Office of Public Sector Information
359.This section applies in the case where the Treasury brings a bank (or bank’s holding company) into temporary public ownership and later makes an onwards property transfer order from that entity.
360.Subsection (2) provides that the bank administration procedure can be applied to the residual bank left in temporary public ownership following the transfer under the property transfer order.
361.Under subsection (3) the Treasury may make regulations modifying the application of the bank administration procedure. The regulations are subject to the affirmative procedure, or in the first instance the 28 day procedure, as provided by section 259.
362.This section provides a way to terminate a bank administration where objective 1 has been achieved and the bank has also, in the opinion of the bank administrator, been rescued as a going concern.
363.This provision allows for the dissolution of the residual banking company where the objectives of the bank administration procedure have been achieved and the bank’s affairs have been fully wound up.
364.Alternatively, where it would be in the best interests of creditors, the bank administrator may make proposals to creditors for a company voluntary arrangement under Part 1 of the Insolvency Act 1986. These provisions mirror some of the current exit routes from an ordinary administration.
365.As the bank administrator is given some additional powers usually only available to a liquidator (see the note to section 145), it is not necessary to provide for conversion to a creditors’ voluntary liquidation to effect a distribution to unsecured creditors.
366.As with the bank insolvency procedure (see the note to section 121) and normal administration proceedings, the provisions of the Company Directors Disqualification Act 1986 are applied to the bank administration procedure.
367.This section provides for future amendments to insolvency legislation (including administration) to be applied, with any required modifications, to the bank administration procedure; and provides a power (to be exercised by the Secretary of State and the Treasury) to amend other existing insolvency provisions (including administration) as a consequence of the introduction of the bank administration procedure. Any such amendments may be effected by secondary legislation subject to the affirmative procedure, or in the first instance the 28 day procedure, as provided by section 259.
368.The Financial Services and Markets Act 2000 gives the Financial Services Authority powers to present an administration application to the court, or file a winding-up petition, against a bank. Given the Bank of England’s role as the authority responsible for the SRR, the FSA will only be able to make such an application or file such a petition against a residual bank where appropriate notice has been given to the Bank of England. The Bank of England will also be entitled to appear at any consequent court hearing and make representations.
369.This gives the Treasury a power to apply the bank administration procedure to building societies (with any necessary modifications) by secondary legislation subject to the affirmative procedure, or in the first instance the 28 day procedure, as provided by section 259.
370.This gives the Treasury a power to apply the bank administration procedure to credit unions (with any necessary modifications) by secondary legislation subject to the affirmative procedure.
371.This section amends section 411 of the Insolvency Act 1986 to allow secondary legislation to be made to make the bank administration procedure work in practice. The first set of Rules will be consulted on with an appropriate panel of experts rather than the Insolvency Rules Committee.
372.Section 414 of the Insolvency Act 1986, which deals with the setting of fees to apply to insolvency proceedings, is amended to ensure that those provisions apply to the bank administration procedure.
373.Section 433 of the Insolvency Act 1986, which deals with the admissibility of statements of affairs as evidence is applied to the bank administration procedure.
374.This allows the Lord Chancellor, with the agreement of the Secretary of State and Lord Chief Justice, to modify the provisions of the bank administration procedure for banks that are partnerships rather than limited companies. This reflects existing powers under section 420 of the Insolvency Act 1986.
375.This gives the Secretary of State the power to modify the bank administration procedure in its application to Scottish Partnerships.
376.Section 426 of the Insolvency Act 1986, which provides for co-operation between certain insolvency courts in different jurisdictions, is amended to ensure that these provisions apply to the bank administration procedure.
377.Due to the size and complexity of the UK’s banks and the nature of the partial transfer tool, subsection (1) provides that only the higher courts may make a Bank Administration Order and that they will supervise the process.
378.Subsection (3) defines “inability to pay debts” and applies existing definitions from sections 367(4) and (5) of the Financial Services and Markets Act 2000 (as applied by subsection 4(a)) and section 123 of the Insolvency Act 1986 (as applied by subsection (4)(b)).
379.Subsections (4) to (5) provide that the expressions used generally throughout this part of the Act and also in insolvency and company legislation have the same meaning.
380.This section makes specific provisions in the application of the bank administration procedure to banks registered in Northern Ireland.
381.The Treasury may, by secondary legislation, make any consequential provisions required to legislation required as a result of the creation of the bank administration procedure.
382.This section introduces Part 4 of the Act.
383.This section inserts new section 214A into the Financial Services and Markets Act 2000.
384.The new section confers a power on the Treasury to make regulations to permit the Financial Services Compensation Scheme (the FSCS) to impose levies to build up contingency funds in advance of possible defaults by firms which would give rise to the payment of compensation under the scheme (“pre-funding”). It also sets out certain matters which may be covered in those regulations and allows the Financial Services Authority (the FSA) to make rules relating to contingency funds provided they are compatible with the regulations the Treasury has made.
385.This section inserts new section 214B into the Financial Services and Markets Act 2000.
386.The new section confers a power on the Treasury to require the FSCS to contribute to the costs incurred in applying the stabilisation powers of the special resolution regime (see Part 1 of the Act) to banks which are encountering financial difficulties. The section allows upfront payments if deemed appropriate. It imposes a duty on the Treasury to make regulations setting out the costs for which a contribution may be required, how the contribution is to be calculated and other matters, including provision for the costs to be independently verified. New section 214B (4) requires that the scheme’s contributions must not exceed the amount of the compensation which the scheme would have had to pay to eligible claimants if the bank had been unable to satisfy claims against it, taking into account any amounts the scheme is likely to have recovered from the insolvent bank’s estate. New section 214B(5) requires the appointment of an independent valuer to calculate this amount of recovery. This person may be the same person as the independent valuer appointed under section 54 of Part 1 of the Banking Act. New section 214B(7) allows the Financial Services Authority to make rules relating to contingency funds provided they are compatible with the regulations the Treasury has made.
387.This section inserts new section 223A into the Financial Services and Markets Act 2000.
388.The new section enables the FSCS to invest the levies collected to build up contingency funds in the National Loans Fund and provides for that investment to be treated as money borrowed by the Treasury.
389.This section inserts new section 223B into the Financial Services and Markets Act 2000.
390.The new section allows the Treasury to make loans from the National Loans Fund to the FSCS and to make regulations about the amount that can be borrowed and the collection of levies to secure its repayment. It also allows the FSA to make rules relating to borrowing from the National Loans Fund provided they are compatible with the regulations the Treasury has made.
391.This section inserts new sections 214(1A), 214(1B) and 214(1C) into the Financial Services and Markets Act 2000. The purpose of these provisions is to facilitate the speedy payment of compensation to depositors or to facilitate the speedy transfer of their accounts to another bank under Part 2 of this Act.
392.New section 214(1A) allows the FSA to make rules to enable the FSCS to deem claims under the scheme to have been made, to avoid the need to wait for actual claims to be made.
393.New section 214(1C) allows the FSA to make rules to enable the FSCS to deal with certain kinds of claim without having to make calculations of the entitlement of individual claimants.
394.This section amends section 215 of the Financial Services and Markets Act 2000 to make it clear that the FSA may make rules which enable the FSCS to recover compensation it has paid from any person from whom a claimant under the scheme could have obtained damages in respect of the loss the person had suffered.
395.This section inserts new section 218A into the Financial Services and Markets Act 2000 and amends section 219.
396.New section 218A confers a power on the FSA to make rules allowing it to obtain information that will assist the FSCS in carrying out its work, or in preparing for a possible need to pay compensation (even when no default is imminent). It also allows the FSA to use its existing power to require individual authorised persons to provide information to obtain information that would be of use to the FSCS.
397.The amendments to section 219 allow the FSCS to obtain information from authorised persons or certain other persons from the time the authorised person could be declared in default for the purposes of the scheme. They also allow the FSCS to obtain information from a bank which is subject to the special resolution regime (or from the Bank of England) to enable the maximum amount the FSCS would be able to contribute to the costs of the special resolution regime to be calculated.
398.This section inserts new section 223C into the Financial Services and Markets Act 2000.
399.The new section provides that levies collected by the FSCS can be used to cover the costs of any compensation payments made in error. The new provision does not cover payments made in bad faith.
400.This section amends section 429 of the Financial Services and Markets Act 2000 to provide that regulations made by the Treasury under new sections 214A and 214B are subject to the affirmative resolution procedure Regulations under the new section 223B will be subject to the negative resolution procedure.
401.This section inserts new section 221A into the Financial Services and Markets Act 2000.
402.The new section provides that the FSCS can make arrangements with a third party to carry out any of its functions. This does not change the scheme’s responsibility for the decisions that are taken. Before entering into an arrangement the FSCS must be satisfied that the person is competent to carry out the function and has been given sufficient directions.
403.This section inserts new section 224A into the Financial Services and Markets Act 2000.
404.The new section provides that the new functions of the FSCS conferred in this Act, for example, those functions of the Financial Services Compensation Scheme under Part 2, are to be regarded as among its functions under the Financial Services and Markets Act 2000.
405.This section summarises the purpose of this Part. This Part establishes a new regulatory regime for the oversight of inter-bank payment systems, in particular, it confers on the Bank of England a formal role of oversight of recognised inter-bank payment systems.
406.Subsection (1) defines the use of the term “inter-bank payment system” in Part 5. It refers to arrangements that enable the transfer of money (including credit, see subsection (4)) between participant financial institutions (defined in subsection (3) as banks and building societies). It does not include internal bank systems or correspondent banking arrangements.
407.Subsection (2) provides that the fact that non-financial institutions participate in a payment system does not prevent it from being an inter-bank payment system for the purposes of this Part.
408.Subsection (5) ensures that the definition extends to payment systems operating wholly or partly in relation to persons outside of the United Kingdom.
409.This section defines other terms used in this Part.
410.In particular, paragraph (a) defines the use of the term “operator” of an inter-bank payment system as a person with “responsibility under the system for managing or operating it”.
411.Subsection (1) gives the Treasury the power to designate an inter-bank payment system as a recognised system. Once a payment system is ‘recognised’, the Bank of England’s powers of formal regulatory oversight specified in this Part apply.
412.Subsection (2) provides that a recognition order must include as much detail as is reasonably practicable of the arrangements that constitute the inter-bank payment system.
413.Subsection (3) provides that a payment system operated solely by the Bank of England may not be recognised.
414.Subsection (1) provides that the Treasury may make a recognition order only if it is satisfied that any deficiencies in the design of the inter-bank payment system, or any disruption of its operation, would be likely to threaten the stability of, or confidence in the UK financial system (consequences of a “systemic nature”) or could have serious consequences for business or other interests throughout the United Kingdom (“system-wide consequences”).
415.Subsection (2) stipulates the considerations that the Treasury must have regard to when deciding whether to make a recognition order in relation to an inter-bank payment system. These criteria include the volume and value of the transactions processed (or potentially processed) by the system (see subsection (2)(a)), the nature of these transactions (see subsection (2)(b)), the availability of alternative systems that could handle the transactions in the case of a system failure (see subsection (2)(c)), the relationship of the system with other systems (such as interdependence), (see subsection (2)(d)) and whether the Bank of England uses the system in its role as a monetary authority (as defined in section 244(2)(c)).
416.This section sets out the procedure for the making of recognition orders. In particular, the Treasury must first consult the Bank of England and the operator of the inter-bank payment system and consider representations made (see subsection (1)). It must also consult the FSA where the operator is or has applied to become a recognised investment exchange, a recognised clearing house or has, or has applied for permission under Part 4 of the Financial Services and Markets Act 2000 (see subsection (2)).
417.Subsection (3) provides that the Treasury may rely on information supplied to it by the Bank of England and the FSA to inform its consideration of whether to recognise a particular inter-bank payment system.
418.Subsection (1) gives the Treasury the power to revoke a recognition order.
419.Subsection (2) provides that the Treasury must revoke a recognition order if the criteria under which recognition was made (section 185) are no longer met.
420.Subsections (3) and (4) set out the process involved in revoking a recognition order. This process involves the same consultation process as required for the making of a recognition order.
421.Subsection (5) ensures that if an operator of a recognised payment system requests that its recognition order made under this Part be revoked, the Treasury must consider the request.
422.Subsection (1) gives the Bank of England the power to publish principles to which operators of recognised inter-bank payment systems must have regard in the operation of their systems. This formalises an aspect of the existing structure of oversight, under which the Bank of England currently expects payment systems to take account of the Committee on Payment and Settlement Systems’ “Core Principles for Systemically Important Payment Systems”. The Bank of England may reflect such principles and other relevant internationally agreed recommendations and best practice in its principles published under this section.
423.The publication of such principles must first be approved by the Treasury (see subsection (2)).
424.This section gives the Bank of England the power to publish codes of practice for recognised inter-bank payment systems. Codes of practice are intended to set out binding requirements on operators, whereas principles (made under section 188) are intended to provide high-level over-arching guidance. Codes of general application may be published, alternatively, codes of practice may be tailored to particular operators.
425.Payment systems operate by way of rules for their members. This section gives the Bank of England power to require the operator of a recognised inter-bank payment system to establish or change system rules, to notify the Bank of changes to the rules and to make changes only with the approval of the Bank.
426.This section gives the Bank of England power to give directions to the operator of a recognised inter-bank payment system (see subsection (1)). This may include requiring or prohibiting the taking of certain actions in relation to the system or setting standards to be met in the operation of the system (see subsection (2)). Subsection (3) specifies that the Bank of England must notify the Treasury before making a direction. Subsection (4) provides that the Treasury may confer, by order, statutory immunity from liability in damages in respect of action or inaction taken by a person in accordance with the direction of the Bank. Immunity from liability does not extend to action or inaction taken in bad faith or in contravention of section 6(1) of the Human Rights Act 1998. Subsection (6) sets out the procedure for making an order under subsection (4).
427.Subsection (1) specifies that the Bank of England, when exercising its powers under this Part, must have regard to any action that the FSA has taken or could take. Subsection (2) specifies that the Bank of England must consult with the FSA before taking action in respect of an embedded recognised inter-bank payment system. Subsection (3) specifies that if the FSA gives the Bank of England notice that it is considering taking action in respect of the operator of an embedded recognised inter-bank payment system (that is a system which is part of a recognised investment exchange or a recognised clearing house within the meaning of section 186(2)(a) and (b)), the Bank may not take action itself unless the notice is withdrawn or the FSA consents to the action.
428.This section gives the Bank of England the power to appoint inspectors, whose role it is to inspect the operation of a recognised inter-bank payment system (see subsection (1)). This power allows the Bank to appoint an inspector to check that codes of practice, principles, system rules or directions are being complied with, or that the recognised inter-bank payment system is being operated in a satisfactory manner.
429.Subsection (2) requires the operator of the recognised inter-bank payment system to co-operate with an inspector and grant the inspector access to the premises on or from which a payment system is operated.
430.This section provides that an inspector may apply for a warrant entitling the inspector or a constable to enter premises from which any part of a recognised inter-bank payment system is operated. The application for a warrant is to be made to a justice of the peace (or in Scotland, to a justice of the peace or a sheriff; in Northern Ireland, to a lay magistrate), who can issue the warrant only if one or more of the conditions set out in subsections (2), (3), (4) and (5) are fulfilled:
Condition 1: The Bank of England has issued a notice under Information section 204 and the requirement has not been complied with, and it is reasonable to believe that relevant documents or information are on the premises.
Condition 2: An information requirement has been imposed under section 204, there is reason to suspect that it would not be complied with or that the documents or information would be destroyed or tampered with.
Condition 3: An inspector appointed under section 193 gave reasonable notice of a wish to enter the premises and was refused entry to those premises.
Condition 4: A person occupying or managing the premises has failed to co-operate with an inspector.
431.Subsection (6) sets out that a warrant issued in accordance with this section will permit the inspector or constable to enter the premises, to search and take possession of relevant documents or information, take copies and permit a constable to use reasonable force.
432.Subsection (7) applies to warrants issued in accordance with this section, sections 15(5) to (8) and 16 of the Police and Criminal Evidence Act 1984 which provide that a warrant may authorise persons to accompany the constable executing it and permit that person to have the same powers as the constable in relation to the warrant. Subsections (8) and (9) make similar provision about the application to warrants issued in accordance with this section in Scotland and Northern Ireland.
433.Subsection (1) enables the Bank of England to require that the operator of a recognised inter-bank payment system appoint an expert to provide a report on the operation of the recognised inter-bank payment system.
434.Subsection (2) specifies that the Bank of England can only impose this requirement where the Bank thinks that the operator is not adhering sufficiently to the principles (as set out in section 188), or is failing to comply with a code of practice (as set out in section 189), or where the Bank of England considers that such a report is necessary to help it carry out its functions in accordance with this Part.
435.Subsection (3) enables the Bank of England to make certain stipulations about the nature of the expert the operator of the payment system must appoint (for example experience and qualifications), the content of the expert’s report, how the report is subsequently treated (including whether or not it is to be published), and the timeframe within which the report must be produced.
436.This section defines the use of the term “compliance failure” throughout this Part. A compliance failure is taken to mean the failure of an operator of a recognised inter-bank payment system to comply with a code of practice (section 189), with a requirement regarding system rules (section 190), with a direction made by the Bank of England (section 191) or with a requirement made with regard to producing an independent report (section 195).
437.This section gives the Bank of England the power to publish details of a compliance failure. This is, in effect, a power of public censure. Subsection (2) gives the Bank of England the power to publish details of a sanction imposed under sections 198 to 200.
438.In the event of a compliance failure, subsection (1) gives the Bank of England the power to impose on the operator of a recognised inter-bank payment system a financial penalty.
439.Subsection (2) provides that the financial penalty is to be paid to the Bank of England and is enforceable as a debt. Subsections (3) and (4) specify that the Bank must prepare and publish on its website a statement of principles which it will apply in determining whether to impose a financial penalty, and the quantum of the penalty, for compliance failures under this Part. The Bank must send a copy of the statement to the Treasury and review the statement from time to time. In considering financial penalties for compliance failures under this Part, the Bank must apply the statement in force when the failure occurred.
440.This section enables the Bank of England to give a closure order to an operator of a recognised inter-bank payment system.
441.Subsection (1) provides that the Bank of England may make a closure order only if it is satisfied that a compliance failure threatens the stability of, or confidence in the UK financial system (consequences of a “systemic nature”) or has serious consequences for business or other interests throughout the United Kingdom (“system-wide consequences”).
442.Subsection (2) gives the Bank of England the power to specify that a recognised inter-bank payment system must cease operation for a specified time, until further notice, or permanently. The terms of the closure order will depend on the seriousness of the threat to financial stability or to other business interests in the UK and the individual circumstances of the case. Subsection (3) provides that a closure order may apply to part or all of the payment system in question.
443.Subsection (4) makes it an offence for an operator to fail to comply with a closure order. A fine may be imposed on a person found guilty of contravening the order.
444.This section enables the Bank of England to make an order to disqualify a person from being an operator of a recognised inter-bank payment system (see subsection (1)) or from holding a position of management responsibility within such a system (see subsection (2)).
445.Under subsection (3) it is an offence for a person to breach a prohibition issued in accordance with subsections (1) or (2). A fine may be imposed on a person found guilty of contravening an order issued under this section.
446.This section requires the Bank of England to give a warning notice of its intention to impose a sanction (sections 197(1)-200 (see subsection 2)) and allow 21 days for the person to whom the notice relates to make representations, which the Bank of England must consider before it may impose a sanction under this Part. The Bank of England must issue a decision notice stating whether or not it intends to impose the sanction.
447.In certain circumstances the Bank of England has the power, under subsection (3), to give a closure order under section 199 or to issue a disqualification order under section 200 without giving a warning notice. The Bank of England may make such orders if, for instance, the operator of a recognised inter-bank payment system is committing a compliance failure of such a serious nature that it poses an imminent threat to the stability of the UK financial system.
448.This section provides for appeals against the Bank of England’s decision to impose a sanction under this Part (section 201(1)(d)), or against the imposition of a sanction without notice (section 201(3)), to be made to the Financial Services and Markets Tribunal.
449.Subsection (3) applies Part 9 of the Financial Services and Markets Act 2000 with necessary modifications.
450.This section enables the Bank of England to require the operators of recognised inter-bank payment systems to pay fees (see subsection (1)) but only in accordance with a scale of fees set by the Treasury in regulations (see subsection (2)). Fees may be charged by the Bank of England to cover expenses incurred in undertaking its functions under this Part, for example, the cost of appointing an inspector under section 193. Subsection (4) specifies that the requirement to pay fees may be enforced by the Bank as a debt.
451.Subsection (4) allows the Bank of England to enforce a fee as a debt.
452.This section gives the Bank of England a statutory power to gather information which it considers will help the Treasury in its decisions about whether to make a recognition order (section 184) in respect of an inter-bank payment system or which the Bank requires in connection with its functions under this Part. A requirement to provide information in accordance with this section must be made by notice in writing.
453.Subsection (2) allows the Bank of England to impose a requirement on recognised inter-bank payment systems to notify it of certain events. Subsection (3) specifies that the Bank of England may require this information to be provided in a specified form or manner, at a specified time, or in respect of a specified period.
454.Subsection (4) allows the Bank of England to share information obtained under this section with the Treasury and the FSA (together, the Tripartite Authorities); the Tripartite Authorities’ international counterparts; the European Central Bank; and the Bank for International Settlements. Subsection (5) provides that the Bank of England may disclose information in accordance with this section irrespective of contractual or other requirements to keep the information in confidence.
455.Subsection (6) confers a power on the Treasury to specify, by regulations, other persons with whom the Bank of England may share the information. Subsection (7) specifies that the Bank of England may publish information obtained under this section, for example, in its annual Payment Systems Oversight Report, subject to any regulations made by the Treasury in accordance with subsection (8) concerning the manner and extent of publication.
456.Subsection (10) makes it an offence to fail to comply with a requirement under this section to provide information or to knowingly give false information. A fine may be imposed on a person found guilty of such conduct (see subsection (11)).
457.This section sets out that it is an offence for the operator of a non-recognised inter-bank payment system to assert or otherwise do anything to suggest that their system is recognised. A fine may be imposed on a person found guilty of such conduct (see subsection (2)).
458.This section makes clear that the Bank of England can continue to engage in informal oversight of inter-bank payment systems (see subsection (1)) and to use means of oversight other than the provisions specified in this Part in relation to recognised inter-bank payment systems (subsection (2)).
459.This Part repeals certain existing provisions about permission to issue banknotes in Scotland and Northern Ireland, and replaces them (but only for banks which already have permission to issue banknotes).
460.This section defines what is meant in Part 6 by the term “banknote”.
461.This section defines, for the purposes of this Part, when a banknote is “issued”. The definition ensures that a banknote is regarded as issued once it enters circulation, even if it enters circulation in error or as the result of theft.
462.This section defines what is meant in Part 6 by the term “authorised bank”. An “authorised bank” is a bank that, immediately before the coming into force of this Part, was authorised to issue banknotes in Scotland or Northern Ireland. References to “authorised bank” in this part of the explanatory notes have the same meaning.
Banking Act 2009