Companies Act 1989

• (a) on summary conviction, to a fine not exceeding the statutory maximum;

• (b) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both.

Publication of Director’s reports

5

• (1) The OFT may, if it thinks fit, publish any report made by it under paragraph 1 or 3.

• (2) It shall exclude from a published report, so far as practicable, any matter which relates to the affairs of a particular person (other than the supervisory or qualifying body concerned) the publication of which would or might in its opinion seriously and prejudicially affect the interests of that person.

Powers exercisable by the Secretary of State in consequence of report

6

• (1) The powers conferred by this section are exercisable by the Secretary of State if, having received and considered a report from the OFT under paragraph 3(1) or (4), it appears to him that—

• (a) any rules made or guidance issued by a recognised supervisory or qualifying body, or

• (b) any such practices as are mentioned in paragraph 3(4),

have, or are intended or likely to have, to any significant extent the effect of restricting, distorting or preventing competition and that that effect is greater than is reasonably justifiable having regard to the purposes of this Part of this Act.

• (2) The powers are—

• (a) to revoke the recognition order granted to the body concerned,

• (b) to direct it to take specified steps for the purpose of securing that the rules, guidance or practices in question do not have the effect mentioned in sub-paragraph (1), and

• (c) to make alterations in the rules of the body for that purpose.

• (3) The provisions of paragraph 3(2) to (5), (7) and (9) of Schedule 11 or, as the case may be, Schedule 12 have effect in relation to the revocation of a recognition order under sub-paragraph (2)(a) above as they have effect in relation to the revocation of such an order under that Schedule.

• (4) Before the Secretary of State exercises the power conferred by sub-paragraph (2)(b) or (c) above he shall—

• (a) give written notice of his intention to do so to the body concerned and take such steps (whether by publication or otherwise) as he thinks appropriate for bringing the notice to the attention of any other person who in his opinion is likely to be affected by the exercise of the power, and

• (b) have regard to any representation made within such time as he considers reasonable by the body or any such other person.

• (5) A notice under sub-paragraph (4) shall give particulars of the manner in which the Secretary of State proposes to exercise the power in question and state the reasons for which he proposes to act; and the statement of reasons may include matters contained in any report received by him under paragraph 4.

Supplementary provisions

7

• (1) A direction under paragraph 6 is, on the application of the Secretary of State, enforceable by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.

• (2) The fact that any rules made by a recognised supervisory or qualifying body have been altered by the Secretary of State, or pursuant to a direction of the Secretary of State, under paragraph 6 does not preclude their subsequent alteration or revocation by that body.

• (3) In determining for the purposes of this Part of this Schedule whether any guidance has, or is likely to have, any particular effect the Secretary of State and the OFT may assume that the persons to whom it is addressed will act in conformity with it.

Part II — Consequential Exemptions from Competition Law

Fair Trading Act 1973 (c. 41)

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Competition Act 1998

9

• (1) The Chapter I prohibition does not apply to an agreement for the constitution of a recognised supervisory or qualifying body to the extent to which it relates to—

• (a) rules of, or guidance issued by, the body; and

• (b) incidental matters connected with the rules or guidance.

• (2) The Chapter I prohibition does not apply to an agreement the parties to which consist of or include—

• (a) a recognised supervisory or qualifying body, or

• (b) any person mentioned in paragraph 3(5) or (6) above,

to the extent to which the agreement consists of provisions the inclusion of which in the agreement is required or contemplated by the rules or guidance of that body.

• (3) The Chapter I prohibition does not apply to the practices mentioned in paragraph 3(4)(a) and (b) above.

• (4) Where a recognition order is revoked, sub-paragraphs (1) to (3) above are to continue to apply for a period of six months beginning with the day on which the revocation takes effect, as if the order were still in force.

• (5) In this paragraph—

• (a) “the Chapter I prohibition” means the prohibition imposed by section 2(1) of the Competition Act 1998,

• (b) references to an agreement are to be read as applying equally to, or in relation to, a decision or concerted practice,

and expressions used in this paragraph which are also used in Part I of the Competition Act 1998 are to be interpreted in the same way as for the purposes of that Part of that Act.

• (6) In the application of this paragraph to decisions and concerted practices, references to provisions of an agreement are to be read as references to elements of a decision or concerted practice.

Competition Act 1980 (c. 21)

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 15

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 16

Land Charges Act 1972 (c. 61)

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Companies Act 1985 (c. 6)

1A

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Insolvency Act 1986 (c. 45)

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Company Directors Disqualification Act 1986 (c. 46)

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 17

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 18

Coal Industry Nationalisation Act 1946 (c. 59)

1

In Schedule 2A to the Coal Industry Nationalisation Act 1946 (eligibility for superannuation benefits), in the definition of “subsidiary” in paragraph 5 of the Table, for “section 154 of the Companies Act 1948” substitute “section 736 of the Companies Act 1985”.

Electricity Act 1947 (c. 54)

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Landlord and Tenant Act 1954 (c. 56)

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transport Act 1962 (c. 46)

4

In the Transport Act 1946, in the definition of “subsidiary” in section 92(1) (interpretation) omit the words “(taking references in that section to a company as being references to a body corporate)”.

Harbours Act 1964 (c. 40)

5

In section 57(1) of the Harbours Act 1964 (interpretation), in the definition of “marine work” for “section 154 of the Companies Act 1948” substitute “ section 736 of the Companies Act 1985 ”.

General Rate Act 1967 (c. 9)

6

In section 32A of the General Rate Act 1967 (rateable premises of Transport Boards), in the definition of “subsidiary” in subsection (6) omit the words “(taking references in that section to a company as being references to a body corporate)”.

Transport Act 1968 (c. 73)

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Post Office Act 1969 (c. 48)

8

In section 86 of the Post Office Act 1969 (interpretation), in subsection (2) for “736(5)(b)” substitute “ 736 ”.

Industry Act 1972 (c. 63)

9

In section 10 of the Industry Act 1972 (construction credits), in subsection (9) for “for the purposes of the Companies Act 1985 by section 736 of that Act” substitute “ by section 736 of the Companies Act 1985 ”.

Coal Industry Act 1973 (c. 8)

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Industry Act 1975 (c. 68)

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Scottish Development Agency Act 1975 (c. 69)

12

In section 25(1) of the Scottish Development Agency Act 1975 (interpretation), in the definition of “wholly-owned subsidiary” for “section 736(5)(b)” substitute “ section 736 ”.

Welsh Development Agency Act 1975 (c. 70)

13

In section 27(1) of the Welsh Development Agency Act 1975 (interpretation), in the definition of “wholly-owned subsidiary” for “section 736(5)(b)” substitute “ section 736 ”.

Restrictive Trade Practices Act 1976 (c. 41)

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Industrial Common Ownership Act 1976 (c. 78)

15

In section 2(5) of the Industrial Common Ownership Act 1976 (common ownership and co-operative enterprises) for “for the purposes of the Companies Act 1985” substitute “ as defined by section 736 of the Companies Act 1985 or for the purposes of ”.

Aircraft and Shipbuilding Industries Act 1977 (c. 3)

16

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nuclear Industry (Finance) Act 1977 (c. 7)

17

In section 3 of the Nuclear Industry (Finance) Act 1977 (expenditure on acquisition of shares in National Nuclear Corporation Ltd and subsidiaries), after “within the meaning of” insert “ section 736 of ”.

Coal Industry Act 1977 (c. 39)

18

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Shipbuilding (Redundancy Payments) Act 1978 (c. 11)

19

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Capital Gains Tax Act 1979 (c. 14)

20

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Crown Agents Act 1979 (c. 43)

21

In section 31(1) of the Crown Agents Act 1979 (interpretation), in the definition of “wholly-owned subsidiary” for “section 736(5)(b)” substitute “ section 736(2) ”.

Competition Act 1980 (c. 21)

22

In sections 11(3)(f) and 12 of the Competition Act 1980 (references relating to public bodies, &c.), after “within the meaning of” insert “ section 736 of ”.

British Aerospace Act 1980 (c. 26)

23

In section 14(1) of the British Aerospace Act 1980 (interpretation)—

• (a) in the definition of “subsidiary” for “the same meaning as in the Companies Act 1948”, and

• (b) in the definition of “wholly-owned subsidiary” for “the same meaning as it has for the purposes of section 150 of the Companies Act 1948”,

substitute “ the meaning given by section 736 of the Companies Act 1985 ”.

Local Government, Planning and Land Act 1980 (c. 65)

24

In sections 100(1), 141(7) and 170(1)(d) and (2) of the Local Government, Planning and Land Act 1980 (which refer to wholly-owned subsidiaries) for “within the meaning of section 736(5)(b)” substitute “ as defined by section 736 ”.

British Telecommunications Act 1981 (c. 38)

25

In section 85 of the British Telecommunications Act 1981 (interpretation), for subsection (2) substitute—

(2) Any reference in this Act to a subsidiary or wholly-owned subsidiary shall be construed in accordance with section 736 of the Companies Act 1985.

.

Transport Act 1981 (c. 56)

26

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Value Added Tax Act 1983 (c. 55)

27

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Telecommunications Act 1984 (c. 12)

28

In section 73(1) of the Telecommunications Act 1984 (interpretation of Part V), for “the same meaning as in” substitute “the meaning given by section 736 of”.

London Regional Transport Act 1984 (c. 32)

29

In section 68 of the London Regional Transport Act 1984 (interpretation), for the definition of “subsidiary” substitute—

“subsidiary” (subject to section 62 of this Act) has the meaning given by section 736 of the Companies Act 1985;

.

Inheritance Tax Act 1984 (c. 51)

30

• (1) The Inheritance Tax Act 1984 is amended as follows.

• (2) In section 13 (dispositions by close companies for benefit of employees), in the definition of “subsidiary” in subsection (5) for “the same meaning as in” substitute “ the meaning given by section 736 of ”.

• (3) In section 103 (introductory provisions relating to relief for business property), in subsection (2) for “the same meanings as in” substitute “ the meanings given by section 736 of ”.

• (4) In section 234 (interest on instalments) in subsection (3) for “within the meaning of” substitute “ as defined in section 736 of ”.

Ordnance Factories and Military Services Act 1984 (c. 59)

31

In section 14 of the Ordnance Factories and Military Services Act 1984 (interpretation), for the definitions of “subsidiary” and “wholly-owned subsidiary” substitute—

“subsidiary” and “wholly-owned subsidiary” have the meanings given by section 736 of the Companies Act 1985.

.

Companies Act 1985 (c. 6)

32

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

36

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

38

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transport Act 1985 (c. 67)

39

In section 137(1) of the Transport Act 1985 (interpretation), in the definition of “subsidiary” for the words from “as defined” to the end substitute “ within the meaning of section 736 of the Companies Act 1985 as originally enacted (and not as substituted by section 144(1) of the Companies Act 1989); ”.

Housing Act 1985 (c. 68)

40

In section 622 of the Housing Act 1985 (minor definitions: general), in the definition of “subsidiary” for “the same meaning as in” substitute “ the meaning given by section 736 of ”.

Housing Associations Act 1985 (c. 69)

41

In section 101 of the Housing Associations Act 1985 (minor definitions: Part II), in the definition of “subsidiary” for “the same meaning as in” substitute “ the meaning given by section 736 of ”.

Atomic Energy Authority Act 1986 (c. 3)

42

In section 9 of the Atomic Energy Authority Act 1986 (interpretation), in the definition of “subsidiary” and “wholly-owned subsidiary” for “have the same meaning as in” substitute “ have the meaning given by section 736 of ”.

Airports Act 1986 (c. 31)

43

In section 82 of the Airports Act 1986 (general interpretation), in the definition of “subsidiary” for “has the same meaning as in” substitute “ has the meaning given by section 736 of ”.

Gas Act 1986 (c. 44)

44

In the Gas Act 1986—

• (a) in section 48(1) (interpretation of Part I), in the definitions of “holding company” and “subsidiary”, and

• (b) in section 61(1) (interpretation of Part II), in the definition of “subsidiary”,

for “has the same meaning as in” substitute “ has the meaning given by section 736 of ”.

Building Societies Act 1986 (c. 53)

45

In section 119 of the Building Societies Act 1986 (interpretation), in the definition of “subsidiary” for “has the same meaning as in” substitute “ has the meaning given by section 736 of ”.

Income and Corporation Taxes Act 1988 (c. 1)

46

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

British Steel Act 1988 (c. 35)

47

In section 15(1) of the British Steel Act 1988 (interpretation), in the definition of “subsidiary” for “has the same meaning as in” substitute “ has the meaning given by section 736 of ”.

SCHEDULE 19

Correction of cross-reference

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Particulars to be given of directors and secretaries

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transactions with directors not requiring authorisation

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Time limit for holding extraordinary general meeting convened on members’ requisition

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Removal of restriction on transfer of shares

10

• (1) In section 456(3) of the Companies Act 1985 (removal of restrictions by order of court), in paragraph (b) (order where shares to be sold)—

• (a) for “sold” substitute “ transferred for valuable consideration ”, and

• (b) for “sale” substitute “ transfer ”.

• (2) In section 454(2) and (3) (which refer to section 456(3)(b)) for “sell” and “sale” substitute “ transfer ”.

Protection of company’s members against unfair prejudice

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Requirements for registration by joint stock companies

12

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Delivery of documents by oversea companies

13

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Companies’ registered numbers

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exemptions from limit of 20 on members of partnership

15

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “officer who is in default”

17

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Offences committed by partnerships and other unincorporated bodies

18

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Meaning of “office copy” in Scotland

19

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Index of defined expressions

20

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fraudulent trading by unregistered companies

21

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 20

Fair Trading Act 1973 (c. 41)

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17

In section 132(1) of that Act, after “85(6)” there is inserted “ section 93B ”.

18

• (1) In Schedule 3 to that Act, in paragraph 16(2) for “75” there is substituted “ “73 ”.

• (2) This paragraph does not apply in relation to any report made before the passing of this Act.

19

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Competition Act 1980 (c. 21)

21

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Telecommunications Act 1984 (c. 12)

25

• (1) In section 13(9) of the Telecommunications Act 1984, after “Commission)” there is inserted “ together with section 24 of the Competition Act 1980 (modification of provisions about performance of Commission’s functions) ”.

• (2) The Monopolies and Mergers Commission (Performance of Functions) Order 1989 shall have effect as if sub-paragraph (1) above had come into force immediately before the making of the Order.

Financial Services Act 1986 (c. 60)

26

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 21

Part I — U.K. investment exchanges

Default Rules

1

• (1) The exchange must have default rules which, in the event of a member of the exchange appearing to be unable to meet his obligations in respect of one or more market contracts, enable action to be taken in respect of unsettled market contracts to which he is a party.

• (2) The rules may authorise the taking of the same or similar action in relation to a member who appears to be likely to become unable to meet his obligations in respect of one or more market contracts.

• (3) The rules must enable action to be taken in respect of all unsettled market contracts, other than those entered into by a recognised clearing house for the purposes of or in connection with the provision of clearing services for the exchange.

• (4) As regards contracts falling within section 155(2)(b) above, the rules must contain provision corresponding to that required by paragraphs 9 to 11 below in the case of a UK clearing house.

• (5) As regards contracts falling within section 155(2)(a) above the rules must contain provision complying with paragraphs 2 and 3 below.

Content of rules

2

• (1) The rules must provide for all rights and liabilities between those party as principal to unsettled market contracts to which the defaulter is party as principal to be discharged and for there to be paid by one party to the other such sum of money (if any) as may be determined in accordance with the rules.

• (2) The rules must further provide—

• (a) for the sums so payable in respect of different contracts between the same parties to be aggregated or set off so as to produce a net sum, and

• (b) for the certification by or on behalf of the exchange of the net sum payable or, as the case may be, of the fact that no sum is payable.

• (3) The rules may make special provision with respect to, or exclude from the provisions required by sub-paragraphs (1) and (2), contracts of any description prescribed for the purposes of this sub-paragraph by regulations made by the Secretary of State.

• (4) The reference in sub-paragraph (1) to rights and liabilities between those party as principal to unsettled market contracts does not include rights and liabilities—

• (a) in respect of margin; or

• (b) arising out of a failure to perform a market contract.

Notification to other parties affected

3

The exchange must have adequate arrangements for securing that—

• (a) parties to unsettled market contracts with a defaulter acting as principal are notified as soon as reasonably practicable of the default and of any decision taken under the rules in relation to contracts to which they are a party; and

• (b) parties to unsettled market contracts with a defaulter acting as agent and the defaulter’s principals are notified as soon as reasonably practicable of the default and of the identity of the other party to the contract.

Application of default rules to designated non-members

4

• (1) The rules may make the same or similar provision in relation to designated non-members as in relation to members of the exchange.

• (2) If such provision is made, the exchange must have adequate procedures—

• (a) for designating the persons, or descriptions of person, in respect of whom action may be taken,

• (b) for keeping under review the question which persons or descriptions of person should be or remain so designated, and

• (c) for withdrawing such designation.

• (3) The procedures shall be designed to secure that a person is not or does not remain designated if failure by him to meet his obligations in respect of one or more market contracts would be unlikely adversely to affect the operation of the market, and that a description of persons is not or does not remain designated if failure by a person of that description to meet his obligations in respect of one or more market contracts would be unlikely adversely to affect the operation of the market.

• (4) The exchange must have adequate arrangements—

• (a) for bringing a designation or withdrawal of designation to the attention of the person or description of persons concerned, and

• (b) where a description of persons is designated, or the designation of a description of persons is withdrawn, for ascertaining which persons fall within that description.

Delegation of functions in connection with default procedures

5

The rules may make provision for the whole or part of the functions mentioned in paragraphs 1 to 4 to be performed by another body or person on behalf of the exchange.

Co-operation with other authorities

6

The exchange must be able and willing to co-operate, by the sharing of information and otherwise, with the Secretary of State, any relevant office-holder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a member of the exchange or any designated non-member.

Margin

7

Where the exchange provides clearing services, paragraph 14 below applies in respect of any margined transactions effected by or on behalf of the exchange as it applies in relation to a clearing house.

Part II — U.K. clearing houses

Default rules

8

• (1) The clearing house must have default rules which, in the event of a member of the clearing house appearing to be unable to meet his obligations in respect of one or more market contracts, enable action to be taken to close out his position in relation to all unsettled market contracts to which he is a party.

• (2) The rules may authorise the taking of the same or similar action where a member appears to be likely to become unable to meet his obligations in respect of one or more market contracts.

Content of rules

9

• (1) The rules must provide for all rights and liabilities of the defaulter under or in respect of unsettled market contracts to be discharged and for there to be paid by or to the defaulter such sum of money (if any) as may be determined in accordance with the rules.

• (2) The rules must further provide—

• (a) for the sums so payable by or to the defaulter in respect of different contracts to be aggregated or set off so as to produce a net sum;

• (b) for that sum—

• (i) if payable by the defaulter to the clearing house, to be set off against any property provided by or on behalf of the defaulter as cover for margin (or the proceeds of realisation of such property) so as to produce a further net sum, and

• (ii) if payable by the clearing house to the defaulter to be aggregated with any property provided by or on behalf of the defaulter as cover for margin (or the proceeds of realisation of such property); and

• (c) for the certification by or on behalf of the clearing house of the sum finally payable or, as the case may be, of the fact that no sum is payable.

10

• (1) The reference in paragraph 9 to the rights and liabilities of a defaulter under or in respect of an unsettled market contract includes (without prejudice to the generality of that provision) rights and liabilities arising in consequence of action taken under provisions of the rules authorising—

• (a) the effecting by the clearing house of corresponding contracts in relation to unsettled market contracts to which the defaulter is a party;

• (b) the transfer of the defaulter’s position under an unsettled market contract to another member of the clearing house;

• (c) the exercise by the clearing house of any option granted by an unsettled market contract.

• (2) A “corresponding contract” means a contract on the same terms (except as to price or premium) as the market contract, but under which the person who is the buyer under the market contract agrees to sell and the person who is the seller under the market contract agrees to buy.

This sub-paragraph applies with any necessary modifications in relation to a market contract which is not an agreement to sell.

• (3) The reference in paragraph 9 to the rights and liabilities of a defaulter under or in respect of an unsettled market contract does not include, where he acts as agent, rights or liabilities of his arising out of the relationship of principal and agent.

Notification to other parties affected

11

The clearing house must have adequate arrangements for securing that parties to unsettled market contracts with a defaulter are notified as soon as reasonably practicable of the default and of any decision taken under the rules in relation to contracts to which they are a party.

Delegation of functions in connection with default procedures

12

The rules may make provision for the whole or part of the functions mentioned in paragraphs 8 to 11 to be performed by another body or person on behalf of the clearing house.

Co-operation with other authorities

13

The clearing house must be able and willing to co-operate, by the sharing of information and otherwise, with the Secretary of State, any relevant office-holder and any other authority or body having responsibility for any matter arising out of, or connected with, the default of a member of the clearing house.

Margin

14

• (1) The rules of the clearing house must provide that, in the event of a default, margin provided by the defaulter for his own account is not to be applied to meet a shortfall on a client account.

• (2) This is without prejudice to the requirements of any relevant regulations under section 55 of the Financial Services Act 1986 (clients’ money).

Part III — Overseas investment exchanges and clearing houses

15

• (1) The rules and practices of the body, together with the law of the country in which the body’s head office is situated, must be such as to provide adequate procedures for dealing with the default of persons party to market contracts connected with the body.

• (2) The reference in sub-paragraph (1) to default is to a person being unable to meet his obligations.

SCHEDULE 22

Introductory

1

The provisions of this Schedule have effect for the purpose of safeguarding the operation of certain financial markets—

• (a) in the event of the insolvency, winding up or default of a person party to transactions in the market (paragraphs 2 to 8), and

• (b) as regards the effectiveness or enforcement of certain charges given to secure obligations in connection with such transactions (paragraphs 9 to 12).

Recognised investment exchanges and clearing houses

2

• (1) This Schedule applies to the following descriptions of contract connected with a recognised investment exchange or recognised clearing house.

The contracts are referred to in this Schedule as “market contracts”.

• (2) In relation to a recognised investment exchange, this Schedule applies to—

• (a) contracts entered into by a member or designated non-member of the exchange which are—

• (i) made on or otherwise subject to the rules of the exchange,

• (ii) on terms expressed to be as traded on the exchange, or

• (iii) on the same terms as those on which an equivalent contract would be made on the exchange; and

• (b) contracts subject to the rules of the exchange entered into by the exchange for the purposes of or in connection with the provision of clearing services.

A “designated non-member” means a person in respect of whom action may be taken under the default rules of the exchange but who is not a member of the exchange.

• (3) In relation to a recognised clearing house, this Schedule applies to contracts subject to the rules of the clearing house entered into by the clearing house for the purposes of or in connection with the provision of clearing services for a recognised investment exchange.

This includes contracts effected under or in consequence of action taken by the clearing house under its default rules.

3

The general law of insolvency has effect in relation to market contracts, and action taken under the rules of a recognised investment exchange or recognised clearing house with respect to such contracts, subject to the following provisions of this Schedule.

4

• (1) None of the following shall be regarded as to any extent invalid at law on the ground of inconsistency with the law relating to the distribution of the assets of a person on bankruptcy, winding up or sequestration, or in the administration of an insolvent estate—

• (a) a market contract,

• (b) the rules of a recognised investment exchange or recognised clearing house as to the settlement of market contracts,

• (c) the default rules of a recognised investment exchange or recognised clearing house.

• (2) The powers of a relevant office-holder in his capacity as such, and the powers of the court under the Insolvency Act 1986 or the Bankruptcy (Scotland) Act 1985, shall not be exercised in such a way as to prevent or interfere with—

• (a) the settlement of a market contract in accordance with the rules of a recognised investment exchange or recognised clearing house,

• (b) any action taken under the default rules of such an exchange or clearing house.

• (3) Nothing in the following provisions of this Schedule shall be construed as affecting the generality of sub-paragraph (2).

• (4) A debt or other liability arising out of a market contract which is the subject of default proceedings may not be proved in a winding up or bankruptcy, or in Scotland claimed in a winding up or sequestration, until the completion of the default proceedings.

A debt or other liability which by virtue of this sub-paragraph may not be proved or claimed shall not be taken into account for the purposes of any set-off until the completion of the default proceedings.

5

• (1) A liquidator or trustee of a defaulter shall not—

• (a) declare or pay any dividend to the creditors, or

• (b) return any capital to contributories,

unless he has retained what he reasonably considers to be an adequate reserve in respect of any claims arising as a result of the default proceedings of the exchange or clearing house concerned.

• (2) Nothing in section 11(3), 130 or 285 of the Insolvency Act 1986 (which restrict the taking of certain legal proceedings and other steps), and nothing in the Bankruptcy (Scotland) Act 1985, shall affect any action taken by an exchange or clearing house for the purpose of its default proceedings.

6

• (1) The following provisions apply with respect to the net sum certified by a recognised investment exchange or recognised clearing house, upon the completion of proceedings under its default rules, to be payable by or to a defaulter.

• (2) If, in England and Wales, a bankruptcy or winding up order has been made, or a resolution for voluntary winding up has been passed, the debt—

• (a) is provable in the bankruptcy or winding up or, as the case may be, is payable to the relevant office-holder, and

• (b) shall be taken into account, where appropriate, under section 323 of the Insolvency Act 1986 (mutual dealings and set-off) or the corresponding provision applicable in the case of a winding up,

in the same way as a debt due before the commencement of the bankruptcy or winding up.

• (3) If, in Scotland, an award of sequestration or a winding-up order has been made, or a resolution for voluntary winding up has been passed, the debt—

• (a) may be claimed in the sequestration or winding up or, as the case may be, is payable to the relevant office-holder, and

• (b) shall be taken into account for the purposes of any rule of law relating to compensation or set-off applicable in sequestration or winding up,

in the same way as a debt due before the date of sequestration (within the meaning of section 73(1) of the Bankruptcy (Scotland) Act 1985) or the commencement of the winding up.

7

• (1) Sections 178, 186, 315 and 345 of the Insolvency Act 1986 (power to disclaim onerous property and court’s power to order rescission of contracts, &c.) do not apply in relation to—

• (a) a market contract, or

• (b) a contract effected by the exchange or clearing house for the purpose of realising property provided as margin in relation to market contracts.

In the application of this sub-paragraph in Scotland, the reference to sections 178 and 315 shall be construed as a reference to any rule of law having the like effect as those sections.

• (2) Sections 127 and 284 of the Insolvency Act 1986 (avoidance of property dispositions effected after commencement of winding up or presentation of bankruptcy petition) do not apply to—

• (a) a market contract, or any disposition of property in pursuance of such a contract,

• (b) the provision of margin in relation to market contracts,

• (c) a contract effected by the exchange or clearing house for the purpose of realising property provided as margin in relation to a market contract, or any disposition of property in pursuance of such a contract, or

• (d) any disposition of property in accordance with the rules of the exchange or clearing house as to the application of property provided as margin.

• (3) However, if a person enters into a market contract knowing that a petition has been presented for the winding up or bankruptcy of the other party to the contract, the value of any profit or benefit to him arising from the contract is recoverable from him by the relevant office-holder unless the court directs otherwise.

• (4) Any sum recoverable by virtue of sub-paragraph (3) has the same priority, in the event of the insolvency of the person from whom it is due, as if it were secured by a fixed charge.

8

• (1) No order shall be made in relation to a market contract under—

• (a) section 238 or 339 of the Insolvency Act 1986 (transactions at an under-value),

• (b) section 239 or 340 of that Act (preferences), or

• (c) section 423 of that Act (transactions defrauding creditors),

unless the court is satisfied that the person in favour of whom the contract was made knew at the time he entered into it that it was at an under-value (within the meaning of the relevant provision) or, as the case may be, that a preference was being given.

• (2) As respects Scotland, no decree shall be granted in relation to a market contract—

• (a) under section 34 or 36 of the Bankruptcy (Scotland) Act 1985 or section 242 or 243 of the Insolvency Act 1986 (gratuitous alienations and unfair preferences), or

• (b) at common law,

unless the court is satisfied that the person with whom the contract was made knew at the time he entered into it that it was challengeable under any of the provisions mentioned in paragraph (a) or at common law.

• (3) Sub-paragraphs (1) and (2) apply in relation to—

• (a) a disposition of property in pursuance of a market contract,

• (b) the provision of margin in relation to market contracts,

• (c) a contract effected by a recognised investment exchange or recognised clearing house for the purpose of realising property provided as margin, or

• (d) a disposition of property in accordance with the rules of the exchange or clearing house as to the application of property provided as margin,

as they apply in relation to the making of a market contract.

Market charges

9

• (1) The charges to which paragraphs 10 to 12 apply are charges, whether fixed or floating, granted—

• (a) in favour of a recognised investment exchange, for the purpose of securing debts or liabilities arising in connection with the settlement of market contracts,

• (b) in favour of a recognised clearing house, for the purpose of securing debts or liabilities arising in connection with their ensuring the performance of market contracts, or

• (c) in favour of a person who agrees to make payments as a result of the transfer of specified securities made through the medium of a computer-based system established by the Bank of England and The Stock Exchange, for the purpose of securing debts or liabilities of the transferee arising in connection with the payments.

Those charges are referred to in this Schedule as “market charges”.

• (2) Where a charge is granted partly for purposes specified in sub-paragraph (1)(a), (b) or (c) and partly for other purposes, paragraphs 10 to 12 apply to it so far as it has effect for the specified purposes; and the expression “market charge” shall be construed accordingly.

• (3) In this paragraph and paragraphs 10 to 12—

• “charge” means any form of security, including a mortgage and, in Scotland, a heritable security; and

• “specified securities” means securities for the time being specified in the list in Schedule 1 to the Stock Transfer Act 1982, and includes any right to such securities.

10

The general law of insolvency has effect in relation to market charges and action taken in enforcing them subject to the following provisions of this Schedule.

11

• (1) Sections 10(1)(b) and 11(3)(c) of the Insolvency Act 1986 (no enforcement of security while petition for administration order pending or order in force) do not apply to a market charge.

• (2) Section 11(2) of that Act (receiver to vacate office when so required by administrator) does not apply to a receiver appointed under a market charge.

• (3) Section 15(1) and (2) of that Act (administrator’s power to deal with charged property) do not apply to a market charge.

• (4) Sections 127 and 284 of that Act (avoidance of property dispositions effected after commencement of winding up or presentation of bankruptcy petition) do not apply to—

• (a) a disposition of property as a result of which the property becomes subject to a market charge, or any transaction pursuant to which that disposition is made, or

• (b) any disposition of property made in enforcing a market charge.

• (5) However, if a person (other than the chargee under the market charge) who is a party to a disposition mentioned in sub-paragraph (4)(a) knows at the time of the disposition that a petition has been presented for the winding up or bankruptcy of the party making the disposition, the value of any profit or benefit to him arising from the disposition is recoverable from him by the relevant office-holder unless the court directs otherwise.

• (6) Any sum recoverable by virtue of sub-paragraph (5) has the same priority, in the event of the insolvency of the person from whom it is due, as if it were secured by a fixed charge.

12

• (1) No legal proceedings, execution or other legal process may be commenced or continued, and no distress may be levied against property which is, or becomes, subject to a market charge except with the consent of the person in whose favour the charge was granted or the leave of the court.

• (2) The court may give leave subject to such terms as it thinks fit.

• (3) Sub-paragraph (1) does not apply to proceedings to enforce any security over, or any equitable interest in, the property.

• (4) Sections 10(1)(c), 11(3)(d), 130(3) and 285(3) of the Insolvency Act 1986 (which restrict the taking of certain legal proceedings and other steps) have effect accordingly.

• (5) In the application of this paragraph to Scotland, the reference to execution being commenced or continued includes a reference to diligence being carried out or continued, and the reference to distress being levied shall be omitted.

Supplementary provisions

13

• (1) In this Schedule “default rules” means—

• (a) in relation to a recognised investment exchange, rules which provide in the event of a member or designated non-member of the exchange appearing to be unable, or likely to become unable, to meet his obligations in respect of one or more market contracts, for the settlement forthwith of all unsettled market contracts to which he is a party as principal, other than those whose performance is ensured by a recognised clearing house;

• (b) in relation to a recognised clearing house, rules which provide in the event of a member of the clearing house appearing to be unable, or likely to become unable, to meet his obligations in respect of any market contract, for the closing out of his position in relation to all market contracts to which he is a party.

• (2) References in this Schedule to a “defaulter” are to a person in respect of whom action has been taken by a recognised investment exchange or recognised clearing house under its default rules, whether by declaring him to be a defaulter or otherwise; and references in this Schedule to “default” shall be construed accordingly.

• (3) In this Schedule “default proceedings” means proceedings taken by a recognised investment exchange or recognised clearing house under its default rules.

14

• (1) The following are relevant office-holders for the purposes of this Schedule—

• (a) the official receiver,

• (b) any person acting in relation to a company as its liquidator, provisional liquidator, administrator or administrative receiver,

• (c) any person acting in relation to an individual (or, in Scotland, a deceased debtor) as his trustee in bankruptcy or interim receiver of his property or as permanent or interim trustee in the sequestration of his estate,

• (d) any person acting as administrator (or, in Scotland, as judicial factor) of an insolvent estate of a deceased person.

• (2) Sub-paragraph (1)(c) applies in relation to a partnership, and any debtor within the meaning of the Bankruptcy (Scotland) Act 1985, as it applies in relation to an individual.

• (3) In this paragraph—

• “administrative receiver” has the meaning given by section 251 of the Insolvency Act 1986;

• “company” means a company within the meaning of section 735(1) of the Companies Act 1985 or a company which may be wound up under Part V of the Insolvency Act 1986.

• “interim trustee” and “permanent trustee” have the same meaning as in the Bankruptcy (Scotland) Act 1985.

15

• (1) In this Schedule—

• “clearing house” has the same meaning as in the Financial Services Act 1986;

• “investment” and “investment exchange” have the same meaning as in the Financial Services Act 1986;

• “recognised” means recognised under the Financial Services Act 1986;

• “The Stock Exchange” means The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited.

• (2) References in this Schedule to ensuring the performance of a transaction have the same meaning as in the Financial Services Act 1986.

• (3) References in this Schedule to a market contract to which a person is a party include, unless the contrary intention appears, contracts to which he is party as agent.

SCHEDULE 23

Part I — General Amendments

1

• (1) Section 13 of the Financial Services Act 1986 (power to direct alteration of rules of recognised self-regulating organisation) is amended as follows.

• (2) Omit subsection (1).

• (3) For subsection (2) substitute—

(2) If at any time it appears to the Secretary of State that— (a) a recognised self-regulating organisation is concerned with two or more kinds of investment business, and (b) the requirement in paragraph 3(1) of Schedule 2 to this Act is not satisfied in respect of investment business of one or more but not all of those kinds, he may, instead of revoking the recognition order or making an application under section 12 above, direct the organisation to alter, or himself alter, its rules so that they preclude a member from carrying on investment business of a kind in respect of which that requirement is not satisfied, unless he is an authorised person otherwise than by virtue of membership of the organisation or is an exempted person in respect of that business.

.

• (4) For subsection (3) substitute—

(3) A direction under this section is enforceable on the application of the Secretary of State by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.

.

• (5) Omit subsections (4) to (6).

2

• (1) Section 48 of the Financial Services Act 1986 (conduct of business rules) is amended as follows.

• (2) In subsection (1) omit the words “members of a recognised self-regulating organisation or” and “organisation or”.

• (3) After subsection (10) insert—

(11) Section 63A below (application of designated rules) has effect as regards the application of rules under this section to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation.

.

3

• (1) Section 49 of the Financial Services Act 1986 (financial resources rules) is amended as follows.

• (2) For subsection (1) substitute—

(1) The Secretary of State may make rules requiring— (a) a person authorised to carry on investment business by virtue of section 25 or 31 above, or (b) a member of a recognised self-regulating organisation carrying on investment business in the carrying on of which he is subject to the rules of the organisation, to have and maintain in respect of that business such financial resources as are required by the rules.

.

• (3) After subsection (2) insert—

(3) Section 63A below (application of designated rules) has effect as regards the application of rules under this section to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation.

.

4

In section 50 of the Financial Services Act 1986 (power of Secretary of State to modify conduct of business and financial resources rules for particular cases), after subsection (3) insert—

(4) The powers conferred by subsection (1) above shall not be exercised in a case where the powers conferred by section 63B below are exercisable (powers of recognised self-regulating organisation in relation to designated rules).

.

5

In section 52 of the Financial Services Act 1986 (notification regulations), in subsection (3) (application to member of recognised self-regulating organisation or professional body), for “subject to any of the rules made under section 48 above” substitute “not subject to the rules of that organisation or body”.

6

• (1) Section 55 of the Financial Services Act 1986 (clients’ money) is amended as follows.

• (2) In subsection (2)(b) and (e) omit the words “a member of a recognised self-regulating organisation or” and “organisation or”.

• (3) In subsection (3) omit the words “organisation or”.

• (4) After subsection (5) insert—

(6) Section 63A below (application of designated regulations) has effect as regards the application of regulations under this section to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation.

.

7

In section 56 of the Financial Services Act 1986 (unsolicited calls), for subsection (7) substitute—

(7) Section 63A below (application of designated regulations) has effect as regards the application of regulations under this section to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation. As it applies to such persons in respect of such business the reference in subsection (1) above to conduct permitted by regulations made by the Secretary of State shall be construed— (a) where or to the extent that the regulations do not apply, as a reference to conduct permitted by the rules of the organisation; and (b) where or to the extent that the regulations do apply but are expressed to have effect subject to the rules of the organisation, as a reference to conduct permitted by the regulations together with the rules of the organisation. (7A) In the application of this section to anything done by a person certified by a recognised professional body in carrying on investment business in the carrying on of which he is subject to the rules of the body, the reference in subsection (1) above to conduct permitted by regulations made by the Secretary of State shall be construed as a reference to conduct permitted by the rules of the body.

.

8

In section 86 of the Financial Services Act 1986 (collective investment schemes constituted in other member States), in subsection (7) (restriction on application of conduct of business rules), at the end add—

This subsection also applies to statements of principle under section 47A and codes of practice under section 63A so far as they relate to matters falling within the rule-making power in section 48.

.

9

In section 95 of the Financial Services Act 1986 (collective investment schemes: contraventions), after subsection (2) add—

(3) The disciplinary action which may be taken by virtue of section 47A(3) (failure to comply with statement of principle) includes— (a) the giving of a direction under section 91(2), and (b) the application by the Secretary of State for an order under section 93; and subsection (6) of section 47A (duty of the Secretary of State as to exercise of powers) has effect accordingly.

.

10

• (1) Section 107 of the Financial Services Act 1986 (appointment of auditors) is amended as follows.

• (2) For subsection (1) (power to make rules) substitute—

(1) The Secretary of State may make rules requiring— (a) a person authorised to carry on investment business by virtue of section 25 or 31 above, or (b) a member of a recognised self-regulating organisation carrying on investment business in the carrying on of which he is subject to the rules of the organisation, and who, apart from the rules, is not required by or under any enactment to appoint an auditor, to appoint as an auditor a person satisfying such conditions as to qualifications and otherwise as may be specified in or imposed under the rules.

.

• (3) After subsection (3) add—

(4) In its application to members of recognised self-regulating organisations, this section has effect subject to section 107A below.

.

11

After section 107 of the Financial Services Act 1986 insert—

(107A) (1) The Secretary of State may in rules under section 107 designate provisions which apply, to such extent as may be specified, to a member of a recognised self-regulating organisation in respect of investment business in the carrying on of which he is subject to the rules of the organisation. (2) It may be provided that the designated rules have effect, generally or to such extent as may be specified, subject to the rules of the organisation. (3) A member of a recognised self-regulating organisation who contravenes a rule applying to him by virtue of that section shall be treated as having contravened the rules of the organisation. (4) Except as mentioned above, rules made under section 107 do not apply to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation. (5) A recognised self-regulating organisation may on the application of a member of the organisation— (a) modify a rule designated under this section so as to adapt it to his circumstances or to any particular kind of business carried on by him, or (b) dispense him from compliance with any such rule, generally or in relation to any particular kind of business carried on by him. (6) The powers conferred by subsection (5) shall not be exercised unless it appears to the organisation— (a) that compliance with the rule in question would be unduly burdensome for the applicant having regard to the benefit which compliance would confer on investors, and (b) that the exercise of those powers will not result in any undue risk to investors. (7) The powers conferred by subsection (5) may be exercised unconditionally or subject to conditions; and subsection (3) applies in the case of a contravention of a condition as in the case of contravention of a designated rule. (8) The reference in paragraph 4(1) of Schedule 2 (requirements for recognition of self-regulating organisations) to monitoring and enforcement of compliance with rules includes monitoring and enforcement of compliance with conditions imposed by the organisation under subsection (7).

.

12

• (1) Section 114 of the Financial Services Act 1986 (power to transfer functions to designated agency) is amended as follows.

• (2) For subsection (9) substitute—

(9) The Secretary of State shall not make a delegation order transferring any legislative functions unless— (a) the agency has furnished him with a copy of the instruments it proposes to issue or make in the exercise of those functions, and (b) he is satisfied that those instruments will afford investors an adequate level of protection and, in the case of such provisions as are mentioned in Schedule 8 to this Act, comply with the principles set out in that Schedule. In this subsection “legislative functions” means the functions of issuing or making statements of principle, rules, regulations or codes of practice.

.

• (3) In subsection (12) for “rules or regulations made” substitute “statements of principle, rules, regulations or codes of practice issued or made”.

13

• (1) Section 115 of the Financial Services Act 1986 (resumption of transferred functions) is amended as follows.

• (2) For subsection (5) substitute—

(5) Where the transferred functions consist of or include any legislative functions, an order may be made under subsection (2) above if at any time it appears to the Secretary of State that the instruments issued or made by the agency do not satisfy the requirements of section 114(9)(b) above.

.

• (3) In subsection (7)—

• (a) in the opening words, for “subsection (2)(b) above” substitute “this section”, and

• (b) in paragraph (a) for “functions of making rules or regulations” substitute “functions of issuing or making statements of principle, rules, regulations or codes of practice”.

14

• (1) Section 119 of the Financial Services Act 1986 (competition scrutiny: recognition orders) is amended as follows.

• (2) In subsection (1) (considerations relevant to making of recognition order), for paragraphs (a) and (b) substitute—

(a) in the case of a self-regulating organisation, the rules and any guidance of which copies are furnished with the application for the order, together with any statements of principle, rules, regulations or codes of practice to which members of the organisation would be subject by virtue of Chapter V of this Part, (b) in the case of an investment exchange, the rules and any guidance of which copies are furnished with the application for the order, together with any arrangements of which particulars are furnished with the application, (c) in the case of a clearing house, the rules and any guidance of which copies are furnished with the application for the order,

.

• (3) In subsection (2) (circumstances in which powers are exercisable in relation to recognised body), for paragraphs (a) to (c) substitute—

(a) in the case of a self-regulating organisation— (i) any rules made or guidance issued by the organisation, (ii) any practices of the organisation, or (iii) any practices of persons who are members of, or otherwise subject to the rules made by, the organisation, together with any statements of principle, rules, regulations or codes of practice to which members of the organisation are subject by virtue of Chapter V of this Part, (b) in the case of a recognised investment exchange— (i) any rules made or guidance issued by the exchange, (ii) any practices of the exchange, or (iii) any practices of persons who are members of, or otherwise subject to the rules made by, the exchange, (c) in the case of a recognised clearing house— (i) any rules made or guidance issued by the clearing house, (ii) any practices of the clearing house, or (iii) any practices of persons who are members of, or otherwise subject to the rules made by, the clearing house, or any clearing arrangements made by the clearing house,

.

• (4) In subsection (3) (powers exercisable in relation to recognised body)—

• (a) in paragraph (b) for “the rules” substitute “its rules, or the”, and

• (b) in paragraph (c) for “the rules” substitute “its rules”.

• (5) In subsection (5) (construction of references to practices)—

• (a) for “paragraph (b)” substitute “paragraph (a)(ii), (b)(ii) and (c)(ii)”, and

• (b) omit the words from “and the practices referred to in paragraph (c)” to the end.

• (6) After that subsection insert—

(6) The practices referred to in paragraph (a)(iii), (b)(iii) and (c)(iii) of subsection (2) above are— (a) in relation to a recognised self-regulating organisation, practices in relation to business in respect of which the persons in question are subject to— (i) the rules of the organisation, or (ii) statements of principle, rules, regulations or codes of practice to which its members are subject by virtue of Chapter V of this Part, and which are required or contemplated by the rules of the organisation or by those statements, rules, regulations or codes, or by guidance issued by the organisation, (b) in relation to a recognised investment exchange or clearing house, practices in relation to business in respect of which the persons in question are subject to the rules of the exchange or clearing house, and which are required or contemplated by its rules or guidance, or which are otherwise attributable to the conduct of the organisation, exchange or clearing house as such.

.

15

• (1) Section 121 of the Financial Services Act 1986 (competition scrutiny: designated agencies) is amended as follows.

• (2) In subsection (1) for “rules, regulations” substitute “statements of principle, rules, regulations, codes of practice”.

• (3) In subsection (2)(a) and (c) for “rules or regulations made” substitute “statements of principle, rules, regulations or codes of practice issued or made”.

• (4) In subsection (3)(b) for “rules, regulations” substitute “statements of principle, rules, regulations, codes of practice”.

• (5) In subsection (4) for “rules or regulations” (twice) substitute “statements of principle, rules, regulations or codes of practice”.

16

• (1) Section 122 of the Financial Services Act 1986 (reports by Director General of Fair Trading) is amended as follows.

• (2) In subsection (1) for “and regulations” substitute “, statements of principle, regulations and codes of practice”.

• (3) In subsection (2) for “regulations,” substitute “statements of principle, regulations, codes of practice,”.

• (4) In subsection (4)—

• (a) in paragraph (a) for “rules, guidance, arrangements and regulations” substitute “rules, statements of principle, regulations, codes of practice, guidance and arrangements”, and

• (b) in the words following the paragraphs, for “rules, guidance, arrangements, regulations” substitute “rules, statements of principle, regulations, codes of practice, guidance, arrangements”, and for “rules, guidance, arrangements or regulations” substitute “rules, statements of principle, regulations, codes of practice, guidance or arrangements”.

17

• (1) Section 124 of the Financial Services Act 1986 (matters to be left out of account for certain purposes in connection with competition scrutiny) is amended as follows.

• (2) In subsection (1) (matters to be left out of account in determining whether monopoly situation exists), in paragraph (c) for “rules or regulations made or guidance issued” substitute “statements of principle, rules, regulations, codes of practice or guidance issued or made”.

• (3) In subsection (3) (matters to be excluded from consideration where monopoly situation exists)—

• (a) in paragraph (a), for “rules or regulations made” substitute “statements of principle, rules, regulations or codes of practice issued or made”,

• (b) in paragraph (b), for “rules or regulations” substitute “statements of principle, rules, regulations or codes of practice”, and

• (c) in the closing words, for “rules, regulations” substitute “statements of principle, rules, regulations, codes of practice”.

18

For section 205 of the Financial Services Act 1986 (regulations, rules and orders) substitute—

(205) The Secretary of State may make regulations prescribing anything which by this Act is authorised or required to be prescribed. (205A) (1) The following provisions apply to any power of the Secretary of State under this Act— (a) to issue statements of principle, (b) to make rules or regulations, (c) to make orders (other than such orders as are excepted by subsection (4) below), or (d) to issue codes of practice. (2) Any such power is exercisable by statutory instrument and includes power to make different provision for different cases. (3) Except as otherwise provided, a statutory instrument containing statements of principle, rules or regulations shall be subject to annulment in pursuance of a resolution of either House of Parliament. (4) The above provisions do not apply to a recognition order, an order declaring a collective investment scheme to be an authorised unit trust scheme or a recognised scheme or to an order revoking any such order.

.

19

In section 206(1) of the Financial Services Act 1986 (publication of information and advice)—

• (a) in paragraph (a), for “rules and regulations made” substitute “statements of principle, rules, regulations and codes of practice issued or made”, and

• (b) in paragraph (b) for “rules or regulations” substitute “statements of principle, rules, regulations or codes of practice”.

20

In Schedule 2 to the Financial Services Act 1986 (requirements for recognition of self-regulating organisations), in paragraph 4(1) (monitoring and enforcement) for “rules or regulations” substitute “statements of principle, rules, regulations or codes of practice”.

21

In Schedule 3 to the Financial Services Act 1986 (requirements for recognition of professional bodies), in paragraph 4(2) (monitoring and enforcement) for “rules or regulations” substitute “statements of principle, rules, regulations or codes of practice”.

22

In Schedule 7 to the Financial Services Act 1986 (qualifications of designated agency), in paragraph 2(2) (arrangements for discharge of functions: matters to be decided upon by the governing body) for “rules or regulations must be made” substitute “statements of principle, rules, regulations and codes of practice must be issued or made”.

23

• (1) Schedule 8 to the Financial Services Act 1986 (principles applicable to designated agency’s rules and regulations) is amended as follows.

• (2) In the heading for “Rules and Regulations” substitute “Legislative Provisions”.

• (3) For paragraph 1, and the cross-heading preceding it, substitute—

(1) (1) In this Schedule “legislative provisions” means the provisions of statements of principle, rules, regulations and codes of practice issued or made under Part I of this Act. (2) References in this Schedule to “conduct of business provisions” are to rules made under section 48 of this Act and statements of principle and codes of practice so far as they relate to matters falling within that rule-making power. (3) References in this Schedule to provisions made for the purposes of a specified section or Chapter are to rules or regulations made under that section or Chapter and statements of principle and codes of practice so far as they relate to matters falling within that power to make rules or regulations. (1A) The conduct of business provisions and the other legislative provisions must promote high standards of integrity and fair dealing in the conduct of investment business.

.

• (4) In paragraphs 2 to 7, 9, 11 and 12 for “conduct of business rules” substitute “conduct of business provisions”.

• (5) In paragraph 7 for “those rules and rules under” substitute “those provisions and provisions made for the purposes of”.

• (6) In paragraph 8 for “Rules made under” substitute “Provisions made for the purposes of”.

• (7) In paragraph 9 for “regulations made under” substitute “provisions made for the purposes of”.

• (8) In paragraph 10 for “Rules made under” substitute “Provisions made for the purposes of” and for “under those sections” substitute “for the purposes of those sections”.

• (9) In paragraph 12 for “rules and regulations made under” substitute “provisions made for the purposes of”.

24

• (1) Schedule 9 to the Financial Services Act 1986 (designated agency: exercise of transferred functions) is amended as follows.

• (2) In paragraph 4(1) (copies of instruments to be sent to Secretary of State), for “any rules or regulations made” substitute “any statements of principle, rules, regulations or codes of practice issued or made”.

• (3) For paragraphs 5 and 6 substitute—

(5) Paragraphs 6 to 9 below have effect instead of section 205A of this Act in relation to statements of principle, rules, regulations and codes of practice issued or made by a designated agency in the exercise of powers transferred to it by a delegation order. (6) Any such power is exercisable by instrument in writing and includes power to make different provision for different cases.

.

• (4) In paragraph 8 (instruments to be printed and made available to public)—

• (a) in sub-paragraph (1) for “is made” substitute “is issued or made”, and

• (b) in sub-paragraph (2) for “rule or regulation” (twice) substitute “statement of principle, rule, regulation or code of practice”.

• (5) In paragraph 9 (proof of instruments), for “made by the agency” (twice) substitute “made or issued by the agency”.

• (6) For paragraph 12 (consultation) substitute—

(12) (1) Where a designated agency proposes, in the exercise of powers transferred to it by a delegation order, to issue or make any statements of principle, rules, regulations or codes of practice, it shall publish the proposed instrument in such manner as appears to it best calculated to bring the proposals to the attention of the public, together with a statement that representations about the proposals (and, in particular, representations as to the cost of complying with the proposed provisions) can be made to the agency within a specified time. (2) Before issuing or making the instrument the agency shall have regard to any representations duly made in accordance with that statement. (3) The above requirements do not apply— (a) where the agency considers that the delay involved in complying with them would be prejudicial to the interests of investors; (b) to the issuing or making of an instrument in the same, or substantially the same, terms as a proposed instrument which was furnished by the agency to the Secretary of State for the purposes of section 114(9) of this Act.

.

25

• (1) Schedule 10 to the Financial Services Act 1986 (application of investment business provisions to regulated insurance companies) is amended as follows.

• (2) In paragraph 4 (modification of conduct of business rules), after sub-paragraph (2) insert—

(2A) Sub-paragraphs (1) and (2) also apply to statements of principle under section 47A and codes of practice under section 63A so far as they relate to matters falling within the rule-making power in section 48.

.

• (3) In paragraph 7 (withdrawal of authorisation) after sub-paragraph (2) insert—

(3) The disciplinary action which may be taken by virtue of section 47A(3) of this Act (failure to comply with statement of principle) includes— (a) the withdrawal of authorisation under section 11(2)(a) of the Insurance Companies Act 1982, and (b) the giving of a direction under section 13(2A) of that Act; and subsection (6) of section 47A (duty of the Secretary of State as to exercise of powers) has effect accordingly.

.

Part II — Amendments Relating to Friendly Societies

26

Schedule 11 to the Financial Services Act 1986 (friendly societies) is amended as follows.

27

In paragraph 3(2) (competition scrutiny: recognition of self-regulating organisation for friendly societies), after “sent to him under this sub-paragraph” insert “, together with any statements of principle, rules, regulations or codes of practice to which members of the organisation would be subject by virtue of this Schedule,”.

28

• (1) Paragraph 4 (requirements for recognition of self-regulating organisation for friendly societies) is amended as follows.

• (2) In sub-paragraph (4)—

• (a) in paragraph (a) for “22” substitute “22D”, and

• (b) omit paragraph (b).

• (3) In sub-paragraph (5) for “22” substitute “22D”.

29

Omit paragraph 7.

30

• (1) Paragraph 10 (competition scrutiny: circumstances in which powers are exercisable in relation to recognised self-regulating organisation for friendly societies) is amended as follows.

• (2) In sub-paragraph (1), after paragraph (c) insert “together with any statements of principle, rules, regulations or codes of practice to which members of the organisation are subject by virtue of this Schedule,”.

• (3) In sub-paragraph (2)—

• (a) in paragraph (b), for “the rules” substitute “its rules, or the”, and

• (c) in paragraph (c), for “the rules” substitute “its rules”.

• (4) In sub-paragraph (3) (construction of references to practices), omit the words from “and the practices referred to in paragraph (c)” to the end; and after that sub-paragraph insert—

(3A) The practices referred to in paragraph (c) of sub-paragraph (1) above are practices in relation to business in respect of which the persons in question are subject to— (a) the rules of the organisation, or (b) statements of principle, rules, regulations or codes of practice to which its members are subject by virtue of this Schedule, and which are required or contemplated by the rules of the organisation or by those statements, rules, regulations or codes, or by guidance issued by the organisation, or which are otherwise attributable to the conduct of the organisation as such.

.

31

In paragraph 13, for “Paragraphs 14 to 25” substitute “Paragraphs 13A to 25”.

32

Before paragraph 14 and after the heading “Conduct of investment business”, insert—

(13A) (1) The Registrar may issue statements of principle with respect to the conduct expected of regulated friendly societies. (2) The conduct expected may include compliance with a code or standard issued by another person, as for the time being in force, and may allow for the exercise of discretion by any person pursuant to any such code or standard. (3) Failure to comply with a statement of principle under this paragraph is a ground for the taking of disciplinary action or the exercise of powers of intervention, but it does not give rise to any right of action by investors or other persons affected or affect the validity of any transaction. (4) The disciplinary action which may be taken by virtue of sub-paragraph (3) is— (a) the making of a public statement under paragraph 21, or (b) the application by the Registrar for an injunction, interdict or other order under paragraph 22(1), or (c) any action under paragraph 26 or 27 of this Schedule; and the reference in that sub-paragraph to powers of intervention is to the powers conferred by Chapter VI of Part I of this Act. (5) Where a statement of principle relates to compliance with a code or standard issued by another person, the statement of principle may provide— (a) that failure to comply with the code or standard shall be a ground for the taking of disciplinary action, or the exercise of powers of intervention, only in such cases and to such extent as may be specified; and (b) that no such action shall be taken, or any such power exercised, except at the request of the person by whom the code or standard in question was issued. (6) The Registrar shall exercise his powers in such manner as appears to him appropriate to secure compliance with statements of principle under this paragraph. (13B) (1) The relevant regulatory authority may on the application of a regulated friendly society— (a) modify a statement of principle issued under paragraph 13A so as to adapt it to the circumstances of the society or to any particular kind of business carried on by it, or (b) dispense the society from compliance with any such statement of principle, generally or in relation to any particular kind of business carried on by it. (2) The powers conferred by this paragraph shall not be exercised unless it appears to the relevant regulatory authority— (a) that compliance with the statement of principle in question would be unduly burdensome for the applicant having regard to the benefit which compliance would confer on investors, and (b) that the exercise of those powers will not result in any undue risk to investors. (3) The powers conferred by this paragraph may be exercised unconditionally or subject to conditions; and paragraph 13A(3) applies in the case of failure to comply with a condition as in the case of failure to comply with a statement of principle. (4) The relevant regulatory authority for the purposes of this paragraph is— (a) in the case of a member society of a recognised self-regulating organisation for friendly societies, in relation to investment business in the carrying on of which it is subject to the rules of the organisation, that organisation; (b) in any other case, or in relation to other investment business, the Registrar. (5) The reference in paragraph 4(1) of Schedule 2 as applied by paragraph 4 above (requirements for recognition of self-regulating organisation for friendly societies) to monitoring and enforcement of compliance with statements of principle includes monitoring and enforcement of compliance with conditions imposed by the organisation under this paragraph.

.

33

• (1) Paragraph 14 (conduct of business rules) is amended as follows.

• (2) In sub-paragraph (1), omit the words “other than a member society”.

• (3) After sub-paragraph (2) insert—

(2A) Paragraph 22B below has effect as regards the application of rules under this paragraph to member societies in respect of investment business in the carrying on of which they are subject to the rules of a recognised self-regulating organisation for friendly societies.

.

• (4) In sub-paragraph (3), omit the word “and” after paragraph (a); and after paragraph (b) insert—

; and (c) for the references in subsection (4) to section 63B and a recognised self-regulating organisation there shall be substituted references to paragraph 13B and a recognised self-regulating organisation for friendly societies.

.

34

• (1) Paragraph 19 (clients’ money regulations) is amended as follows.

• (2) In sub-paragraph (2) for the words from “(but with the substitution” to the end substitute “(but with the substitution for the reference in paragraph (e) of subsection (2) to the Secretary of State of a reference to the Registrar)”.

• (3) After that sub-paragraph insert—

(3) Paragraph 22B below has effect as regards the application of regulations under this paragraph to member societies in respect of investment business in the carrying on of which they are subject to the rules of a recognised self-regulating organisation for friendly societies.

.

35

For paragraph 20 (unsolicited calls) substitute—

(20) (1) Regulations under section 56(1) of this Act shall not permit anything to be done by a regulated friendly society but that section shall not apply to anything done by such a society in the course of or in consequence of an unsolicited call which, as respects the society, constitutes the carrying on of regulated business, if it is permitted to be done by the society by regulations made by the Registrar with the consent of the Secretary of State. (2) Paragraph 22B below has effect as regards the application of regulations under this paragraph to member societies in respect of investment business in the carrying on of which they are subject to the rules of a recognised self-regulating organisation for friendly societies. (3) As it applies to such persons in respect of such business, the reference in sub-paragraph (1) above to conduct permitted by regulations made by the Registrar with the consent of the Secretary of State shall be construed— (a) where or to the extent that the regulations do not apply, as a reference to conduct permitted by the rules of the organisation; and (b) where or to the extent that the regulations do apply but are expressed to have effect subject to the rules of the organisation, as a reference to conduct permitted by the regulations together with the rules of the organisation.

.

36

After paragraph 22 (and after the paragraph inserted by section 193(3)) insert—