) A person who applies for permission to bring an appeal in accordance with this paragraph is referred to in this Schedule as the appellant.
(5) The appellant must send the Payment Systems Regulator—
(a) a copy of the application for permission to appeal at the same time as it is sent to the CMA, and(b) such other information as may be required by appeal rules.(6) The CMA’s decision whether to grant permission to appeal is to be taken by an authorised member of the CMA.
(7) Before the authorised member decides whether to grant permission under this paragraph, the Payment Systems Regulator must be given an opportunity of making representations or observations, in accordance with paragraph 5(2).
(8) The CMA’s decision on an application for permission must be made—
(a) where the Payment Systems Regulator makes representations or observations in accordance with paragraph 5(2), before the end of 10 working days beginning with the first working day after the day on which those representations or observations are received; (b) in any other case, before the end of 14 working days beginning with the first working day after the day on which the application for permission was received.(9) The grant of permission may be made subject to conditions, which may include—
(a) conditions which limit the matters that are to be considered on the appeal in question;(b) conditions for the purpose of expediting the determination of the appeal;(c) conditions requiring the appeal to be considered together with other appeals (including appeals relating to different matters or decisions and appeals brought by different persons).(10) Where a decision is made to grant or to refuse an application for permission, an authorised member of the CMA must notify the decision, giving reasons, to the following persons—
(a) the appellant, and(b) the Payment Systems Regulator.(11) A decision of the CMA under this paragraph must be published, in such manner as an authorised member of the CMA considers appropriate, as soon as reasonably practicable after it is made.
(12) The CMA may exclude from publication under sub-paragraph (11) any information which it is satisfied is—
(a) commercial information, the disclosure of which would, or might in the CMA’s opinion, significantly harm the legitimate business interests of an undertaking to which it relates, or(b) information relating to the private affairs of an individual, the disclosure of which would, or might in the CMA’s opinion, significantly harm the individual’s interests.Suspension of decision4 (1) The CMA may direct that, pending the determination of an appeal against a decision of the Payment Systems Regulator—
(a) the decision is not to have effect, or(b) the decision is not to have effect to such extent as may be specified in the direction.(2) The power to give a direction under this paragraph is exercisable only where—
(a) an application for its exercise has been made by the appellant at the same time as the appellant made an application in accordance with paragraph 3 for permission to bring an appeal against a decision of the Payment Systems Regulator,(b) the Payment Systems Regulator has been given an opportunity of making representations or observations, in accordance with paragraph 5(2), and(c) the balance of convenience does not otherwise require effect to be given to the decision pending that determination.(3) The CMA’s decision on an application for a direction under this paragraph must be made—
(a) where the Payment Systems Regulator makes representations or observations in accordance with paragraph 5(2), before the end of 10 working days beginning with the first working day after the day on which those representations or observations are received;(b) in any other case, before the end of 14 working days beginning with the first working day following the day on which the application under sub-paragraph (2)(a) is received.(4) The appellant must send the Payment Systems Regulator a copy of the application for a direction under this paragraph at the same time as it is sent to the CMA.
(5) The CMA’s decision whether to give a direction is to be taken by an authorised member of the CMA.
(6) A direction under this paragraph must be—
(a) given by an authorised member of the CMA, and (b) published, in such manner as an authorised member of the CMA considers appropriate, as soon as reasonably practicable after it is given.(7) Sub-paragraph (12) of paragraph 3 applies to the publication of a direction under sub-paragraph (6) of this paragraph as it applies to the publication of a decision under sub-paragraph (11) of that paragraph.
Time limit for representations and observations by the Regulator5 (1) Sub-paragraph (2) applies where the Payment Systems Regulator wishes to make representations or observations to the CMA in relation to—
(a) an application for permission to bring an appeal under paragraph 3;(b) an application for a direction under paragraph 4.(2) The Payment Systems Regulator must make the representations or observations in writing before the end of 10 working days beginning with the first working day after the day on which it received a copy of the application under paragraph 3(5) or 4(4) (as the case may be).
(3) Sub-paragraph (4) applies where an application for permission to bring an appeal has been granted and the Payment Systems Regulator wishes to make representations or observations to the CMA in relation to—
(a) the Payment Systems Regulator’s reasons for the decision in relation to which the appeal is being brought;(b) any grounds on which that appeal is being brought against that decision.(4) The Payment Systems Regulator must make the representations or observations in writing before the end of 15 working days beginning with the first working day after the day on which permission to bring the appeal was granted.
(5) The Payment Systems Regulator must send a copy of the representations and observations it makes under this paragraph to the appellant.
Consideration and determination of appeal by group6 (1) A group constituted by the chair of the CMA under Schedule 4 to the Enterprise and Regulatory Reform Act 2013 for the purpose of carrying out functions of the CMA with respect to an appeal must consist of three members of the CMA panel.
(2) A decision of the group is effective if, and only if—
(a) all the members of the group are present when it is made, and(b) at least two members of the group are in favour of the decision.Time limits for determining appeal7 (1) The CMA must determine an appeal within the period of 6 months beginning with the permission date.
(2) If—
(a) the CMA has received representations on the timing of the determination from a party to the appeal, and(b) it is satisfied that there are special reasons why the determination cannot be made within the period specified in sub-paragraph (1),(3) In a case where sub-paragraph (2) applies, the CMA must also—
(a) inform the parties to the appeal of the time limit for determining the appeal, and(b) publish that time limit in such manner as it considers appropriate for the purpose of bringing it to the attention of any other persons likely to be affected by the determination.(4) In this paragraph the “permission date” is the date on which the CMA gave permission to bring the appeal in accordance with section (Appeals: general)(8).
Matters to be considered on appeal8 (1) The CMA, if it thinks it necessary to do so for the purpose of securing the determination of an appeal within the period provided for by paragraph 7, may disregard—
(a) any or all matters raised by an appellant that were not raised by that appellant at the time of the relevant application, and(b) any or all matters raised by the Payment Systems Regulator that were not contained in representations or observations made for the purposes of the appeal in accordance with paragraph 5.(2) In this paragraph “relevant application” means an application under paragraph 3 or 4.
Production of documents etc9 (1) For the purposes of this Schedule, the CMA may by notice—
(a) require a person to produce to the CMA the documents specified or otherwise identified in the notice;(b) require any person who carries on a business to supply to the CMA such estimates, forecasts, returns or other information as may be specified or described in the notice in relation to that business.(2) The power to require the production of a document, or the supply of any estimate, forecast, return or other information, is a power to require its production or, as the case may be, supply—
(a) at the time and place specified in the notice, and(b) in a legible form.(3) No person is to be compelled under this paragraph to produce a document or supply an estimate, forecast, return or other information which the person could not be compelled to produce in civil proceedings in the High Court or Court of Session.
(4) An authorised member of the CMA may, for the purpose of the exercise of the functions of the CMA, make arrangements for copies to be taken of a document produced or an estimate, forecast, return or other information supplied to it under this paragraph.
(5) A notice for the purposes of this paragraph—
(a) may be issued on the CMA’s behalf by an authorised member of the CMA;(b) must include information about the possible consequences of not complying with the notice (as set out in paragraph 13).Oral hearings10 (1) For the purposes of this Schedule an oral hearing may be held, and evidence may be taken on oath—
(a) by a person considering an application for permission to bring an appeal under paragraph 3,(b) by a person considering an application for a direction under paragraph 4, or(c) by a group with the function of determining an appeal;and, for that purpose, such a person or group may administer oaths.(2) The CMA may by notice require a person—
(a) to attend at a time and place specified in the notice, and(b) at that time and place, to give evidence to a person or group mentioned in sub-paragraph (1).(3) At any oral hearing the person or group conducting the hearing may—
(a) require the appellant or the Payment Systems Regulator, if present at the hearing, to give evidence or to make representations or observations, or(b) require a person attending the hearing as a representative of the appellant or of the Payment Systems Regulator to make representations or observations.(4) A person who gives oral evidence at the hearing may be cross-examined by or on behalf of any party to the appeal.
(5) If the appellant, the Payment Systems Regulator, or the appellant’s or Payment Systems Regulator’s representative is not present at a hearing—
(a) there is no requirement to give notice to that person under sub-paragraph (2), and(b) the person or group conducting the hearing may determine the application or appeal without hearing that person’s evidence, representations or observations.(6) No person is to be compelled under this paragraph to give evidence which the person could not be compelled to give in civil proceedings in the High Court or Court of Session.
(7) Where a person is required under this paragraph to attend at a place more than 10 miles from the person’s place of residence, an authorised member of the CMA must arrange for the person to be paid the necessary expenses of attendance.
(8) A notice for the purposes of this paragraph may be issued on the CMA’s behalf by an authorised member of the CMA.
Written statements11 (1) The CMA may by notice require a person to produce a written statement with respect to a matter specified in the notice to—
(a) a person who is considering, or is to consider, an application for a direction under paragraph 4, or(b) a group with the function of determining an appeal.(2) The power to require the production of a written statement includes power—
(a) to specify the time and place at which it is to be produced, and(b) to require it to be verified by a statement of truth;and a statement required to be so verified must be disregarded unless it is so verified.(3) No person is to be compelled under this paragraph to produce a written statement with respect to any matter about which the person could not be compelled to give evidence in civil proceedings in the High Court or Court of Session.
(4) A notice for the purposes of this paragraph may be issued on the CMA’s behalf by an authorised member of the CMA.
Expert advice12 Where permission to bring an appeal is granted under paragraph 3, the CMA may commission expert advice with respect to any matter raised by a party to the appeal.
Defaults in relation to evidence13 (1) If a person (“the defaulter”)—
(a) fails to comply with a notice issued or other requirement imposed under paragraph 9, 10 or 11,(b) in complying with a notice under paragraph 11, makes a statement that is false in any material particular, or(c) in providing information verified in accordance with a statement of truth required by appeal rules, provides information that is false in a material particular,an authorised member of the CMA may certify that fact to the court.(2) If the court is satisfied that the defaulter failed without reasonable excuse to comply with the notice or other requirement, or made the false statement, or provided the false information, it may deal with the defaulter (and in the case of a body corporate, any director or other officer of the body) as if that person were in contempt.
(3) In sub-paragraph (2) “officer”, in relation to a limited liability partnership, means a member of the limited liability partnership.
(4) In this paragraph “court” means—
(a) the High Court, or(b) in Scotland, the Court of Session.14 (1) A person who wilfully alters, suppresses or destroys a document which the person has been required to produce under paragraph 9 is guilty of an offence.
(2) A person guilty of an offence under this paragraph is liable—
(a) on summary conviction— (i) in England and Wales, to imprisonment for a term not exceeding 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003) or a fine, or both;(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both;(b) on conviction on indictment, to imprisonment for a term not exceeding 2 years or a fine, or both.Determination of appeal by CMA15 (1) A determination by the CMA on an appeal—
(a) must be contained in an order made by the CMA;(b) must set out the reasons for the determination;(c) takes effect at the time specified in the order or determined in accordance with provision made in the order;(d) must be notified by the CMA to the parties to the appeal;(e) must be published by the CMA— (i) as soon as reasonably practicable after the determination is made;(ii) in such manner as the CMA considers appropriate for the purpose of bringing the determination to the attention of any person likely to be affected by it (other than a party to the appeal).(2) The CMA may exclude from publication under sub-paragraph (1)(e) any information which it is satisfied is—
(a) commercial information, the disclosure of which would, or might in the CMA’s opinion, significantly harm the legitimate business interests of an undertaking to which it relates, or(b) information relating to the private affairs of an individual, the disclosure of which would, or might in the CMA’s opinion, significantly harm the individual’s interests.(3) The Payment Systems Regulator must take such steps as it considers necessary for it to comply with an order of the CMA made by virtue of sub-paragraph (1)(a).
(4) The steps must be taken—
(a) if a time is specified in (or is to be determined in accordance with) the order, within that time;(b) in any other case, within a reasonable time.Appeal rules16 (1) The CMA Board may make rules of procedure regulating the conduct and disposal of appeals.
(2) Those rules may include provision supplementing the provisions of this Schedule in relation to any application, notice, hearing, power or requirement for which this Schedule provides; and that provision may, in particular, impose time limits or other restrictions on—
(a) the taking of evidence at an oral hearing, or(b) the making of representations or observations at such a hearing.(3) The CMA Board must publish rules made under this paragraph in such manner as it considers appropriate for the purpose of bringing them to the attention of those likely to be affected by them.
(4) Before making rules under this paragraph, the CMA Board must consult such persons as it considers appropriate.
(5) Rules under this paragraph may make different provision for different cases.
Costs17 (1) A group that determines an appeal must make an order requiring the payment to the CMA of the costs incurred by the CMA in connection with the appeal.
(2) An order under sub-paragraph (1) must require those costs to be paid—
(a) where the appeal is allowed in full, by the Payment Systems Regulator;(b) where the appeal is dismissed in full, by the appellant;(c) where the appeal is partially allowed, by one or more parties in such proportions as the CMA considers appropriate in all the circumstances.(3) The group that determines an appeal may also make such order as it thinks fit for requiring a party to the appeal to make payments to another party in respect of costs reasonably incurred by that other party in connection with the appeal.
(4) A person who is required by an order under this paragraph to pay a sum to another person must comply with the order before the end of the period of 28 days beginning with the day after the making of the order.
(5) Sums required to be paid by an order under this paragraph but not paid within the period mentioned in sub-paragraph (4) are to bear interest at such rate as may be determined in accordance with provision contained in the order.
(6) Any costs payable by virtue of an order under this paragraph and any interest that has not been paid may be recovered as a civil debt by the person in whose favour the order is made.
Interpretation18 (1) In this Schedule—
“appeal” means an appeal made in accordance with section (Appeals to Competition and Markets Authority);“appeal rules” means rules of procedure under paragraph 16;“authorised member of the CMA”—(a) in relation to a power exercisable in connection with an appeal in respect of which a group has been constituted by the chair of the CMA under Schedule 4 to the Enterprise and Regulatory Reform Act 2013, means a member of that group who has been authorised by the chair of the CMA to exercise that power;(b) in relation to a power exercisable in connection with an application for permission to bring an appeal, or otherwise in connection with an appeal in respect of which a group has not been so constituted by the chair of the CMA, means—(i) any member of the CMA Board who is also a member of the CMA panel, or(ii) any member of the CMA panel authorised by the Treasury (whether generally or specifically) to exercise the power in question;“CMA” means the Competition and Markets Authority;“CMA Board” and “CMA panel” have the same meaning as in Schedule 4 to the Enterprise and Regulatory Reform Act 2013;“group” means a group selected in accordance with paragraph 6;“statement of truth”, in relation to the production of a statement or provision of information by a person, means a statement that the person believes the facts stated in the statement or information to be true;“working day” means any day other than—(a) Saturday or Sunday;(b) Christmas Day or Good Friday;(c) a day which is a bank holiday under the Banking and Financial Dealings Act 1971 in any part of the United Kingdom.(2) References in this Schedule to a party to an appeal are references to—
(a) the appellant, or(b) the Payment Systems Regulator.”
ScheduleConduct of FMI administration1 The following provisions of this Schedule provide for—
(a) the general powers and duties of FMI administrators (by application of provisions about administrators), and(b) the general process and effects of FMI administration (by application of provisions about administration).2 The provisions set out in the Tables apply in relation to FMI administration as in relation to administration, with—
(a) the modifications set out in paragraph 3,(b) any other modification specified in the Tables, and(c) any other necessary modification.3 The modifications are that—
(a) a reference to the administrator is a reference to the FMI administrator,(b) a reference to administration is a reference to FMI administration,(c) a reference to an administration application is a reference to an FMI administration application,(d) a reference to an administration order is a reference to an FMI administration order,(e) a reference to a company is a reference to the infrastructure company, and(f) a reference to the purpose of administration (other than the reference in paragraph 111(1) of Schedule B1) is a reference to the objective in section (Objective of FMI administration).4 Powers conferred by this Part of this Act and by the 1986 Act (as applied) are in addition to, and not in restriction of, any existing powers of instituting proceedings against any contributory or debtor of an infrastructure company, or the estate of any contributory or debtor, for the recovery of any call or other sum.
5 A reference in an enactment or other document to anything done under a provision applied by this Part of this Act includes a reference to the provision as applied.
TABLE 1 OF APPLIED PROVISIONS SCHEDULE B1 TO THE INSOLVENCY ACT 1986
Provision of Schedule B1 | Subject | Modification |
|---|---|---|
Para. 40(1)(a) | Dismissal of pending winding-up petition | |
Para. 41 | Dismissal of administrative or other receiver | |
Para. 42 | Moratorium on insolvency proceedings | Ignore sub-paras. (4) and (5). |
Para. 43 | Moratorium on other legal process | |
Para. 44(1)(a) and (5) | Interim moratorium | |
Para. 46 | Announcement of appointment | Ignore sub-para. (6)(b) and (c). |
Paras. 47 and 48 | Statement of affairs | |
Para. 49 | Administrator’s proposals | The administrator must obtain the approval of the Bank of England to any proposals under sub-para. (1).Treat the reference in sub-para. (2)(b) to the objective mentioned in para. 3(1)(a) or (b) as a reference to the objective in section (Objective of FMI administration) of this Act. Ignore sub-para. (3)(b). |
Para. 59 | General powers | |
Para. 60 and Schedule 1 | General powers | The exercise of powers under Schedule 1 is subject to section (Objective of FMI administration) of this Act. |
Para. 61 | Directors | |
Para. 62 | Power to call meetings of creditors | |
Para. 63 | Application to court for directions | Before making an application in reliance on this paragraph the FMI administrator must give notice to the Bank of England, which is to be entitled to participate in the proceedings. In making directions the court must have regard to the objective in section (Objective of FMI administration) of this Act. |
Para. 64 | Management powers | |
Para. 65 | Distribution to creditors | |
Para. 66 | Payments | |
Para. 67 | Taking custody of property | |
Para. 68 | Management | Ignore sub-paras. (1) and (3).The Bank of England may apply to the court for the variation or revocation of any directions given by the court. |
Para. 69 | Agency | |
Para. 70 | Floating charges | |
Para. 71 | Fixed charges | |
Para. 72 | Hire-purchase property | |
Para. 73 | Protection for secured and preferential creditors | |
Para. 74 | Challenge to administrator’s conduct | For sub-para. (2) there is to be taken to be substituted—“(2) Where a company is in FMI administration, a creditor or member of the company may apply to the court claiming that the FMI administrator is conducting himself or herself in a manner preventing the achievement of the objective of the FMI administration as quickly and efficiently as is reasonably practicable.” |
Para. 75 | Misfeasance | In addition to applications that may anyway be made under para. 75, an application may be made by the FMI administrator or the Bank of England. |
Para. 79 | Court ending administration on application of administrator | For sub-paras. (1) to (3) there are to be taken to be substituted—“(1) On an application made by a person mentioned in sub-paragraph (2), the court may provide for the appointment of an FMI administrator of a company to cease to have effect from a specified time.(2) The persons who may apply to the court under sub-paragraph (1) are—(a) the Bank of England;(b) with the consent of the Bank, the FMI administrator.” |
Para. 84 | Termination: no more assets for distribution | |
Para. 85 | Discharge of administration order | |
Para. 86 | Notice to Companies Registrar of end of administration | |
Para. 87 | Resignation | An FMI administrator may not resign under para. 87 without giving 28 days’ notice of the intention to do so to the Bank of England. |
Para. 88 | Removal | An application for an order removing an FMI administrator from office may be made only by or with the consent of the Bank of England. |
Para. 89 | Disqualification | The notice under sub-para. (2) must be given to the Bank of England. |
Paras. 90 and 91 | Replacement | Para. 91(1) applies as if the only person who could make an application were the Bank of England.Ignore para. 91(2). |
Para. 98 | Discharge | Ignore sub-paras. (2)(b) and (3). |
Para. 99 | Vacation of office: charges and liabilities | In the application of sub-para. (3), payments may be made only—in accordance with directions of the Bank of England, and if the Bank is satisfied that they will not prejudice the objective in section (Objective of FMI administration) of this Act. |
Paras. 100 to 103 | Joint administrators | An application under para. 103 may be made only by the Bank of England. |
Para. 104 | Validity | |
Para. 106 (and section 430 and Schedule 10) | Fines | |
Paras. 107 to 109 | Extension of time limits | |
Para. 110 | Amendment of provisions about time | An order under para. 110 may amend a provision of the Schedule as it applies by virtue of this Act (whether or not in the same way as it amends the provision as it applies otherwise). |
Para. 111 | Interpretation | |
Paras. 112 to 116 | Scotland |
Section | Subject | Modification or comment |
|---|---|---|
Section 233 | Utilities | |
Section 234 | Getting in company’s property | |
Section 235 | Duty to co-operate with office-holder | |
Section 236 | Inquiry into company’s dealings | |
Section 237 | Section 236: enforcement by court | |
Section 238 | Transactions at an undervalue (England and Wales) | |
Section 239 | Preferences (England and Wales) | |
Section 240 | Ss. 238 and 239: relevant time | |
Section 241 | Orders under ss. 238 and 239 | In considering making an order in reliance on section 241 the court must have regard to the objective in section (Objective of FMI administration) of this Act. Ignore subsections (2A)(a) and (3) to (3C). |
Section 242 | Gratuitous alienations (Scotland) | |
Section 243 | Unfair preferences (Scotland) | In considering the grant of a decree under subsection (5) the court must have regard to the objective in section (Objective of FMI administration) of this Act. |
Section 244 | Extortionate credit transactions | |
Section 245 | Avoidance of floating charges | |
Section 246 | Unenforceability of liens | |
Sections 386 and 387, and Schedule 6 (and Schedule 4 to the Pension Schemes Act 1993) | Preferential debts | |
Section 389 | Offence of acting without being qualified | Treat references to acting as an insolvency practitioner as references to acting as an FMI administrator. |
Section 390 | Persons not qualified to act | Treat references to acting as an insolvency practitioner as references to acting as an FMI administrator. |
Section 391 | Recognised professional bodies | An order under section 391 has effect in relation to any provision applied for the purposes of FMI administration. |
Sections 423 to 425 | Transactions defrauding creditors | In considering granting leave under section 424(1) or making an order in reliance on section 425, the court must have regard to the objective in section (Objective of FMI administration) of this Act. |
Sections 430 to 432 and Schedule 10 | Offences |
(2) The further modifications that may be made are confined to such modifications of—
(a) the 1986 Act, or(b) other enactments passed or made before this Act that relate to insolvency or make provision by reference to anything that is or may be done under the 1986 Act,(3) An order under this paragraph may also make modifications of the provisions of this Schedule.”
ScheduleFinancial market infrastructure transfer schemesApplication of Schedule1 This Schedule applies where—
(a) the court has made an FMI administration order in relation to a company (“the old company”), and(b) it is proposed that a transfer within section (Objective of FMI administration)(5) be made to another company (“the new company”).Interpretation of Schedule2 In this Schedule—
“FMI transfer scheme” has the meaning given by paragraph 4(1);“the new company” and “the old company” are to be read in accordance with paragraph 1;“third party”, in relation to an FMI transfer scheme or a modification of such a scheme, means a person other than the old company or the new company.FMI administrator to act on behalf of old company3 It is for the FMI administrator, while the FMI administration order is in force, to act on behalf of the old company in the doing of anything that it is authorised or required to do by or under this Schedule.
Making of FMI transfer schemes4 (1) The old company may—
(a) with the consent of the new company, and(b) for the purpose of giving effect to the proposed transfer,make a scheme under this Schedule for the transfer of property, rights and liabilities from the old company to the new company (an “FMI transfer scheme”).(2) Such a scheme may be made only at a time when the FMI administration order is in force in relation to the old company.
(3) An FMI transfer scheme may set out the property, rights and liabilities to be transferred in one or more of the following ways—
(a) by specifying or describing them in particular,(b) by identifying them generally by reference to, or to a specified part of, the undertaking of the old company, or?(c) by specifying the manner in which they are to be determined.(4) An FMI transfer scheme is to take effect in accordance with paragraph 7 at the time appointed by the court.
(5) But the court must not appoint a time for a scheme to take effect unless that scheme has been approved by the Bank of England.
(6) The Bank of England may modify an FMI transfer scheme before approving it, but only modifications to which both the old company and the new company have consented may be made.
(7) In deciding whether to approve an FMI transfer scheme, the Bank of England must have regard, in particular, to—Before approving an FMI transfer scheme, the Bank of England must consult the Treasury.The old company and the new company each have a duty to provide the Bank of England with all information and other assistance that the Bank may reasonably require for the purposes of, or in connection with, the exercise of the powers conferred on it by this paragraph.
(a) the public interest, and(b) any effect that the scheme is likely to have on the interests of third parties.Provision that may be made by a scheme5 (1) An FMI transfer scheme may contain provision—
(a) for the creation, in favour of the old company or the new company, of an interest or right in or in relation to property transferred in accordance with the scheme;(b) for giving effect to a transfer to the new company by the creation, in favour of that company, of an interest or right in or in relation to property retained by the old company;(c) for the creation of new rights and liabilities (including rights of indemnity and duties to indemnify) as between the old company and the new company;(d) in connection with any provision made under this sub-paragraph, provision making incidental provision as to the interests, rights and liabilities of other persons with respect to the property, rights and liabilities to which the scheme relates.(2) The property, rights and liabilities of the old company that may be transferred in accordance with an FMI transfer scheme include—
(a) property, rights and liabilities that would not otherwise be capable of being transferred or assigned by the old company;(b) property acquired, and rights and liabilities arising, in the period after the making of the scheme but before it takes effect;(c) rights and liabilities arising after it takes effect in respect of matters occurring before it takes effect;(d) property situated anywhere in the United Kingdom or elsewhere;(e) rights and liabilities under the law of a part of the United Kingdom or of a place outside the United Kingdom;(f) rights and liabilities under an enactment, EU instrument or subordinate legislation.(3) The transfers to which effect may be given by an FMI transfer scheme include transfers of interests and rights that are to take effect in accordance with the scheme as if there were—
(a) no such requirement to obtain a person’s consent or concurrence,(b) no such liability in respect of a contravention of any other requirement, and(c) no such interference with any interest or right, as there would be, in the case of a transaction apart from this Act, by reason of a provision falling within sub-paragraph (4).(4) A provision falls within this sub-paragraph to the extent that it has effect (whether under an enactment or agreement or otherwise) in relation to the terms on which the old company is entitled, or subject, to anything to which the transfer relates.
(5) Sub-paragraph (6) applies where (apart from that sub-paragraph) a person would be entitled, in consequence of anything done or likely to be done by or under this Act in connection with an FMI transfer scheme—
(a) to terminate, modify, acquire or claim an interest or right, or(b) to treat an interest or right as modified or terminated.(6) That entitlement—
(a) is not enforceable in relation to that interest or right until after the transfer of the interest or right by the scheme, and(b) is then enforceable in relation to the interest or right only in so far as the scheme contains provision for the interest or right to be transferred subject to whatever confers that entitlement.(7) Sub-paragraphs (3) to (6) have effect where shares in a subsidiary of the old company are transferred—
(a) as if the reference in sub-paragraph (4) to the terms on which the old company is entitled or subject to anything to which the transfer relates included a reference to the terms on which the subsidiary is entitled or subject to anything immediately before the transfer takes effect, and(b) in relation to an interest or right of the subsidiary, as if the references in sub-paragraph (6) to the transfer of the interest or right included a reference to the transfer of the shares.(8) Sub-paragraphs (3) and (4) apply to the creation of an interest or right by an FMI transfer scheme as they apply to the transfer of an interest or right.
Further provision about transfers6 (1) An FMI transfer scheme may make incidental, supplemental, consequential and transitional provision in connection with the other provisions of the scheme.
(2) An FMI transfer scheme may in particular make provision, in relation to a provision of the scheme—Sub-paragraph (2)(c) does not apply to references in an enactment or in subordinate legislation.
(a) for the new company to be treated as the same person in law as the old company;?(b) for agreements made, transactions effected or other things done by or in relation to the old company to be treated, so far as may be necessary for the purposes of or in connection with a transfer in accordance with the scheme, as made, effected or done by or in relation to the new company;(c) for references in an agreement, instrument or other document to the old company or to an employee or office holder with the old company to have effect, so far as may be necessary for the purposes of or in connection with a transfer in accordance with the scheme, with such modifications as are specified in the scheme;(d) that the effect of any transfer in accordance with the scheme in relation to contracts of employment with the old company is not to terminate any of those contracts but is to be that periods of employment with that company are to count for all purposes as periods of employment with the new company;(e) for proceedings commenced by or against the old company to be continued by or against the new company. (4) An FMI transfer scheme may make provision for disputes between the old company and the new company as to the effect of the scheme to be referred to such arbitration as may be specified in or determined under the scheme.
(5) Where a person is entitled, in consequence of an FMI transfer scheme, to possession of a document relating in part to the title to land or other property in England and Wales, or to the management of such land or other property—
(a) the scheme may provide for that person to be treated as having given another person an acknowledgement in writing of the right of that other person to production of the document and to delivery of copies of it, and(b) section 64 of the Law of Property Act 1925 (production and safe custody of documents) is to have effect accordingly, and on the basis that the acknowledgement did not contain an expression of contrary intention.(6) Where a person is entitled, in consequence of an FMI transfer scheme, to possession of a document relating in part to the title to land or other property in Scotland or to the management of such land or other property, subsections (1) and (2) of section 16 of the Land Registration (Scotland) Act 1979 (omission of certain clauses in deeds) is to have effect in relation to the transfer—
(a) as if the transfer had been effected by deed, and(b) as if the words “unless specially qualified” were omitted from each of those subsections.(7) Where a person is entitled, in consequence of an FMI transfer scheme, to possession of a document relating in part to the title to land or other property in Northern Ireland or to the management of such land or other property—
(a) the scheme may provide for that person to be treated as having given another person an acknowledgement in writing of the right of that other person to production of the document and to delivery of copies of it, and(b) section 9 of the Conveyancing Act 1881 is to have effect accordingly, and on the basis that the acknowledgement does not contain an expression of contrary intention.(8) In this paragraph references to a transfer in accordance with an FMI transfer scheme include references to the creation in accordance with such a scheme of an interest, right or liability.
Effect of scheme7 (1) In relation to each provision of an FMI transfer scheme for the transfer of property, rights or liabilities, or for the creation of interests, rights or liabilities—
(a) the property, interests, rights or liabilities become by virtue of this Schedule the property, interests, rights or liabilities of the transferee at the time appointed by the court for the purposes of paragraph 4(4), and(b) the provisions of that scheme in relation to that property, or those interests, rights or liabilities, have effect from that time.(2) In this paragraph “the transferee” means—
(a) in relation to property, rights or liabilities transferred by an FMI transfer scheme, the new company;(b) in relation to interests, rights or liabilities created by such a scheme, the person in whose favour, or in relation to whom, they are created.Subsequent modification of scheme8 (1) The Bank of England may by notice to the old company and the new company modify an FMI transfer scheme after it has taken effect, but only modifications to which both the old company and the new company have consented may be made.
(2) The notice must specify the time at which it is to take effect (the “modification time”).
(3) Where a notice is issued under this paragraph in relation to an FMI transfer scheme, as from the modification time, the scheme is for all purposes to be treated as having taken effect, at the time appointed for the purposes of paragraph 4(4), with the modifications made by the notice.
(4) Those modifications may make—
(a) any provision that could have been included in the scheme when it took effect at the time appointed for the purposes of paragraph 4(4), and transitional provision in connection with provision falling within paragraph (a).(5) In deciding whether to modify an FMI transfer scheme, the Bank of England must have regard, in particular, to—
(a) the public interest, and(b) any effect that the modification is likely to have on the interests of third parties.(6) Before modifying an FMI transfer scheme that has taken effect, the Bank of England must consult the Treasury.?The old company and the new company each have a duty to provide the Bank of England with all information and other assistance that the Bank may reasonably require for the purposes of, or in connection with, the exercise of the powers conferred on it by this paragraph.
Provision relating to foreign property9 (1) An FMI transfer scheme may contain provision about—
(a) the transfer of foreign property, right and liabilities, and(b) the creation of foreign property, rights and liabilities.(2) For this purpose property, or a right, interest or liability, is “foreign” if an issue relating to it arising in any proceedings would (in accordance with the rules of private international law) be determined under the law of a country or territory outside the United Kingdom.
Application of Schedule to transfers to subsidiaries10 Where a proposed transfer falling within subsection (5) of section (Objective of FMI administration) is a transfer of the kind mentioned in subsection (6)(a) of that section, this Schedule has effect in relation to the transfer as if—
(a) paragraph 4(1)(a) were omitted, and(b) in paragraph 4(6), for the words from “both” onwards there were substituted “the old company has consented may be made”.”
ScheduleFunctions of FCA under competition legislationPart 1Amendments of Financial Services and Markets Act 20001 Part 16A of FSMA 2000 (consumer protection and competition) is amended as follows.
2 Omit section 234H (power of FCA to make request to Office of Fair Trading).
3 After section 234H insert—
“234I Matters in relation to which the FCA has competition functions
(1) In sections 234J and 234K “financial sector activities” means the provision of financial services.
(2) The Treasury may by order amend this section.
234J The FCA’s functions under Part 4 of the Enterprise Act 2002
(1) The functions to which this subsection applies (“the concurrent functions”) are to be concurrent functions of the FCA and the Competition and Markets Authority (referred to in this Part as “the CMA”).
(2) Subsection (1) applies to the functions of the CMA under Part 4 of the Enterprise Act 2002 (market investigations), so far as those functions—
(a) are exercisable by the CMA Board (within the meaning of Schedule 4 to the Enterprise and Regulatory Reform Act 2013), and(b) relate to financial sector activities.(3) But subsection (1) does not apply to functions under the following sections of the Enterprise Act 2002—
section 166 (duty to maintain register of undertakings and orders);section 171 (duty to publish guidance).(4) So far as is necessary for the purposes of, or in connection with, subsections (1) and (2)—
(a) references in Part 4 of the Enterprise Act 2002 to the CMA (including references in provisions of that Act applied by that Part) are to be read as including references to the FCA, and(b) references in that Part to section 5 of that Act are to be read as including references to section 234N of this Act.(5) But subsection (4) does not apply—
(a) in relation to section 166 or 171 of that Act, or(b) where the context otherwise requires.(6) Section 130A of the Enterprise Act 2002 has effect in relation to the FCA by virtue of subsections (1) and (2) as if—
(a) in subsection (2)(a) of that section, the reference to the acquisition or supply of goods or services of one or more than one description in the United Kingdom were a reference to financial sector activities involving services provided or received in the United Kingdom, and(b) in subsection (2)(b) of that section, the reference to the extent to which steps can and should be taken were a reference to the extent to which steps that might include steps under Part 4 of that Act can and should be taken.(7) Before the CMA or the FCA first exercises any of the concurrent functions in relation to any matter, it must consult the other.
(8) Neither the CMA nor the FCA may exercise any of the concurrent functions in relation to any matter if any of those functions have been exercised in relation to that matter by the other.
234K The FCA’s functions under the Competition Act 1998
(1) The functions to which this subsection applies (“the concurrent functions”) are to be concurrent functions of the FCA and the CMA.
(2) Subsection (1) applies to the functions of the CMA under the provisions of Part 1 of the Competition Act 1998, so far as relating to any of the following that relate to financial sector activities—
(a) agreements, decisions or concerted practices of the kind mentioned in section 2(1) of that Act,(b) conduct of the kind mentioned in section 18(1) of that Act,(c) agreements, decisions or concerted practices of the kind mentioned in Article 101(1) of the Treaty on the Functioning of the European Union, and(d) conduct which amounts to abuse of the kind mentioned in Article 102 of the Treaty on the Functioning of the European Union.(3) But subsection (1) does not apply to functions under the following provisions of that Act—
section 31D(1) to (6) (duty to publish guidance);section 38(1) to (6) (duty to publish guidance about penalties);section 40B(1) to (4) (duty to publish statement of policy on penalties);section 51 (rules).(4) So far as necessary for the purposes of, or in connection with, the provisions of subsections (1) and (2), references to the CMA in Part 1 of the Competition Act 1998 are to be read as including references to the FCA.
(5) But subsection (4) does not apply—
(a) in relation to sections 31D(1) to (6), 38(1) to (6), 40B(1) to (4), 51, 52(6) and (8) and 54 of that Act, or(b) where the context otherwise requires. 234L Duty to consider exercise of powers under Competition Act 1998
(1) Before exercising a power listed in subsection (3), the FCA must consider whether it would be more appropriate to proceed under the Competition Act 1998.
(2) The FCA must not exercise such a power if it considers that it would be more appropriate to proceed under the Competition Act 1998.
(3) Those powers are—
(a) the power under section 55J(2) to vary or cancel a Part 4A permission;(b) the power under section 55L to impose a requirement on an authorised person with a Part 4A permission, or to vary a requirement imposed under that section;(c) the power to take action under section 88E;(d) the power to take action under section 89U;(e) the power to give a direction under section 192C;(f) the power to impose a requirement under section 196.234M Provision of information and assistance to a CMA group
(1) For the purpose of assisting a CMA group in carrying out a relevant investigation, the FCA must give the CMA group—
(a) any relevant information which the FCA has in its possession, and(b) any other assistance which the CMA group may reasonably require in relation to any matters falling within the scope of the investigation.(2) A “relevant investigation” is an investigation carried out on a reference made by the FCA under section 131 of the Enterprise Act 2002 by virtue of section 234J.
(3) “Relevant information”, in relation to a relevant investigation, is information—
(a) which relates to matters falling within the scope of the investigation, and(b) which—(i) is requested by the CMA group for the purpose of the investigation, or(ii) in the FCA’s opinion, it would be appropriate to give to the CMA group for that purpose.(4) A CMA group, in carrying out a relevant investigation, must take into account any information given to it under this section.
(5) In this section “CMA group” has the same meaning as in Schedule 4 to the Enterprise and Regulatory Reform Act 2013.
234N Information relating to FCA’s competition functions
(1) For the purpose of the functions conferred on it by sections 234J to 234M the FCA is to have the function of keeping under review the market for financial services.
(2) The function conferred by subsection (1) is to be carried out with a view to (among other things) ensuring that the FCA has sufficient information to take informed decisions and to carry out its other functions effectively.
234O Exclusion of general duties
(1) Section 1B (the FCA’s general duties) does not apply in relation to anything done by the FCA in the carrying out of its functions by virtue of sections 234J to 234M.
(2) But in the carrying out of any functions by virtue of sections 234J to 234M, the FCA may have regard to any of the matters in respect of which a duty is imposed by section 1B if it is a matter to which the CMA is entitled to have regard in the carrying out of those functions.
234P Supplementary provision
(1) If any question arises as to whether, by virtue of sections 234J and 234K, any functions fall to be, or are capable of being, carried out by the FCA in relation to any particular case, that question is to be referred to, and determined by, the Treasury.
(2) No objection is to be taken to anything done under the Competition Act 1998 or Part 4 of the Enterprise Act 2002 by or in relation to the FCA on the ground that it should have been done by or in relation to the CMA.”
4 In section 3I of FSMA 2000 (power of PRA to require FCA to refrain from specified action), in subsection (3)(a), after “55I” insert “, a power conferred on it by sections 234J to 234N”.
5 In section 354A of FSMA 2000 (FCA’s duty to co-operate with others), after subsection (2) insert—
“(2A) Subsection (1) does not apply in relation to the Competition and Markets Authority in a case where the FCA has made a reference under section 131 of the Enterprise Act 2002 as a result of section 234J (but see section 234M).”
6 (1) Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority) is amended as follows.
(2) In paragraph 8 (arrangements for discharging functions), after sub-paragraph (4) insert—
“(5) In respect of the exercise of a function under Part 1 of the Competition Act 1998, the power in sub-paragraph (1) is subject to provision in rules made under section 51 of that Act by virtue of paragraph 1A of Schedule 9 to that Act.”(3) In paragraph 23 (fees), after sub-paragraph (2) insert—
“(2A) The functions referred to in sub-paragraph (1)(a) include functions of the FCA under the Competition Act 1998 or the Enterprise Act 2002 as a result of Part 16A of this Act.”Part 2Amendments of other legislationCompany Directors Disqualification Act 19867 In section 9E of the Company Directors Disqualification Act 1986 (interpretation of sections 9A to 9D), in subsection (2), after paragraph (g) insert—
“(h) the Financial Conduct Authority.”Competition Act 19988 In section 54 of the Competition Act 1998 (regulators), in subsection (1), after paragraph (i) insert—
“(j) the Financial Conduct Authority.”Enterprise Act 20029 (1) Section 136 of the Enterprise Act 2002 (investigations and reports on market investigation references) is amended as follows.
(2) In subsection (7), after paragraph (e) insert—
“(ea) in relation to the Financial Conduct Authority, section 234J of the Financial Services and Markets Act 2000;”.(3) In subsection (8), after “the Office of Rail Regulation,” insert “the Financial Conduct Authority,”.
Enterprise and Regulatory Reform Act 201310 In section 52(4) of the Enterprise and Regulatory Reform Act 2013 (power to remove concurrent competition functions of sectoral regulators), after paragraph (g) insert—
“(h) the Financial Conduct Authority.”11 In Schedule 4 to the Enterprise and Regulatory Reform Act 2013 (the Competition and Markets Authority), in paragraph 16 (concurrency report), at the end of sub-paragraph (7) insert—
“(i) the Financial Conduct Authority.””
ScheduleBuilding societiesIntroductory1 The Building Societies Act 1986 is amended as follows.
Exclusion of small business deposits from funding limit2 (1) Section 7 (the funding limit) is amended as follows.
(2) In subsection (3), omit the “and” at the end of paragraph (a) and after that paragraph insert—
“(aa) subject to subsection (3A), the principal of, and interest accrued on, sums deposited with the society or any subsidiary undertaking of the society by a small business (see subsection (10));”.(3) After subsection (3) insert—
“(3A) In respect of any day by reference to which the value of X falls to be calculated for the purposes of subsection (1) in relation to the society, the total amount to be disregarded under subsection (3)(aa) may not exceed 10% of the amount that would, in the absence of subsection (3)(aa), be the value of X on that day.”
(4) After subsection (6) insert—
“(6ZA) Where a person declares that the person is a small business, the person shall, unless the contrary is shown, be conclusively presumed for the purposes of this section to be a small business.”
(5) After subsection (9) insert—
“(10) In this section “small business” means any person (other than an individual acting as a sole trader) carrying on a business which had a turnover in the relevant financial year of less than £1,000,000.
“(11) For the purposes of subsection (10)—
(a) the “relevant financial year”, in relation to any day by reference to which the value of X falls to be calculated for the purposes of subsection (1) in relation to a building society, means the last financial year ending before that day;(b) “turnover”, in relation to a small business, means the amount derived from the provision of goods and services falling within the business’s ordinary activities, after deduction of trade discounts, value added tax and any other taxes based on the amounts so derived;(c) in respect of any relevant financial year, the reference to £1,000,000 includes the equivalent amount in any other currency, calculated as at the last day of that year.(12) The Treasury may, by order made by statutory instrument, amend the figure for the time being specified in subsections (10) and (11)(c).
(13) A statutory instrument containing an order under subsection (12) is subject to annulment in pursuance of a resolution of either House of Parliament.”
3 (1) In article 3 of the Building Societies Act 1986 (Substitution of Specified Amounts and Modification of the Funding Limits Calculation) Order 2007 (S.I. 2007/860), in paragraph 3, for “the modification required by this article” substitute “the modifications required by this article and by section 7(3)(aa)”.
(2) The amendment by this paragraph of a provision contained in subordinate legislation is without prejudice to any power to amend that provision by subordinate legislation.
Ability to create floating charges4 (1) Omit section 9B (restriction on creation of floating charges).
(2) In Schedule 15A (application of other companies insolvency legislation to building societies), omit the following paragraphs—
(a) paragraph 18 (which modifies section 15 of the Insolvency Act 1986);(b) paragraph 20 (which modifies section 19 of that Act);(c) paragraph 40 (which modifies Article 28 of the Insolvency (Northern Ireland) Order 1989);(d) paragraph 42 (which modifies Article 31 of that Order).(3) In consequence of the amendment made by sub-paragraph (1)—
(a) in section 1(1A)(b), for “, 9A and 9B” substitute “and 9A”;(b) in the Building Societies Act 1997, omit section 11;(c) in section 11(3) of the Banking (Special Provisions) Act 2008, for paragraph (c) substitute— “(c) sections 8 and 9A of the Building Societies Act 1986 (restrictions on raising funds and borrowing and on transactions involving derivative instruments etc);”;(d) in section 251 of the Banking Act 2009, omit subsection (7);(e) in the Financial Services Act 2012, omit section 55.Annual business statements5 (1) Section 74 (duty of directors to prepare annual business statement) is amended as follows.
(2) In subsection (4), omit the words from “and other officers” to “them”.
(3) In subsection (8), omit “or other officer”.
Summary financial statements6 (1) Section 76 (summary financial statement for members and depositors) is amended as follows.
(2) After subsection (8A) insert—
“(8AA) The society shall also—
(a) publish the summary financial statement and (where applicable) the auditor’s report on a web site, and(b) ensure that the statement and (where applicable) the report may be accessed on the web site until the publication of the next summary financial statement.”(3) After subsection (8D) insert—
“(8E) If, at any time during the period beginning with the publication of the summary financial statement and ending with the publication of the next summary financial statement, an individual for the first time subscribes for shares in the society, the society shall at that time notify the individual of the information in subsection (8C)(c)(i) to (iii).
(8F) In a case where subsection (8E) applies, the society is not required under section 115B (right to hard copy version) to send the individual a version of the summary financial statement or (where applicable) the auditor’s report in hard copy form (within the meaning of that section).”
(4) Omit subsections (9) to (9E).
(5) In subsection (11), for “subsection (9)” substitute “subsection (8AA) or (8E)”.
7 In consequence of the amendments made by paragraph 6—
(a) in section 78(6), for “subsections (8) and (9) of section 76 extend” substitute “subsection (8) of section 76 extends”;(b) in paragraphs 7(3) and 8(3) of Schedule 2, omit “the summary financial statement,”.Transfers of business: distributions and share rights8 (1) Section 100 (regulated terms etc: distributions and share rights) is amended as follows.
(2) For subsection (8) substitute—
“(8) The terms of a transfer of a society’s business may confer a right to acquire shares in the successor on a member of the society only if the member—
(a) held shares in the society throughout the period of two years ending with the qualifying day, or(b) on that day, holds deferred shares in the society that are of a class described in the transfer agreement;and it is unlawful for any right in relation to shares to be conferred in contravention of this subsection.”(3) In subsection (9), for the words from “who” to “and” substitute “who—
(a) held shares in the society throughout the period of two years ending with the qualifying day, or(b) on that day, hold deferred shares in the society that are of a class described in the transfer agreement;and”.Methods of communicating with members etc9 After section 115 insert—
“115A Deemed agreement to use of web site
(1) For the purposes of this Act, a person is to be taken to have agreed with a building society to access a document, information or facility on a web site if—
(a) the person has been asked individually by the society to agree to access documents, information or facilities generally, or documents, information or facilities of the description in question, on a web site, and(b) the society has not received a response within the period of 28 days beginning with the date on which the society’s request was received.This is subject to subsections (2) to (4).(2) A person is not to be taken to have so agreed if the society’s request—
(a) did not state clearly what the effect of a failure to respond would be, or(b) was sent less than 12 months after a previous request made to the person for the purposes of this section in respect of the same or a similar description of document, information or facility.(3) A person who is taken to have made an agreement by virtue of subsection (1) may revoke the agreement.
(4) Subsection (1) does not apply in relation to the following documents—
(a) a statement required to be sent to members by paragraph 1(1) of Schedule 16 (statements in connection with proposed mergers);(b) a merger statement (within the meaning of Part 2 of that Schedule) required to be sent to members by paragraph 3 of that Schedule;(c) a transfer statement or transfer summary (within the meaning of Part 1 of Schedule 17) required to be sent to members by paragraph 4(1) or (2) of that Schedule;(d) a transfer proposal notification (within the meaning of Part 1A of Schedule 17) required to be sent to members by paragraph 5B(1) of that Schedule.115B Right to hard copy version
(1) Where a person has received a document or information from a building society otherwise than in hard copy form, the person is entitled to require the society to send the person a version of the document or information in hard copy form.
(2) The society must send the document or information in hard copy form within 21 days of receipt of the request from the person.
(3) The society may not make a charge for providing the document or information in that form.
(4) Subsection (1) does not apply if the recipient of the document or information is the FCA or the PRA.
(5) A building society that fails to comply with this section is to be treated as having contravened rules made under section 137A of the Financial Services and Markets Act 2000.
(6) For the purposes of this section a person is treated as receiving a document or information from a building society if—
(a) the society is required by this Act to send the document or information to the person, and(b) the requirement to send it is treated as satisfied.(7) For the purposes of this section—
(a) a document or information is sent or supplied in hard copy form if it is sent or supplied in a paper copy or similar form capable of being read, and(b) a document or information can be read only if it can be read with the naked eye, or (to the extent that it consists of images) it can be seen with the naked eye.115C Other agreed forms of communication
(1) A document or information that is sent or supplied by a building society otherwise than in hard copy form or electronically or by means of a web site is validly sent or supplied if it is sent or supplied in a form or manner that has been agreed by the intended recipient.
(2) For the purposes of this section “hard copy form” is to be read in accordance with section 115B(7).”
10 In the following provisions, omit “, in a manner agreed between him and the society,”—
section 60(7B)(c),section 61(7D)(c),section 68(6B)(c),section 69(15B)(c),section 76(8C)(c).11 In section 81(3B)(c), omit “, in a manner agreed for the purpose between him and the society,”.
12 (1) Schedule 2 is amended as follows.
(2) In paragraph 20A(1B)(c), omit “, in a manner agreed between him and the society,”.
(3) In paragraphs 22B(2)(c) and 33(5C)(c), omit “, in a manner agreed between him and the society for that purpose,”.
(4) In paragraph 24(1B)(b), omit “in a manner agreed between the society and that member,”.
(5) In paragraph 32(2D)(c), omit “, in a manner agreed between the society and the member,”.
(6) In paragraph 33A(9)(c), omit “, in a manner agreed for the purpose between him and the society”.
13 In paragraphs 3(2B)(c) and 9(2B)(c) of Schedule 8A, omit “in a manner agreed between the society and that person,”.
14 (1) Schedule 11 is amended as follows.
(2) In paragraph 4(9C)(c), omit “, in a manner agreed between him and the society,”.
(3) In paragraph 7(7C)(c), for “in a manner agreed between the society and that person, he” substitute “the person”.
(4) In paragraph 8(3B)(c), omit “, in a manner agreed between him and the society for the purpose,”.
Financial year15 (1) Section 117 (financial year of building societies) is amended as follows.
(2) For subsection (1) substitute—
“(1) A building society’s financial years (apart from its final financial year) are determined according to its year-end date in each calendar year.
For provision about a building society’s final financial year, see subsection (1G).(1A) The year-end date of a building society established before 25th August 1894 is—
(a) the date up to which, as at 1st January 1987, the accounts of the society were annually made up, or(b) if the society has, at any time before the day on which subsection (1) comes into force (“the relevant day”), altered its financial year in exercise of a power within subsection (1B), 31st December.(1B) The powers referred to in subsection (1A)(b) are—
(a) the power conferred by section 70(2) of the Building Societies Act 1960,(b) the power conferred by section 128(2) of the Building Societies Act 1962, and(c) the power conferred by subsection (3) of this section (as it had effect immediately before the relevant day).(1C) The year-end date of a building society established on or after 25th August 1894 and before the relevant day is 31st December.
(1D) The year-end date of a building society established on or after the relevant day is the last day of the month in which the anniversary of its establishment falls.
(1E) The financial year of a building society established before the relevant day is the period of 12 months ending with the year-end date of the society (but see subsection (1G)).
(1F) In the case of a building society established on or after the relevant day—
(a) the initial financial year of the society shall be the period of more than 6 months, but not more than 18 months, beginning with the date of its establishment and ending with its year-end date, and(b) its subsequent financial years are successive periods of 12 months beginning immediately after the end of the previous financial year and ending with its year-end date (but see subsection (1G)).(1G) The final financial year of a building society is a period of less than 12 months that begins immediately after the end of the previous financial year and ends with the date as at which the society makes up its final accounts.
(1H) This section has effect subject to section 117A (alteration of financial year).”
(3) Omit subsections (2) and (3).
16 After section 117 insert—
“117A Alteration of financial year
(1) A building society may by notice given to the FCA specify a new year-end date.
(2) A notice given under subsection (1) has effect in relation to—
(a) the financial year in which the notice is given (“the current financial year”), and(b) subsequent financial years.(3) The notice must state whether the current financial year—
(a) is to be shortened, so as to come to an end on the first occasion on which the new year-end date falls or fell after the beginning of the current financial year, or(b) is to be extended, so as to come to an end on the second occasion on which that date falls or fell after the beginning of the current financial year.(4) A notice extending a building society’s financial year is not effective if given less than 5 years after the end of an earlier financial year of the society that was extended under this section.
(5) A financial year of a building society may not be extended so as to exceed 18 months and a notice under subsection (1) is ineffective if the current financial year as extended in accordance with the notice would exceed that limit.”
17 In Schedule 20 (transitional and saving provisions), omit paragraph 16 (existing financial years).
18 The amendments made by paragraphs 15 to 17 have effect in relation to financial years beginning on or after the day on which those amendments come into force.”
Lord Newby
“2A (1) Part 25 of FSMA 2000 (injunctions and restitution) is amended as follows.
(2) In section 380 (injunctions), in subsection (6)(a), omit the “or” at the end of sub-paragraph (i) and after sub-paragraph (ii) insert “or
(iii) which is imposed by Part 7 of the Financial Services Act 2012 (offences relating to financial services) and whose contravention constitutes an offence under that Part;”. “(3) In section 382 (restitution orders), in subsection (9)(a), omit the “or” at the end of sub-paragraph (i) and after sub-paragraph (ii) insert “or
(iii) which is imposed by Part 7 of the Financial Services Act 2012 (offences relating to financial services) and whose contravention constitutes an offence under that Part;”.(4) In section 384 (power of FCA or PRA to require restitution), in subsection (7), omit the “and” at the end of paragraph (a) and after paragraph (b) insert “or
(c) a requirement which is imposed by Part 7 of the Financial Services Act 2012 (offences relating to financial services) and whose contravention constitutes an offence under that Part.””
Lord Newby
These amendments address a minor and technical point in connection with Sections 380, 382, and 384 of FiSMA, which govern when the regulators may seek an injunction or a restitution order from the court, or require restitution themselves. To exercise these powers, the regulator must demonstrate that the person concerned has contravened a “relevant requirement”. The current definition of “relevant requirement” in FiSMA does not include the new offences created under Part 7 of the Financial Services Act 2012, which deal with misleading statements, misleading impressions, and misleading statements in relation to benchmarks such as LIBOR. This means that regulators are unable to seek an injunction or restitution in relation to these offences. That was not the Government’s intention. These amendments correct this oversight by extending the definition of “relevant requirement” to bring these offences within the scope of the regulators’ powers to seek an injunction or restitution. I commend these amendments to the House.
Lord Newby
“2B (1) In Schedule 1ZA to FSMA 2000 (the Financial Conduct Authority), paragraph 20 (penalties) is amended as follows.
(2) In sub-paragraph (3)(b), after “this Act” insert “or under a provision mentioned in sub-paragraph (4A)”.
(3) In sub-paragraph (4), after paragraph (c) insert—
“(ca) its powers under the relevant competition provisions (as applied by Part 16A of this Act),”.(4) After sub-paragraph (4) insert—
“(4A) “The relevant competition provisions” are—(a) section 31E of the Competition Act 1998 (enforcement of commitments);(b) section 34 of that Act (enforcement of directions);(c) section 36 of that Act (penalties);(d) section 40A of that Act (penalties: failure to comply with requirements);(e) section 174A of the Enterprise Act 2002 (penalties).”(5) In sub-paragraph (5)—
(a) in paragraph (a), for “FSMA 2000” substitute “this Act”,(b) in paragraph (b), for “that Act” substitute “this Act”,(c) in paragraph (c), omit “of that Act”, and(d) after paragraph (c) insert— “(ca) offences under Part 1 of the Competition Act 1998,(cb) offences under Part 4 of the Enterprise Act 2002,”.”
Lord Newby
“(2) A statutory instrument containing an order or regulations under this Act is subject to annulment in pursuance of a resolution of either House of Parliament, unless—
(a) the instrument contains only provision made under section 21 (commencement), or(b) the instrument is required by subsection (4) or any other enactment to be laid in draft before, and approved by a resolution of, each House.(3) Subsection (4) applies to a statutory instrument that contains (with or without other provisions)—
(a) regulations under section 8 (building societies: power to make provision about ring-fencing);(b) an order under section (Meaning of “payment system”)(4) (meaning of “payment system”);(c) an order under section (Power to make further consequential amendments) (power to make further consequential amendments) that amends or repeals primary legislation;(d) an order under paragraph 6 of Schedule (Conduct of FMI administration) (conduct of FMI administration).(4) A statutory instrument to which this subsection applies may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(5) In subsection (3)(c) “primary legislation” means—
(a) an Act of Parliament,(b) an Act of the Scottish Parliament,(c) a Measure or Act of the National Assembly for Wales, or(d) Northern Ireland legislation.”
Lord Newby
My Lords, these are technical amendments relating to a number of the new powers introduced to the Bill as a result of the Government’s amendments in your Lordships’ House.
Amendment 113A amends Clause 17 of the Bill to specify the procedures applying to statutory instruments made under the new powers. It provides that the affirmative resolution procedure will apply to: orders made by the Treasury to exclude certain systems from the definition of “payment systems” for the purposes of the new clauses establishing the new payments regulator; orders to make amendments, which are consequential to the Bill, to other primary legislation, under the power introduced by the second amendment in this group, to which I will return in a minute; and orders made under paragraph 6 of the schedule on the conduct of financial market infrastructure administration, which allows the Treasury to make further modifications to primary legislation to make appropriate provision for FMI administration. Orders made under other provisions of the Bill will be subject to the negative resolution procedure, unless they are required to be made using the affirmative procedure, or they are commencement orders.
Amendment 114 enables the Treasury to make amendments consequential to the Bill—and any statutory instruments made under it—to other primary and secondary legislation. For example, it is likely that this power will be used to bring other legislation in line with the terminology of the new senior managers regime. This power can be used only in certain circumstances and the Treasury can make orders under the power only if it considers it necessary or expedient to do so as a consequence of a provision in the Bill. Furthermore, the power applies only to legislation which is made before the Bill is passed, or which is made in the same Parliamentary Session in which the Bill is passed. I beg to move.
Lord Eatwell
My Lords, first, with respect to Amendment 113A, it is useful to see the use of the affirmative procedure here. However, the noble Lord will recall that the Delegated Powers Committee recommended an amendment which referred to the amendment of clauses that deal with ring-fencing. I asked more than two weeks ago how the Treasury would react to the Delegated Powers Committee in this respect and was told that I would receive a reply. I have not, as yet, received a reply. As we are now reaching the end of the Committee stage, it would be very helpful to know whether the Government are simply ignoring the Delegated Powers Committee, in which case we would require an explanation, or what the Government intend to do about this.
On Amendment 114, these powers are sometimes referred to as Henry VIII powers. Given this new clause, the good King Henry would regard it as rather excessive and would be taken aback by the power that the Treasury takes,
“amending, repealing, revoking or applying with modifications any enactment to which this section applies”.
The enactment applies to,
“any enactment passed or made before the passing of this Act”,
so, presumably, since the birth of Henry VIII. The new clause then refers to,
“any enactment passed or made on or before the last day”.
That I understand. What scrutiny will be given to these measures? We have been through a Committee stage which has identified a consistent rejection of proposals by the banking commission and particularly of the amendments that have been put forward. I have not heard the Government accept a single amendment put forward on behalf of the banking commission—not one—so there has been a consistent rejection of those. Now we are told that we will have the possibility of,
“amending, repealing, revoking or applying with modifications”,
a series of quite controversial measures in which the Government have attempted to water down the proposals of the banking commission. I would like to feel that I could get some reassurance that this power is to be used sparingly and is to be used only if there is some oversight or accountability to Parliament when it is used.
Lord Brennan
My Lords, it is the end of the legislative day in an empty Chamber. This is an extremely important amendment. It is what the noble and learned Lord, Lord Judge, our previous Lord Chief Justice, now on our Cross Benches, would have described, as he did in a speech in the City, as a “Henry VIII Plus” clause because it is so wide-ranging.
I want to make several points for the Government’s consideration between now and the next stage. The Banking (Special Provisions) Act 2008 and the Public Service Pensions Act 2013 were both Acts that included clauses not as wide as this coming from the Treasury. Researches over the past few hours have not led me to discover any other Act in which there is a clause that provides for any previous Act and also any subsequent Act to be amended to accord with this Act. I may be shown not to know, but I suspect that if there is such a clause, there will be no more than one or two examples. I am concerned that these should come from the Treasury, lest it thinks that it has some special reserve powers for this kind of legislative amendment procedure.
If I have understood the history of this amendment correctly, it has come in the past couple of weeks. As far as I know, it has not been considered either by the Delegated Powers Committee or by the Constitutional Affairs Committee. This is important because in 2006 the Legislative and Regulatory Reform Bill contained a Henry VIII clause, which was withdrawn by the then Government after a critique by the Constitutional Affairs Committee. I invite the Government’s consideration of this and that of the whole House, when it has had the opportunity to consider that matter.
Subsection (2)(b) refers to a power to amend any subsequent Act that is passed within this Session of Parliament. That means by the end of next April. In the Government’s commentary on the list of recommendations of the commission and the Government’s response paper of July 2013, item 41, dealing with directors’ duties, is the present subject of review with a supposed consideration of a report called Trust and Transparency. The Government are saying that they wish to deal with changing directors’ duties and that that requires legislation. If this is currently before the Treasury and the relevant Ministers, is this coming in within this Session? In item 60 on payments regulation, there is to be a government report to Parliament by the end of this year, 2013. It requires legislation. Will that require yet another Act? We need clarity. On the whistleblower point mentioned earlier, if there is to be a change in the law, will that require further enactment? The final point is on auditors and supervisors. There are various reviews from the Chancellor and the Government which, it is said, do not involve legislation but might involve action, which in turn might involve potential legislative effect.
That is three definite items and potentially a fourth that spring out of this topic, and we need clarity. If this is a banking reform Bill, it should be a complete Bill, and the rest of the Session should be geared to accommodate these matters. It is late in the day to ask for a considered response, but no doubt this can be dealt with in writing, and again when we next deal with the Bill.
Lord Turnbull
Because of the piecemeal way in which the Bill has been constructed, we now have a piecemeal presentation of the secondary legislation procedure as it applies to each bit—and I have completely lost track of it. The first thing that needs to be done is to set out, for the whole Bill—the bits that were there originally and the bits that have been added—what the secondary legislation provisions are. Then we can make a judgment on whether they are appropriate: whether the right things have been assigned to the negative procedure and the right things assigned to the positive procedure. However, it is virtually impossible to do this on the basis of this piecemeal presentation.
Amendment 114 raises enormous issues. The Minister is shaking his head and may try to reassure us, but there are important provisions here that need to go to various committees which we have set up in this House to examine such things.
Lord Newby
My Lords, three issues have been raised. The first is whether we have responded to the Delegated Powers Committee. I explained at some length last week what the Government’s response was. Subsequently, I wrote to the chair of the committee, reiterating what I had said. I am sorry if noble Lords have not seen the letter; I will make sure that it gets to them. I will repeat what I said and what the letter said.
The Government’s view, bearing in mind that the committee said it was for the House to decide and did not make a recommendation on the procedure to be followed, is that, given the technical nature of these statutory instruments, the best way forward, in the light of the Government’s response to the consultation process that they have just completed, is to invite noble Lords who are interested in the secondary legislation to the Treasury to have an informal discussion on the issues, and to see what they feel might be done, and whether any amendments are required. The Treasury does not have a fixed view on the detailed provision of that secondary legislation, and would welcome the further views of Members of your Lordships’ House.
Secondly, I find literally incredible the suggestion of the noble Lord, Lord Eatwell, that the Government took no account of the recommendations of the PCBS.
Lord Eatwell
Which amendment proposed by the PCBS have the Government accepted?
Lord Newby
The noble Lord may or may not remember that at the start of today’s discussions the noble Lord, Lord Lawson, pointed out that the size of the Bill had expanded multiple times. I admit that part of this relates to the Government’s amendments on bail-in. However, every other amendment is in order to implement a recommendation of the PCBS. That is what we spent nearly all of last week discussing.
Lord McFall of Alcluith
There is a real communication problem here. I was at a meeting with the noble Lords, Lord Turnbull and Lord Lawson, and with Andrew Tyrie, and they all complained about the expansion of the Bill from 35 pages to 199. If the Minister, incredibly, is saying that this is to help the Parliamentary Commission on Banking Standards, perhaps the Government should start communicating with us on this, because we are dismayed by the number of pages in the Bill, not accepting of it.
Lord Newby
My Lords, I am sorry; with the exception of the bail-in provisions, the expansion of the size of the Bill is specifically in order to implement recommendations of the parliamentary commission, such as the senior managers regime, the criminal sanctions and the enhanced electrification power. The reason that the Government have not today accepted everything that the PCBS has recommended is that we have already accepted the majority of the commission’s recommendations and put them in the Bill. It is simply not the case that we have accepted no recommendations of the parliamentary commission—quite the opposite.
The final issue is specifically about the powers in this amendment. The powers can only be used to make consequential amendments—that is, those which are needed to deal with the provisions passed in the Bill. The example I gave was in relation to the senior persons regime, and I can reassure the noble Lord, Lord Brennan, that there is nothing sinister or unusual in what is being proposed. These powers are commonly taken in Bills which make significant changes to existing law. I am very happy for Treasury lawyers to set out in a letter the precedents that these powers exactly replicate. The hour is late, but I can assure the House that we are not doing anything here that is in the slightest way unusual.
Lord Eatwell
Will the noble Lord agree that Amendment 114, at least, should be withdrawn until it can be considered by the Constitution Committee and the Delegated Powers and Regulatory Reform Committee? He has plenty of time to bring it back on Report if he then has substantial justification for it, and it would give considerable comfort to the Committee.
Lord Newby
My Lords, I do not think that we need to withdraw the amendment. As I say, it is a standard provision. Interestingly, the specific reason that I gave for requiring it relates to the implementation of a recommendation of the Parliamentary Commission on Banking Standards. However, as I say, this provision is not in any way unusual. Therefore, I do not believe it needs the process that the noble Lord suggests.
Lord Newby
“Power to make further consequential amendments
(1) The Treasury may by order make such provision amending, repealing, revoking or applying with modifications any enactment to which this section applies as they consider necessary or expedient in consequence of any provision made by or under this Act.
(2) This section applies to—
(a) any enactment passed or made before the passing of this Act, and(b) any enactment passed or made on or before the last day of the Session in which this Act is passed.(3) Amendments and repeals made under this section are additional to those made by or under any other provision of this Act.”
Lord Newby
“( ) Section (Building societies) and Schedule (Building societies), apart from paragraph 4 of that Schedule, come into force at the end of the period of 2 months beginning with the day on which this Act is passed.”
Lord Newby
Lord Newby
My Lords, this amendment is consequential upon government Amendments 60A to 60YYV introducing a Payments Systems Regulator, and government Amendments 61 to 78, 107 and 108 which introduced a special administration regime for the operators of financial market infrastructure companies. It amends the Long Title of this Bill to reflect the fact that its scope now extends to payment systems and securities settlement systems and therefore ensures that the Long Title matches the content of the Bill. I commend this amendment to your Lordships.