Financial Services (Banking Reform) Act 2013
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Financial Services (Banking Reform) Act 2013
2013 CHAPTER 33
An Act to make further provision about banking and other financial services, including provision about the Financial Services Compensation Scheme; to make provision for the amounts owed in respect of certain deposits to be treated as a preferential debt on insolvency; to make further provision about payment systems and securities settlement systems; to make provision about the accounts of the Bank of England and its wholly owned subsidiaries; to make provision in relation to persons providing claims management services; and for connected purposes.
[18th December 2013]
Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:-
PART 1
Ring-fencing
Ring-fencing
1 Objectives of Prudential Regulation Authority
(1) Section 2B of FSMA 2000 (the PRA's general objective) is amended as follows.
(2) In subsection (3)-
(a) at the end of paragraph (a), omit "and", and
(b) after paragraph (b) insert ", and
(i) ensure that the business of ring-fenced bodies is carried on in a way that avoids any adverse effect on the continuity of the provision in the United Kingdom of core services,
(ii) ensure that the business of ring-fenced bodies is protected from risks (arising in the United Kingdom or elsewhere) that could adversely affect the continuity of the provision in the United Kingdom of core services, and
(iii) minimise the risk that the failure of a ring-fenced body or of a member of a ring-fenced body's group could affect the continuity of the provision in the United Kingdom of core services."
(3) In subsection (4), for "subsection (3)" substitute "subsection (3)(a) and (b)".
(4) After subsection (4) insert-
"(4A) The matters referred to in subsection (3)(c) are-
(a) Part 9B (ring-fencing);
(b) ring-fenced bodies (see section 142A);
(c) any body corporate incorporated in the United Kingdom that has a ring-fenced body as a member of its group;
(d) applications under Part 4A which, if granted, would result, or would be capable of resulting, in a person becoming a ring-fenced body."
(5) In section 2J of FSMA 2000 (interpretation of Chapter 2 of Part 1)-
(a) in subsection (3), for "a PRA-authorised" substitute "an authorised",
(b) after that subsection insert-
"(3A) For the purposes of this Chapter, the cases in which a person ("P") other than an authorised person is to be regarded as failing include any case where P enters insolvency.", and
(c) in subsection (4), for "subsection (3)(a)" substitute "subsections (3)(a) and (3A)".
2 Modification of objectives of Financial Conduct Authority
After section 1I of FSMA 2000 insert-
"Modifications applying if core activity not regulated by PRA
1IA Modifications applying if core activity not regulated by PRA
(1) If and so long as any regulated activity is a core activity (see section 142B) without also being a PRA-regulated activity (see section 22A), the provisions of this Chapter are to have effect subject to the following modifications.
(a) in subsection (3), after paragraph (c) there were inserted-
"(d) in relation to the matters mentioned in section 1EA(2), the continuity objective (see section 1EA).", and
(b) in subsection (4), for "or the integrity objective," there were substituted ", the integrity objective or (in relation to the matters mentioned in section 1EA(2)) the continuity objective,".
(3) After section 1E there is to be taken to be inserted-
"1EA Continuity objective
(1) In relation to the matters mentioned in subsection (2), the continuity objective is: protecting the continuity of the provision in the United Kingdom of core services (see section 142C).
(a) Part 9B (ring-fencing);
(b) ring-fenced bodies (see section 142A);
(c) any body corporate incorporated in the United Kingdom that has a ring-fenced body as a member of its group;
(d) applications under Part 4A which, if granted, would result, or would be capable of resulting, in a person becoming a ring-fenced body.
(a) seeking to ensure that the business of ring-fenced bodies is carried on in a way that avoids any adverse effect on the continuity of the provision in the United Kingdom of core services,
(b) seeking to ensure that the business of ring-fenced bodies is protected from risks (arising in the United Kingdom or elsewhere) that could adversely affect the continuity of the provision in the United Kingdom of core services, and
(c) seeking to minimise the risk that the failure of a ring-fenced body or of a member of a ring-fenced body's group could adversely affect the continuity of the provision in the United Kingdom of core services.
(4) (4) In subsection (3)(c), "failure" is to be read in accordanc e with section 2J(3) to (4).""
3 Amendment of PRA power of direction
In section 3I of FSMA 2000 (power of PRA to require FCA to refrain from specified action), in subsection (4)-
(a) at the end of paragraph (a), omit "or", and
(c) threaten the continuity of core services provided in the United Kingdom."
4 Ring-fencing of certain activities
(1) After Part 9A of FSMA 2000 insert-
"PART 9B
Ring-fencing
Introductory
142A "Ring-fenced body"
(1) In this Act "ring-fenced body" means a UK institution which carries on one or more core activities (see section 142B) in relation to which it has a Part 4A permission.
(2) But "ring-fenced body" does not include-
(a) a building society within the meaning of the Building Societies Act 1986, or
(b) a UK institution of a class exempted by order made by the Treasury.
(3) An order under subsection (2)(b) may be made in relation to a class of UK institution only if the Treasury are of the opinion that the exemption conferred by the order would not be likely to have a significant adverse effect on the c ontinuity of the provision in the United Kingdom of core services.
(4) Subject to that, in deciding whether and, if so, how to exercise their powers under subsection (2)(b), the Treasury must have regard to the desirability of minimising any adverse effect that the ring-fencing provisions might be expected to have on competition in the market for services provided in the course of carrying on core activities, including any adverse effect on the ease with which new entrants can enter the market.
(5) In subsection (4) "the ring-fencing provisions" means ring-fencing rules and the duty imposed as a result of section 142G.
(6) An order under subsection (2)(b) may provide for the exemption to be subject to conditions.
(7) In this section "UK institution" means a body corporate incorporated in the United Kingdom.
142B Core activities
(1) References in this Act to a "core activity" are to be read in accordance with this section.
(2) The regulated activity of accepting deposits (whether carried on in the United Kingdom or elsewhere) is a core activity unless it is carried on in circumstances specified by the Treasury by order.
(3) An order under subsection (2) may be made only if the Treasury are of the opinion that it is not necessary for either of the following purposes that the regulated activity of accepting deposits should be a core activity when carried on in the specified circumstances.
(4) Those purposes are-
(a) to secure an appropriate degree of protection for the depositors concer ned, or
(b) to protect the continuity of the provision in the United Kingdom of services provided in the course of carrying on the regulated activity of accepting deposits.
(5) The Treasury may by order provide for a regulated activity other than that of accepting deposits to be a core activity, either generally or when carried on in circumstances specified in the order.
(6) An order under subsection (5) may be made only if the Treasury are of the opinion-
(a) that an interruption of the provision of services provided in the United Kingdom in the carrying on of the regulated activity concerned could adversely affect the stability of the UK financial system or of a significant part of that system, and
(b) that the continuity of the provision of those services can more effectively be protected by treating the activity as a core activity.
142C Core services
(1) References in this Act to "core services" are to be read in accordance with this section.
(2) The following are core services-
(a) facilities for the accepting of deposits or other payments into an account which is provided in the course of carrying on the core activity of accepting deposits;
(b) facilities for withdrawing money or making payments from such an account;
(c) overdraft facilities in connection with such an account.
(3) The Treasury may by order provide that any other specified services provided in the course of carrying on the core activity of accepting deposits are also core services.
(4) If an order unde r section 142B(5) provides for an activity other than that of accepting deposits to be a core activity, the Treasury must by order provide that specified services provided in the course of carrying on that activity...
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