99/99
17 June 1999
FINANCIAL SERVICES AND MARKETS BILL PROVISIONS
The Financial Services and Markets Bill introduced into the House of Commons today provides the framework within which a single regulator for the financial services industry, the Financial Services Authority (FSA) will operate.
The Bill equips the FSA with a full range of statutory powers. And it creates the Financial Services and Markets Tribunal, which will act as court of first instance for FSA regulatory action. The Tribunal will consider all the facts and merits of any case referred to it afresh. The Bill also establishes the framework for the single ombudsman and compensation schemes to provide further protection for consumers.
The Bill makes provision, amongst other things, for:
- the constitution and accountability of the FSA;
- the definition of the scope of regulated activities;
- the control of financial promotion;
- powers of the FSA to authorise, regulate, investigate and discipline authorised persons;
- the recognition of investment exchanges and clearing houses;
- arrangements for the approval of controllers and performance of regulated activities;
- regulation and marketing of collective investment schemes;
- certain criminal offences;
- powers to impose penalties for market abuse; and
- the transfer to the FSA of registration functions in respect of building societies, friendly societies, industrial and provident societies and certain other mutual societies.
Businesses to be authorised and regulated under the Bill include:
- Banks
- Building societies
- Insurance companies
- Friendly societies
- the Lloyd's insurance market
- Investment and pensions advisers
- Stockbrokers
- Professional firms offering investment services
- Fund managers
- Derivatives traders
The existing regulatory framework
Until now, regulation of financial services has been the responsibility of a range of different bodies:
- the FSA (formerly the Securities and Investment Board);
- the Self-Regulating Organisations ("SROs"): most recently the Personal Investment Authority, the Investment Management Regulatory Organisation and the Securities and Futures Authority;
- the former Supervision and Surveillance Branch of the Bank of England;
- the Building Societies Commission;
- the Insurance Directorate of the Treasury;
- the Friendly Societies Commission; and
- the Registry of Friendly Societies.
Steps taken
Since the Government announced its proposals to introduce legislation to reform the regulation of financial services in May 1997, steps have been taken to transfer responsibility for regulation to the FSA. Certain functions under the Banking Act 1987 have been transferred by the Bank of England Act 1998.
In other cases, the FSA has entered into contracts with the relevant bodies to perform regulatory functions on their behalf. For example, the Treasury has contracted with the FSA for the performance of certain functions under the Insurance Companies Act 1982. Many relevant staff have become employees of the FSA in the meantime and relocated to the FSA headquarters. This process of integration will be completed when the Bill is enacted.
The Bill will broadly continue the regime for recognised investment exchanges and clearing houses under the Financial Services Act 1986 ("FS Act 1986"), although the FSA's powers under the Bill will be widened as compared with those under the current legislation. The FSA will have powers to regulate the Lloyds' insurance market, and powers of direction over the Council of Lloyds, although the latter will retain its responsibilities under the Lloyd's Acts for the superintendence and governance of the Society of Lloyd's.
The recognised professional bodies regime under the FS Act 1986 will not continue. In future professional firms (solicitors, accountants and actuaries) carrying on regulated activities under the Bill will be authorised and regulated directly by the Authority. The professional bodies will retain their wider powers to regulate members of their respective professions.
The Bill will coordinate and modernise financial regulatory arrangements which are currently established under a number of different enactments:
- the Insurance Companies Act 1982
- the Financial Services Act 1986
- the Building Societies Act 1986
- the Banking Act 1987
- the Friendly Societies Act 1992.
Those enactments are generally supplemented by secondary legislation or rules. The relevant parts of that legislation, and rules and regulations made under it, will be substantially repealed when the Bill comes into force. Certain other enactments will also be repealed, or substantially repealed, including the Policyholders Protection Acts 1975-97, the Industrial Assurance Acts 1923-48 and the Insurance Brokers (Registration) Act 1977.
Future legal framework
The Financial Services and Markets Bill comprises 28 Parts:
Part I, The Regulator: sets out the FSA's general duties and statutory objectives. It also, with Schedule 1, imposes requirements about the FSA's constitution and accountability and about the exercise of certain of its functions.
Part II, Regulated and Prohibited Activities: provides a power for the Treasury to set the scope of regulation by order, within the overall objects and purpose of the Bill. It prohibits persons who are not authorised (or exempt) from carrying on a regulated activity in the United Kingdom and from holding themselves out as being authorised or exempt. It also sets out arrangements for the regulation of financial promotion.
Part III, Authorisation and Exemption: sets out which persons are to be authorised for the purposes of the Bill and gives the Treasury power to exempt certain persons from the requirement to be authorised. Authorised persons will include those persons given permission under Part IV and certain persons from other member States who are authorised in accordance with arrangements under the Treaty of Rome and the single market directives.
Part IV, Permission to Carry on Regulated Activities: entitles persons to apply for the Authority's permission to carry on particular regulated activities and makes provision about the giving, variation and revocation of such permissions by the Authority.
Part V, Performance of Regulated Activities: requires persons, such as employees and office holders, who perform specified types of function for authorised persons, to be approved by the FSA. It requires such approved persons to comply with any statement of principles of conduct issued by the FSA and gives the FSA certain disciplinary powers. It also gives the FSA powers to prohibit persons from carrying out specified functions.
Part VI, Official Listing: broadly replicates the existing powers and functions of the London Stock Exchange as the competent authority for listing, and gives it new powers to impose penalties for breaches of listing rules. It also gives the Treasury a power to transfer some or all of these functions to another organisation in certain circumstances.
Part VII, Penalties for Market Abuse: confers on the FSA power to impose penalties for market abuse. The Bill sets out the kinds of behaviour which will constitute market abuse and requires the FSA to produce a code which will help to determine whether particular behaviour amounts to market abuse.
Part VIII, Hearings and Appeals: establishes the Tribunal and sets out the procedure for referring cases to it where the FSA has decided to take regulatory action under the various powers conferred by the Bill. It gives a right to appeal against a decision of the Tribunal on a point of law.
Part IX, Rules and Guidance: confers powers upon the FSA to set regulatory requirements for persons authorised under the Bill. It gives the FSA powers to issue guidance on requirements imposed by and under the Bill. It also sets out the procedures that the FSA must follow in exercising those powers.
Part X, Information Gathering and Investigations: sets out the powers of the FSA to require the production of information and documents, to require reports to be prepared, to conduct investigations and to gain access to premises with a warrant.
Part XI, Control over Authorised Persons: requires persons who propose to acquire control over certain authorised persons to notify and secure the approval of the FSA.
Part XII, Incoming Firms: Intervention by the Authority: confers powers on the FSA to intervene in the activities of authorised persons from other member States who are authorised in accordance with rights under the Treaty and EC directives. It sets out the grounds on which the powers are exercisable and the procedures for exercising them.
Part XIII, Disciplinary Measures: gives the FSA powers to issue public statements about, or impose penalties on, authorised persons who have failed to comply with requirements imposed by or under the Bill.
Part XIV, The Financial Services and Markets Compensation Scheme: requires the FSA to create a scheme for the payment of compensation to consumers who suffer financial loss as a consequence of the inability of an authorised person to meet its liabilities. It also confers a certain number of powers on the manager of the scheme.
Part XV, The Financial Services Ombudsman: requires the FSA to establish a single, compulsory ombudsman scheme for the speedy and informal resolution of disputes between members of the public and authorised persons and confers certain powers on the operator of the ombudsman scheme for that purpose. It also provides for the ombudsman to adjudicate on certain other types of dispute, on a voluntary basis.
Part XVI, Collective Investment Schemes: recreates, with modifications, the existing arrangements for the regulation of collective investment schemes under the FS Act 1986, for example by giving the Treasury powers to enable a wider range of open-ended investment companies to be formed.
Part XVII, Recognised Investment Exchanges and Clearing Houses: sets out the regulatory regime for investment exchanges and clearing houses and provides for competition scrutiny of the regulatory provisions and practices of those bodies.
Part XVIII, Lloyd's: makes the Society of Lloyd's an authorised person and gives the FSA certain powers to direct the affairs of the Society, its members and Lloyd's managing and members' agents.
Part XIX, Mutual Societies: confers powers on the Treasury to transfer to the FSA and to the Treasury certain functions relating to the registration and regulation of building societies, friendly societies and industrial and provident societies and certain other mutual societies.
Part XX, Auditors and Actuaries: concerns the appointment of auditors and actuaries by authorised persons and their responsibilities.
Part XXI, Public Record and Disclosure of Information: requires the FSA to maintain a public record of authorised (and certain other) persons, and makes provision about the purposes for which confidential information may be disclosed by and to the FSA.
Part XXII, Insolvency: gives the FSA powers to ask the courts to wind up, or initiate other insolvency procedures, against authorised (and certain other) persons. It also enables the FSA to be heard by the court when such proceedings are commenced by third parties.
Part XXIII, Injunctions and Restitution: gives the FSA and the Secretary of State powers to seek injunctions in relation to regulatory contraventions and offences for which the FSA has powers to prosecute. It also provides for restitution to be paid by those who have incurred a loss as a result of such a contravention.
Part XXIV, Notices: sets out the procedures which the FSA must follow when giving notice of proposed actions under various provisions of the Bill. It relates, for example, to decisions not to give permissions or to refuse applications for approvals and to decisions to take regulatory action, such as imposing penalties or making public statements.
Part XXV, Offences: creates certain offences, including making misleading statements and supplying false information to the FSA. It also makes general provision about offences under the Bill and contains provision about the institution of proceedings, for example under Part V of the Criminal Justice Act 1993 (insider dealing) and the Money Laundering Regulations 1993.
Part XXVI, Miscellaneous: contains provisions giving the Treasury power to direct the FSA and certain other bodies to comply with the UK's international obligations, including European Union decisions to take reciprocal trade action. It also contains provision concerning gaming contracts.
Part XXVII, Interpretation.
Part XXVIII, Supplemental: contains provisions dealing with the commencement of the legislation and its territorial scope. It also makes certain consequential amendments and repeals and confers powers on the Treasury in relation to consequential and transitional provisions.