Financial Services and Markets Act 2023

(312L) (1) The Treasury may by regulations designate a person who provides services to one or more authorised persons, relevant service providers or FMI entities as a “critical third party”. (2) The Treasury may designate a person under subsection (1) only if in the Treasury’s opinion a failure in, or disruption to, the provision of those services (either individually or, where more than one service is provided, taken together) could threaten the stability of, or confidence in, the UK financial system. (3) The Treasury must have regard to the following factors when forming an opinion for the purposes of subsection (2)— (a) the materiality of the services provided to the delivery, by any person, of essential activities, services or operations (wherever carried out); (b) the number and type of authorised persons, relevant service providers or FMI entities to which the person provides services. (4) Before making regulations under subsection (1) the Treasury must— (a) consult each of the relevant regulators and such other persons as the Treasury consider appropriate, (b) give notice in writing to the person to be designated specifying a reasonable period within which that person may make representations in writing about the proposal to the Treasury, and (c) have regard to any representations made to them in accordance with paragraph (b). (5) The Treasury may not designate the Bank of England under subsection (1). (6) Each of the following is a relevant regulator for the purposes of this Chapter— (a) the FCA, (b) the PRA, and (c) the Bank of England. (7) Activities, services or operations are “essential” for the purposes of subsection (3) if they are essential to— (a) the economy of the United Kingdom, or (b) the stability of, or confidence in, the UK financial system. (8) In this Chapter— - “critical third party” means a person designated under subsection (1); - “FMI entity” means— a recognised clearing house; a recognised CSD; a recognised investment exchange which is not an overseas investment exchange; a recognised payment system under section 184 of the Banking Act 2009; a person specified as a service provider in relation to a recognised payment system under section 206A of the Banking Act 2009; - “relevant service provider” means— an electronic money institution as defined by regulation 2(1) of the Electronic Money Regulations 2011 (S.I. 2011/99); an authorised payment institution, small payment institution or registered account information services provider as defined by regulation 2(1) of the Payment Services Regulations 2017 (S.I. 2017/752); - “service” includes facility. (312M) (1) A relevant regulator may make such rules imposing duties on critical third parties in connection with the provision of services to authorised persons, relevant service providers and FMI entities as appear to the regulator to be necessary or expedient for the purpose of advancing any of its objectives. (2) The reference in subsection (1) to a relevant regulator’s objectives is a reference to— (a) where the regulator is the FCA, one or more of its operational objectives; (b) where the regulator is the PRA, one or more of its objectives; (c) where the regulator is the Bank, the Bank’s Financial Stability Objective. (3) In the application of Part 9A to rules made by the FCA or the PRA under this section, the following provisions apply with the modifications specified in this subsection— (a) section 137T (general supplementary powers) applies as if— (i) the reference in paragraph (a) to “authorised persons, activity or investment” were a reference to “critical third parties or services”, and (ii) in paragraph (b) for the words from “as” to the end there were substituted “or the Bank, or standards issued by any other person, as those rules or standards have effect from time to time,”; (b) section 138B (publication of directions) applies as if subsection (4) were omitted; (c) section 138F (notification of rules) applies as if subsections (1A) and (2) were omitted; (d) section 138I (consultation) applies as if the reference in subsection (1)(a) to the “PRA” were a reference to the “PRA and the Bank”; (e) section 138J (consultation) applies as if the reference in subsection (1)(a) to the “FCA” were a reference to the “FCA and the Bank”. (312N) (1) A relevant regulator may, if it appears to the regulator to be necessary or expedient for the purpose of advancing any of its objectives, direct a critical third party to— (a) do anything specified in the direction, or (b) refrain from doing anything specified in the direction. (2) A direction under this section— (a) must be given by notice in writing, (b) may be expressed to have effect during a specified period or until revoked, and (c) may specify the way in which, and the time by which, a thing is to be done. (3) Subsection (4) applies if a direction is given to a critical third party for the purpose of resolving or reducing a threat to the stability or integrity of the UK financial system. (4) The critical third party (including the critical third party’s officers and staff) has immunity from liability in damages in respect of action or inaction in accordance with the direction. (5) A direction given for the purpose mentioned in subsection (3) must— (a) include a statement that it is given for that purpose, and (b) inform the critical third party of the effect of subsection (4). (6) An immunity conferred by this section does not extend to action or inaction— (a) in bad faith, or (b) in contravention of section 6(1) of the Human Rights Act 1998. (7) A relevant regulator may at any time revoke a direction under this section by giving notice in writing to the critical third party to which the direction relates. (8) The revocation of the direction does not affect the validity of anything previously done in accordance with it. (9) For the purposes of this section the objectives of a relevant regulator are as described in section 312M(2). (312O) (1) If a relevant regulator proposes to give a direction under section 312N, or gives such a direction with immediate effect, it must give written notice to the critical third party to which the direction is given (or is to be given) (the “relevant critical third party”). (2) A direction under section 312N takes effect— (a) immediately, if the notice under subsection (1) states that this is the case, (b) on such other date as may be specified in the notice, or (c) if neither paragraph (a) or (b) applies, when the matter to which the notice relates is no longer open to review. (3) A direction may be expressed to take effect immediately, or on a specified date, only if the relevant regulator reasonably considers that it is necessary for the direction to take effect immediately or on that date. (4) The notice under subsection (1) must— (a) give details of the direction, (b) state the relevant regulator’s reasons for the direction and for its determination as to when the direction takes effect, (c) inform the relevant critical third party that it may make representations to the regulator within such period as may be specified in the notice (whether or not the critical third party has referred the matter to the Tribunal), and (d) inform the relevant critical third party of its right to refer the matter to the Tribunal (including giving an indication of the procedure on such a reference). (5) The relevant regulator may extend the period allowed under the notice for making representations. (6) If, having considered any representations made by the relevant critical third party, the regulator decides— (a) to give the direction proposed, or (b) if the direction has been given, not to revoke the direction, it must give the critical third party written notice. (7) If, having considered any representations made by the relevant critical third party, the regulator decides— (a) not to give the direction proposed, (b) to give a different direction, or (c) to revoke a direction which has effect, it must give the critical third party written notice. (8) A notice given under subsection (6) must inform the relevant critical third party of its right to refer the matter to the Tribunal (including giving an indication of the procedure on such a reference). (9) A notice under subsection (7)(b) must comply with subsection (4). (10) For the purposes of subsection (2)(c), whether a matter is open to review is to be determined in accordance with section 391(8). (312P) (1) The provisions of Part 11 (information gathering and investigations) mentioned in this section are to apply in relation to this Chapter in accordance with the provision made by this section. (2) In any case where subsection (1) applies— (a) any reference in Part 11 to the FCA or PRA which is contained in, or relates to, any of those provisions (however expressed) is to be read as a reference to a relevant regulator, and (b) Part 11 has effect with any other necessary modifications. (3) The powers conferred by section 165(1) and (3) (power to require information) are exercisable by a relevant regulator or (as the case may be) a relevant regulator’s officers to impose requirements on a critical third party or a person connected with a critical third party. (4) The information or documents that a relevant regulator may require to be produced or provided in accordance with subsection (3) are limited to information and documents reasonably required in connection with the exercise by the relevant regulator of functions conferred on it by or under this Chapter (and accordingly section 165(4) does not apply). (5) The power conferred by section 166 (reports by skilled person) is exercisable by a relevant regulator in relation to a critical third party or a person connected with a critical third party. (6) The power conferred by section 166A (appointment of skilled person) is exercisable by a relevant regulator in relation to a critical third party. (7) The power conferred by section 168(5) (appointment of persons to carry out investigations in particular cases) is exercisable by a relevant regulator if it appears to the relevant regulator that there are circumstances suggesting that a person may have contravened any requirement imposed by or under this Chapter. (8) In addition to the powers conferred by section 171, a person conducting an investigation under section 168(5) as a result of subsection (7) is to have the powers conferred by sections 172 and 173 (and for this purpose any references in those sections to an investigator are to be read accordingly). (9) The power under section 176(1) (entry of premises under warrant) is exercisable on information on oath given by or on behalf of a relevant regulator, or an investigator appointed by a relevant regulator, as if the reference to the third set of conditions were omitted. (10) For the purposes of this section a person is connected with a critical third party if that person is or has at any relevant time been— (a) a member of the critical third party’s group, (b) a controller of the critical third party, or (c) in relation to the critical third party, a person mentioned in Part 1 of Schedule 15 (reading references in that Part to the authorised person as references to the critical third party). (312Q) If a relevant regulator considers that a critical third party has contravened a requirement imposed by or under this Chapter the regulator may publish a statement to that effect. (312R) (1) This section applies if a relevant regulator considers that a critical third party has contravened a requirement imposed by or under this Chapter. (2) The relevant regulator may publish a notice— (a) prohibiting the critical third party from entering into arrangements, or continuing, to provide services to authorised persons, relevant service providers or FMI entities; (b) prohibiting authorised persons, relevant service providers or FMI entities who receive services from the critical third party from continuing to receive those services from that party; (c) prohibiting authorised persons, relevant service providers or FMI entities from entering into arrangements for receipt of services from the critical third party; (d) providing for the provision of any services by the critical third party to be subject to such conditions or limitations as are specified in the notice; (e) providing for any receipt of services by authorised persons, relevant service providers or FMI entities from the critical third party to be subject to such conditions or limitations as are specified in the notice. (3) A notice under subsection (2) may make different provision for different cases and may in particular make different provision in respect of different descriptions of services, authorised persons, FMI entities or relevant service providers. (4) A relevant regulator may only exercise the powers under subsection (2) if the regulator is satisfied that— (a) it is appropriate in the circumstances to take action against the critical third party, (b) the exercise of the power will not threaten the stability of, or confidence in, the UK financial system, and (c) it is desirable to exercise the power in order to advance one or more of the regulator’s objectives. (5) A relevant regulator may either on its own initiative or on an application by the critical third party concerned withdraw or vary a notice given by it under subsection (2) by publishing a further notice. (6) Publication under this section is to be made in such manner as the relevant regulator considers best designed to bring the publication to the attention of the public. (7) Where a notice includes a prohibition, condition or limitation imposed under subsection (2), publication of a notice under this section must in particular be made in a manner appearing to the relevant regulator to be best designed to bring the notice to the attention of the persons to whom the prohibition, condition or limitation applies. (8) A person who breaches a prohibition, condition or limitation imposed by a notice under this section is to be taken to have contravened a requirement imposed on the person under this Act. (9) For the purposes of this section the objectives of a relevant regulator are as described in section 312M(2). (312S) (1) If a relevant regulator proposes to publish a statement or notice under section 312Q or 312R, it must give the critical third party, authorised persons, relevant service providers or FMI entities to whom the statement or notice would relate a warning notice. (2) A warning notice must set out the terms of the proposed statement or notice. (3) If a relevant regulator decides to publish a statement or notice under section 312Q or 312R it must give the critical third party, authorised persons, relevant service providers or FMI entities to whom the statement or notice relates a decision notice. (4) A decision notice must set out the terms of the statement or notice. (5) If a relevant regulator decides to act under section 312N or 312Q a critical third party who is aggrieved may refer the matter to the Tribunal. (6) If a relevant regulator decides to act under section 312R a critical third party, authorised person, relevant service provider or FMI entity who is aggrieved may refer the matter to the Tribunal. (312T) (1) The relevant regulators must prepare and publish a statement of policy with respect to the exercise of powers under section 312Q and section 312R. (2) The relevant regulators may alter or replace a statement published under this section. (3) The relevant regulators must publish a statement as altered or replaced under subsection (2). (4) Publication under this section is to be made in such manner as the relevant regulators consider best designed to bring the publication to the attention of the public. (312U) (1) The relevant regulators must co-ordinate the exercise of their respective functions conferred by or under this Chapter. (2) In complying with the duty in subsection (1) each relevant regulator must obtain information and advice from any of the other relevant regulators who may be expected to have relevant information or relevant expertise. (3) The duty in subsection (1) applies only to the extent that compliance with the duty does not impose a burden on the relevant regulators that is disproportionate to the benefits of compliance. (4) Before exercising any power conferred by or under this Chapter a relevant regulator must consult each of the other relevant regulators (where not otherwise required to do so). (312V) (1) The relevant regulators must prepare and maintain a memorandum which describes in general terms— (a) the role of the relevant regulators in relation to the exercise of functions conferred by or under this Chapter, and (b) how they intend to comply with section 312U in relation to the exercise of such functions. (2) The relevant regulators must review the memorandum at least once in each calendar year. (3) The relevant regulators may revise a memorandum under this section. (4) The relevant regulators must give the Treasury a copy of the memorandum and any revised memorandum. (5) The Treasury must lay before Parliament a copy of any document received by them under this section. (6) The relevant regulators must ensure that the memorandum as in force for the time being is published in the way appearing to them to be best calculated to bring it to the attention of the public. (7) The memorandum need not relate to any aspect of compliance with section 312U if the relevant regulators consider— (a) that publication of information about that aspect would be against the public interest, or (b) that aspect is a technical or operational matter not affecting the public. (312W) The following provisions do not apply for the purposes of this Chapter— (a) section 3D (duty to ensure co-ordinated exercise of functions); (b) section 3E (memorandum of understanding); (c) section 138D (actions for damages).

Critical third parties: related amendments

19

• (1) FSMA 2000 is amended as follows.

• (2) In section 313 (interpretation of Part 18), in subsection (1), at the appropriate place insert—

• “critical third party” has the same meaning as in Chapter 3C (see section 312L(8);

.

• (3) In section 380 (injunctions), in subsection (11) after “requirement” insert “, other than a case falling within paragraph 26 of Schedule 17A”.

• (4) In section 391 (publication), in subsection (1ZB) after paragraph (l) insert—

(la) section 312S;

.

• (5) In section 392 (third party rights and access to evidence)—

• (a) in paragraph (a), after “312(G)(1),” insert “312S(1),”, and

• (b) in paragraph (b) after “312H(1),” insert “312S(3),”.

• (6) In section 429 (Parliamentary control of statutory instruments), in subsection (8), in the list of sections beginning with “3G(1),”, insert at the appropriate place “, 312L”.

• (7) The following amendments are to Schedule 17A (application of provisions to Bank).

• (8) In paragraph 10 (rules), after sub-paragraph (4) insert—

(4A) Sub-paragraphs (1) to (4) do not apply in relation to rules made by the Bank under section 312M (in relation to which see paragraph 10A).

• (9) After paragraph 10 insert—

(10A) The following provisions of Part 9A of this Act are to apply in relation to rules made by the Bank under section 312M, subject to the modifications specified in this subsection— (a) section 137T (general supplementary powers) as if— (i) the reference in paragraph (a) to “authorised persons, activity or investment” were a reference to “critical third parties or services”, and (ii) for paragraph (b) there were substituted— (b) may make provision by reference to rules made by the FCA or PRA or standards issued by any other person, as those rules or standards have effect from time to time, (b) sections 138A and 138B (modification or waiver of rules) as if— (i) the reference in subsection (4)(b) of section 138A to any of regulator’s objectives were a reference to the Bank’s Financial Stability Objective, (ii) subsection (5) of section 138A were omitted, and (iii) subsection (4) of section 138B were omitted; (c) section 138BA (disapplication or modification of rules in individual cases) as if subsection (3)(b) and (c) were omitted; (d) (d) section 138C (evidential provisions); (e) section 138E (limits on effect of contravening rules); (f) section 138EA (matters to consider when making rules) as if, for paragraphs (a) and (b) of subsection (5), there were substituted “complying with a recommendation of the Financial Policy Committee of the Bank of England under section 9O of the Bank of England Act 1998 (making of recommendations within the Bank).”; (g) section 138F (notification of rules) as if subsections (1A) and (2) were omitted; (h) section 138G (rule-making instruments); (i) section 138H (verification of rules); (j) section 138J (consultation) as if— (i) the reference in subsection (1)(a) to the “FCA” were a reference to the “FCA and the PRA”; (ii) the reference in subsection (2)(d) to the compatibility of the proposed rules with the provisions mentioned in that subsection were a reference to their compatibility with the Bank’s Financial Stability Objective; and (iii) in subsection (8A), in paragraph (a), for sub-paragraphs (i) and (ii) there were substituted “be prejudicial to advancing the Financial Stability Objective, or”; (k) section 138JA(2), (3) (4), (10) and (11) (duty to consult PRA Cost Benefit Analysis Panel); (l) section 138JB (statement of policy in relation to cost benefit analyses); (m) section 138L (consultation: general exemptions) as if— (i) subsection (1) were omitted, and (ii) in subsection (2) for paragraphs (a) and (b) there were substituted “be prejudicial to financial stability.”; (n) section 141A (power to make consequential amendments of references to rules); (o) section 141B (power to consequentially amend enactments).

• (10) In paragraph 23(1) (public record and disclosure of information), after “discharge of,” insert “any of its functions under Chapter 3C of Part 18 of this Act,”.

• (11) In paragraph 26(2) (injunctions), after paragraph (a) insert—

(aa) a requirement that is imposed on a critical third party by the Bank by or under any provision of Chapter 3C of this Part of this Act;

.

• (12) In paragraph 28 (restitution)—

• (a) in sub-paragraph (2), in the words before paragraph (a), for “or a recognised CSD” substitute “, a recognised CSD or a critical third party”;

• (b) in sub-paragraph (2)(a) for “or the recognised CSD” substitute “, the recognised CSD or the critical third party”;

• (c) in sub-paragraph (4)(a) for “or the recognised CSD” substitute “, the recognised CSD or the critical third party”.

• (13) In paragraph 29 (notices) for “or 312H” substitute “, 312H or 312S”.

• (14) In paragraph 30 (offences), after sub-paragraph (a) insert—

(aa) a requirement that is imposed by or under any provision of Chapter 3C of Part 18 of this Act that relates to critical third parties;

.

• (15) In paragraph 32 (records) after “recognised CSDs” insert “, critical third parties”.

• (16) In paragraph 33(a) (annual report), in the substituted paragraph (a), after “recognised CSDs” insert “, critical third parties”.

• (17) See also Part 6 of Schedule 2.

Financial promotion

Financial promotion

20

• (1) FSMA 2000 is amended as follows.

• (2) In section 21 (restrictions on financial promotion), after subsection (2) insert—

(2A) The content of a communication may be approved for the purposes of this section by an authorised person only if the giving of the approval— (a) is permitted under section 55NA (which enables approval to be given with FCA permission), or (b) falls within an exemption conferred by regulations under section 55NB.

• (3) After section 55N insert—

(55NA) (1) An authorised person must not approve the content of a communication for the purposes of section 21 unless the person has permission to do so given by the FCA under this section. (2) An authorised person who approves the content of a communication for the purposes of section 21 otherwise than in accordance with permission granted under this section is to be taken to have contravened a requirement imposed on the person by the FCA under this Act. (3) Permission may be granted by the FCA under this section on the application of— (a) an authorised person, or (b) an applicant for Part 4A permission that has yet to be determined. (4) The FCA may grant a person permission under this section— (a) on the terms sought in the application (which may include the grant of permission to give approvals generally for the purposes of section 21), or (b) subject to any other terms the FCA considers appropriate (which may in particular provide for the giving of permission in a narrower description of case than that sought in the application). (5) Where the FCA grants permission to a person under this section, the FCA may vary or cancel the permission— (a) on the application of the person to whom it was given, or (b) of its own initiative, and subsection (4)(b) applies to the variation of permission as it applies to its grant. (6) If the FCA grants or varies permission under this section it must set out the terms on which the permission is given, described in such way as it considers appropriate. (7) The FCA may refuse to grant an application for permission under this section, or for its variation or cancellation under subsection (5)(a), if it appears to the FCA that it is desirable to do so in order to advance one or more of its operational objectives. (8) The FCA may vary or cancel a person’s permission under subsection (5)(b) if it appears to the FCA that— (a) the person has failed, during a period of at least 12 months, to give, or to refuse to give, any approvals for the purposes of section 21 in accordance with the permission, or (b) it is desirable to vary or cancel the permission in order to advance one or more of its operational objectives. (9) The FCA must consult— (a) the PRA before giving permission under this section to, or before varying or cancelling permission under this section given to— (i) a person who is, or will on the granting of an application for Part 4A permission be, a PRA-authorised person, or (ii) a person who is a member of a group which includes a PRA-authorised person; (b) the Gibraltar regulator (within the meaning of Schedule 2A) before giving permission under this section to, or before varying or cancelling permission under this section given to, a Gibraltar-based person. (10) Subsection (9)(b) does not apply in a case where the FCA varies or cancels permission of a Gibraltar-based person in exercise of its power under subsection (5)(b), but the FCA must inform the Gibraltar regulator in writing of the variation or cancellation. (11) Subsections (1) and (2) do not apply if the giving of approval falls within an exemption conferred by regulations made under section 55NB. (12) Nothing in this section limits any other power under this Act to impose requirements in relation to approvals given for the purposes of section 21 so far as those requirements are additional to the requirement imposed by subsection (1) of this section (but any such other requirement that is inconsistent with the requirement imposed by that subsection is of no effect to the extent of that inconsistency). (55NB) (1) The Treasury may by regulations provide for exemptions from the requirement imposed by section 55NA(1) not to give approvals for the purposes of section 21 without permission. (2) Regulations under subsection (1) may provide for an exemption to have effect— (a) in respect of specified persons; (b) in respect of persons falling within a specified class; (c) in respect of approval given in relation to activities of a specified description; (d) only in specified circumstances; (e) subject to specified conditions. (3) In this section “specified” means specified in regulations under this section.

• (4) Schedule 5 contains amendments related to this section.

• (5) The amendments made by this section and Schedule 5—

• (a) apply to an authorised person whether the person became authorised before or after the coming into force of this section;

• (b) do not affect the approval of a communication given before the coming into force of this section.

Sustainability disclosure requirements

Sustainability disclosure requirements

21

• (1) FSMA 2000 is amended as follows.

• (2) After section 416 insert—

(416A) (1) The Treasury may prepare an SDR policy statement. (2) An “SDR policy statement” is a statement of the policies of His Majesty’s Government concerning disclosure requirements in connection with matters relating to sustainability. (3) In preparing an SDR policy statement, the Treasury must consult the regulators. (4) The Treasury must publish any SDR policy statement in such manner as they consider appropriate. (5) The Treasury— (a) must keep any SDR policy statement under review; (b) may prepare a revised statement (and subsections (3) and (4) apply in relation to any revised statement); (c) may withdraw any SDR policy statement. (6) The Treasury may request a regulator to provide them with a report on any matter that the Treasury require in connection with the preparation of an SDR policy statement. (7) A request for a report under subsection (6)— (a) must be made in writing, and (b) may require a regulator to send the report to the Treasury within such reasonable period as may be specified in the request (or such other period as may be agreed). (8) A regulator must comply with a request under subsection (6). (9) Nothing in section 348, or in regulations made under section 349, is to be taken as preventing or restricting the ability of a regulator to disclose information to the Treasury for the purposes of this section. (10) Subsection (9) does not apply in relation to information provided to a regulator by a regulatory authority outside the United Kingdom. (416B) (1) When making rules or issuing guidance in connection with disclosure concerning matters relating to sustainability, a regulator must have regard to any SDR policy statement (within the meaning of section 416A) that the Treasury have published and not withdrawn. (2) For the purposes of this section, matters relating to sustainability include matters relating to— (a) the environment, including climate change, (b) social, community and human rights issues, (c) tackling corruption and bribery, and (d) governance, so far as relevant to matters within paragraphs (a) to (c).

• (3) In Schedule 1ZA (the Financial Conduct Authority), in paragraph 11 (annual report), in sub-paragraph (1)—

• (a) after paragraph (ha) insert—

(hc) how it has satisfied the requirement in section 138EA(2) so far as regarding disclosure requirements in connection with matters relating to sustainability;

;

• (b) after paragraph (ia) insert—

(ib) how it has satisfied the requirement in section 416B to have regard to any SDR policy statement of the Treasury published and not withdrawn under section 416A (sustainability disclosure requirements: policy statement);

.

• (4) In Schedule 1ZB (the Prudential Regulation Authority), in paragraph 19 (annual report), in sub-paragraph (1)—

• (a) after paragraph (e) insert—

(ea) how it has satisfied the requirement in section 138EA(2) so far as regarding disclosure requirements in connection with matters relating to sustainability;

;

• (b) after paragraph (fa) insert—

(fb) how it has satisfied the requirement in section 416B to have regard to any SDR policy statement of the Treasury under section 416A (sustainability disclosure requirements: policy statement), and

.

Digital settlement assets

Digital settlement assets

22

In Schedule 6, which provides for the regulation of digital settlement assets—

• (a) Part 1 extends Part 5 of the Banking Act 2009 (Bank of England oversight of payment systems) to payment systems using digital settlement assets and DSA service providers, and makes consequential provision;

• (b) Part 2 extends Part 5 of the Financial Services (Banking Reform) Act 2013 (regulation of payment systems) to payment systems using digital settlement assets.

Digital settlement assets: power to make regulations

23

• (1) The Treasury may by regulations make such provision as they consider appropriate for the purpose of, or in connection with—

• (a) the regulation of payments that include digital settlement assets,

• (b) the regulation of—

• (i) recognised payment systems that include arrangements using digital settlement assets,

• (ii) recognised DSA service providers, and

• (iii) service providers connected with, or in relation to, the systems and providers mentioned in sub-paragraphs (i) and (ii),

as those terms are for the time being defined in Part 5 of the Banking Act 2009, and

• (c) making insolvency arrangements (including administration, restructuring and any similar procedure) in respect of the systems and providers mentioned in paragraph (b).

• (2) In this section, “digital settlement asset” means a digital representation of value or rights, whether or not cryptographically secured, that—

• (a) can be used for the settlement of payment obligations,

• (b) can be transferred, stored or traded electronically, and

• (c) uses technology supporting the recording or storage of data (which may include distributed ledger technology).

• (3) The provision that may be made by regulations under this section includes provision—

• (a) applying legislation relating to the regulation of electronic money and payments to digital settlement assets (subject to whatever modifications the Treasury consider appropriate);

• (b) applying legislation relating to insolvency arrangements and interactions between different arrangements to the systems and providers mentioned in subsection (1) (subject to whatever modifications the Treasury consider appropriate);

• (c) conferring powers on the Treasury (including a power to legislate);

• (d) conferring powers, or imposing duties, on a relevant regulator (including a power to make rules or other instruments);

• (e) about fees or other charges payable to a relevant regulator;

• (f) about recognition orders and recognition criteria in Part 5 of the Banking Act 2009;

• (g) about the enforcement of obligations arising under or by virtue of the regulations;

• (h) about appeals in respect of decisions made under or by virtue of the regulations;

• (i) about the sharing of information.

• (4) Provision under subsection (3)(g) may include provision creating offences punishable on summary conviction—

• (a) in England and Wales, with imprisonment for a term not exceeding 3 months or a fine, or both;

• (b) in Scotland and Northern Ireland, with imprisonment for a term not exceeding 3 months or a fine not exceeding level 5 on the standard scale, or both.

• (5) The power to make regulations under this section includes power to modify legislation.

• (6) The power under subsection (5) includes power to modify the definition of “digital settlement asset” in subsection (2).

• (7) Regulations under this section are—

• (a) subject to the affirmative procedure, or

• (b) if the Treasury consider it necessary for the regulations to come into force without delay, subject to the made affirmative procedure.

• (8) Before making regulations under this section, the Treasury must consult—

• (a) the FCA,

• (b) the Bank of England, and

• (c) in relation to regulations that refer to the PRA or to the Payment Systems Regulator, those bodies.

• (9) Where regulations under this section are subject to the made affirmative procedure the statutory instrument containing them must be laid before Parliament after being made.

• (10) Regulations contained in a statutory instrument laid before Parliament under subsection (9) cease to have effect at the end of the period of 28 days beginning with the day on which the instrument is made unless, during that period, the instrument is approved by a resolution of each House of Parliament.

• (11) In calculating the period of 28 days, no account is to be taken of any whole days that fall within a period during which—

• (a) Parliament is dissolved or prorogued, or

• (b) either House of Parliament is adjourned for more than four days.

• (12) If regulations cease to have effect as a result of subsection (10), that does not—

• (a) affect the validity of anything previously done under the regulations, or

• (b) prevent the making of new regulations.

• (13) In this section—

• “legislation” means primary legislation, subordinate legislation and assimilated direct legislation;

• “relevant regulator” means—the FCA,the Bank of England, orthe Payment Systems Regulator.

Mutual recognition

Implementation of mutual recognition agreements

24

• (1) The Treasury may by regulations make such provision as they consider appropriate for the purpose of, or in connection with, implementing any mutual recognition agreement to which the United Kingdom is, or is expected to become, a party.

• (2) The reference in subsection (1) to a “mutual recognition agreement” is a reference to any international agreement so far as it provides for, or relates to—

• (a) the recognition that the law and practice of a foreign country is, in respect of relevant matters, equivalent to the law and practice of the United Kingdom, and

• (b) the recognition that the law and practice of the United Kingdom is, in respect of relevant matters, equivalent to the law and practice of that foreign country.

• (3) Matters are “relevant matters” for the purposes of subsection (2) if they relate to financial services or markets (whether generally or in particular respects).

• (4) The provision that may be made by regulations under this section includes provision—

• (a) conferring powers on the Treasury (including a power to legislate);

• (b) conferring powers, or imposing duties, on a relevant regulator (including a power to make rules or other instruments);

• (c) about fees or other charges payable to a relevant regulator;

• (d) about the enforcement of obligations arising under or by virtue of the regulations;

• (e) about appeals in respect of decisions made under or by virtue of the regulations;

• (f) about the sharing of information.

• (5) The reference in this section to a mutual recognition agreement to which the United Kingdom is, or is expected to become, a party includes a reference to such an agreement as modified or supplemented from time to time.

• (6) The power to make regulations under this section includes power to modify legislation.

• (7) Before making provision under subsection (4)(b) that imposes a duty on a relevant regulator the Treasury must consult the regulator.

• (8) Provision under subsection (4)(b) that imposes a duty on a relevant regulator to make rules may (among other things)—

• (a) specify matters that the rules must cover;

• (b) specify a period within which the rules must be made.

• (9) But except so far as permitted by subsection (8), such provision may not require rules to be made in a specified form or with specified content.

• (10) Regulations under this section are subject to the affirmative procedure.

• (11) In this section—

• “foreign country” means a country or territory outside the United Kingdom;

• “legislation” means primary legislation, subordinate legislation and assimilated direct legislation;

• “relevant regulator” means—the FCA,the PRA, orthe Bank of England;

• “specified” means specified in regulations under this section.

CHAPTER 3 — Accountability of regulators

FCA and PRA objectives and regulatory principles

Competitiveness and growth objective

25

• (1) FSMA 2000 is amended as follows.

• (2) In section 1B (FCA’s general duties), after subsection (4) insert—

(4A) When discharging its general functions in the way mentioned in subsection (1) the FCA must, so far as reasonably possible, act in a way which, as a secondary objective, advances the competitiveness and growth objective (see section 1EB).

• (3) After section 1E insert—

(1EB) The competitiveness and growth objective is: facilitating, subject to aligning with relevant international standards— (a) the international competitiveness of the economy of the United Kingdom (including in particular the financial services sector), and (b) its growth in the medium to long term.

• (4) In section 2H—

• (a) in the title, for “competition objective” substitute “objectives”;

• (b) for subsection (1) substitute—

(1) When discharging its general functions in a way that advances its objectives (see section 2F), the PRA must, so far as reasonably possible, act in a way that advances the following secondary objectives— (a) the competition objective, and (b) the competitiveness and growth objective. (1A) The competition objective is: facilitating effective competition in the markets for services provided by PRA-authorised persons in carrying on regulated activities. (1B) The competitiveness and growth objective is: facilitating, subject to aligning with relevant international standards— (a) the international competitiveness of the economy of the United Kingdom (including in particular the financial services sector through the contribution of PRA-authorised persons), and (b) its growth in the medium to long term.

Competitiveness and growth objective: reporting requirements

26

• (1) Each regulator must make two reports to the Treasury on how it has complied with its duty to advance the competitiveness and growth objective.

• (2) The reports prepared by each regulator under subsection (1) must in particular explain—

• (a) the action taken by the regulator to ensure that the competitiveness and growth objective is embedded in its operations, processes and decision-making, and

• (b) how any rules and guidance that the regulator has made advance that objective.

• (3) The first report under this section must be made before the end of 12 months beginning with the first day on which section 25 of this Act comes into force, and must relate to that period.

• (4) The second report under this section must be made before the end of 24 months beginning with the first day on which section 25 of this Act comes into force, and must relate to the period beginning with the day on which the first report is published.

• (5) The Treasury must lay a copy of each report prepared under this section before Parliament.

• (6) Each regulator must publish its reports prepared under this section in such manner as it thinks fit.

• (7) In this section—

• (a) “regulator” means the FCA and the PRA;

• (b) references to the competitiveness and growth objective, and the duty to advance that objective, are—

• (i) in relation to the FCA, references to its objective in section 1EB of FSMA 2000 and to its duty to advance that objective under section 1B(4A) of that Act, and

• (ii) in relation to the PRA, references to its objective in section 2H(1B) of FSMA 2000 and to its duty to advance that objective under section 2H(1)(b) of that Act.

Regulatory principles

27

In section 3B of FSMA 2000 (regulatory principles to be applied by both regulators), in subsection (1) for paragraph (c) substitute—

(c) the need to contribute towards achieving compliance by the Secretary of State with section 1 of the Climate Change Act 2008 (UK net zero emissions target) and section 5 of the Environment Act 2021 (environmental targets) where each regulator considers the exercise of its functions to be relevant to the making of such a contribution;

.

Sections 25 and 27: consequential amendments

28

• (1) FSMA 2000 is amended as follows.

• (2) In section 1JA (Treasury recommendations in connection with general duties), after subsection (1)(c) insert—

(ca) how to discharge the duty in section 1B(4A) (duty to advance competitiveness and growth objective),

.

• (3) In section 1K (guidance about objectives), after subsection (1) insert—

(1A) The reference in subsection (1) to the FCA’s operational objectives includes, in its application as a secondary objective, the competitiveness and growth objective (see section 1EB).

• (4) In section 2I (guidance about objectives), after subsection (1) insert—

(1A) The reference in subsection (1) to the PRA’s objectives includes, in their application as secondary objectives, the competition objective and competitiveness and growth objective (see section 2H).

• (5) In section 3B (regulatory principles to be applied by both regulators), for subsection (3) substitute—

(3) “Objectives”— (a) in relation to the FCA means— (i) operational objectives, and (ii) in its application as a secondary objective, the competitiveness and growth objective (see section 1EB), and (b) in relation to the PRA means— (i) the PRA’s objectives, and (ii) in their application as secondary objectives, the competition objective and competitiveness and growth objective (see section 2H).

• (6) In section 3D (duty of FCA and PRA to ensure co-ordinated exercise of functions), for subsection (4) substitute—

(4) In this section, “objectives”— (a) in relation to the FCA means— (i) operational objectives, and (ii) in its application as a secondary objective, the competitiveness and growth objective (see section 1EB), and (b) in relation to the PRA means— (i) the PRA’s objectives, and (ii) in their application as secondary objectives, the competition objective and competitiveness and growth objective (see section 2H). (5) Where a regulator is proposing to exercise a function that is not one of its general functions, the reference to “objectives” in subsection (1)(a) does not include the secondary objectives mentioned in subsection (4)(a)(ii) and (b)(ii). (6) In this section, “general functions”— (a) in relation to the FCA, has the same meaning as in section 1B(6), and (b) in relation to the PRA, has the same meaning as in section 2J(1).

• (7) In section 138I (consultation by the FCA), in subsection (2)(d) after “1B(1)” insert “, (4A)”.

• (8) In section 143G (matters to consider when making Part 9C rules)—

• (a) in subsection (1)—

• (i) insert “and” after paragraph (a), and

• (ii) omit paragraphs (b) and (c);

• (b) omit subsection (2).

• (9) In section 232A (scheme operator’s duty to provide information to FCA)—

• (a) the existing words become subsection (1), and

• (b) after that subsection insert—

(2) The reference in subsection (1) to the FCA’s operational objectives includes, in its application as a secondary objective, the competitiveness and growth objective (see section 1EB).

• (10) In paragraph 11 of Schedule 1ZA (FCA annual report), in sub-paragraph (1) after paragraph (d) insert—

(da) how, in its opinion, it has complied with the duty in section 1B(4A),

.

• (11) In paragraph 20 of Schedule 1ZB (consultation about PRA annual report), in sub-paragraph (1)(c) for “and the PRA has facilitated effective competition in accordance with” substitute “including its secondary objectives under”.

FCA and PRA powers to make rules etc

Review of rules

29

• (1) FSMA 2000 is amended as follows.

• (2) After section 3R (arrangements for provision of services) insert—

(3RA) (1) Each regulator must keep under review generally any rules made by the regulator under this Act or any other enactment (whenever passed or made). (2) Subsection (1) does not apply to rules made for the purpose of complying with a direction or recommendation of the Financial Policy Committee of the Bank of England under— (a) section 9H of the Bank of England Act 1998 (directions to FCA or PRA requiring macro-prudential measures), or (b) section 9Q of that Act (recommendations to FCA and PRA). (3RB) (1) Each regulator must prepare and publish a statement of its policy with respect to its review of rules under section 3RA. (2) The statement must provide information about— (a) how representations (including by a statutory panel) can be made to each regulator with respect to its review of rules under section 3RA, and (b) the arrangements to ensure that those representations are considered. (3) In this section “statutory panel” has the meaning given by section 1RB(5). (4) If a statement published under this section is altered or replaced by a regulator, the regulator must publish the altered or replaced statement. (5) A statement prepared under this section must be published by the regulator in the way appearing to that regulator to be best designed to bring it to the attention of the public. (3RC) (1) The Treasury may by direction require a regulator to carry out a review of specified rules if— (a) the rules have been in force for at least 12 months, (b) the Treasury consider that it is in the public interest that the rules are reviewed, and (c) it does not appear to the Treasury that— (i) the regulator is carrying out, or proposes to carry out, a review of those rules, or (ii) if the regulator proposes to carry out a review, the proposals are appropriate for the purposes of carrying out an effective review. (2) Subsection (1) only applies to rules falling within section 3RA(1). (3) The Treasury must consult the regulator concerned before giving a direction under subsection (1). (4) In exercising the power under this section, the Treasury must have regard to the desirability of minimising any adverse effect that the carrying out of the review may have on the exercise by the regulator of any of its other functions. (5) A direction under subsection (1) may— (a) specify the period within which a review must be carried out; (b) determine the scope and conduct of a review; (c) require the provision of interim reports during the carrying out of a review. (6) Provision made in a direction under subsection (5)(b) may include a requirement— (a) for a review to be carried out by a person appointed by the regulator who is independent of the regulator; (b) for any such appointment to be made only with the approval of the Treasury. (7) As soon as practicable after giving a direction under subsection (1) the Treasury must— (a) lay before Parliament a copy of the direction, and (b) publish the direction in such manner as the Treasury think fit. (8) Subsection (7) does not apply where the Treasury consider that publication of the direction would be against the public interest. (9) A direction under subsection (1) may be varied or revoked by the giving of a further direction. (3RD) (1) This section applies where the Treasury have given a direction to a regulator under section 3RC(1) to carry out a review. (2) The regulator must make a written report to the Treasury as to the opinion of the regulator in relation to the following matters— (a) if the regulator is the FCA, whether the rules under review— (i) are compatible with the FCA’s strategic objective, (ii) advance one or more of the FCA’s operational objectives, and (iii) advance the competitiveness and growth objective; (b) if the regulator is the PRA, whether the rules under review— (i) advance one or more of the PRA’s objectives, and (ii) advance the PRA’s competition objective and the PRA’s competitiveness and growth objective; (c) whether and to what extent the rules are functioning effectively and achieving their intended purpose; (d) whether any amendments should be made to the rules and, if so, what those amendments should be; (e) whether any rules should be revoked (with or without replacement); (f) whether any other action should be taken and, if so, what that action should be. (3) As soon as practicable after receiving the report the Treasury must— (a) lay before Parliament a copy of the report, and (b) publish the report in such manner as the Treasury think fit. (4) When complying with subsection (3) the Treasury may withhold material from the report if the Treasury consider that publication of the material would be against the public interest.

Treasury power in relation to rules

30

• (1) FSMA 2000 is amended as follows.

• (2) After section 3RD (inserted by section 29) insert—

(3RE) (1) The Treasury may by regulations require a regulator to exercise a power under this Act to make rules in relation to a specified activity or a specified description of person. (2) Regulations under this section may— (a) specify matters that the rules must cover; (b) specify a period within which the rules must be made. (3) But except so far as permitted by subsection (2), regulations under this section may not require rules to be made— (a) in a specified form or with specified content, or (b) to achieve or advance a specified outcome. (4) If no period is specified under subsection (2)(b) the rules must be made as soon as reasonably practicable after the coming into force of the regulations.

• (3) In section 429 (Parliamentary control of statutory instruments) in subsection (2) after “section” insert “3RE,”.

Matters to consider when making rules

31

• (1) FSMA 2000 is amended as follows.

• (2) Before section 138F (under the italic heading “Procedural provisions”) insert—

(138EA) (1) This section applies where either regulator proposes to make rules. (2) The regulator must have regard to any specified matters that are relevant to the making of the rules in question. (3) “Specified” means specified in regulations made by the Treasury for the purposes of this section. (4) The specification of a matter for the purposes of this section may apply generally to the making of rules or be limited in whatever way the Treasury consider appropriate, including by reference to— (a) the power under which the rules are made; (b) the persons to whom the rules apply; (c) the activities or subject-matter to which the rules relate. (5) The requirement imposed by subsection (2) does not apply in respect of any rules if, or to the extent that, the rules are made for the purposes of— (a) complying with a direction given by the Financial Policy Committee of the Bank of England under section 9H of the Bank of England Act 1998 (directions requiring macro-prudential measures), or (b) acting in accordance with a recommendation made by that Committee under section 9Q of that Act (recommendations about the exercise of the FCA and PRA functions). (6) The requirement to have regard to specified matters under this section when making rules is in addition to any other requirements to have regard to matters when making such rules imposed by another provision of this Act or by any other enactment.

• (3) In section 138I (consultation by the FCA)—

• (a) in subsection (2) after paragraph (b) insert—

(ba) an explanation of the ways in which having regard to specified matters under section 138EA(2) has affected the proposed rules,

;

• (b) after subsection (8) insert—

(8A) The requirement to provide the explanation referred to in subsection (2)(ba) does not apply in relation to any rules if— (a) the FCA considers that the delay involved in complying with that requirement would be prejudicial to the interests of consumers (as defined in section 425A) or other persons whose interests would be protected by the rules, or (b) the rules change existing rules and the changes consist of, or include, changes which, in the FCA’s opinion, are not material. (8B) Where an explanation is not provided by virtue of subsection (8A)(b), the draft of the rules must be accompanied by a statement of the FCA’s opinion.

• (4) In section 138J (consultation by the PRA)—

• (a) in subsection (2) after paragraph (b) insert—

(ba) an explanation of the ways in which having regard to specified matters under section 138EA(2) has affected the proposed rules,

;

• (b) after subsection (8) insert—

(8A) The requirement to provide the explanation referred to in subsection (2)(ba) does not apply in relation to any rules if— (a) the PRA considers that the delay involved in complying with that requirement would— (i) be prejudicial to the safety and soundness of PRA-authorised persons, or (ii) in a case where section 2C applies, be prejudicial to securing the appropriate degree of protection for policyholders, or (b) the rules change existing rules and the changes consist of, or include, changes which, in the PRA’s opinion, are not material. (8B) Where an explanation is not provided by virtue of subsection (8A)(b), the draft of the rules must be accompanied by a statement of the PRA’s opinion.

• (5) In section 429 (Parliamentary procedure for statutory instruments), in subsection (2), in the list of sections beginning with “90B” insert at the appropriate place “138EA(3),”.

Effect of rules etc on deference decisions

32

• (1) FSMA 2000 is amended as follows.

• (2) In the italic heading before section 410, after “international” insert “powers and”.

• (3) Before section 410 insert—

(409A) (1) This section applies where a regulator is proposing to take a relevant action. (2) The regulator— (a) must consider the effect of the relevant action on notified deference decisions, and (b) if having done so it appears to the regulator that there is a material risk that the relevant action would be incompatible with a notified deference decision, must consult the Treasury about the likely effect of the action on the decision. (3) Subsection (2) applies only if a duty to consult applies in respect of the taking of the relevant action. (4) For the purposes of subsection (1) a regulator proposes to take a “relevant action” if— (a) it proposes to make rules under this Act or any other enactment, or (b) it proposes to make changes to its general policies and practices so far as relating to its supervisory functions under section 1L (FCA supervisory functions) or (as the case may be) section 2K (PRA supervisory functions). (5) For the purposes of subsection (2)— (a) “deference decision” means a decision of the Treasury that the law and practice of another country or territory is, so far as relating to financial services and markets, equivalent to the law and practice of the United Kingdom (either generally or as it relates to a particular matter); (b) a deference decision is a “notified deference decision” if the Treasury have, by notice in writing, informed the regulator that it is relevant for the purposes of this section; (c) a relevant action is “incompatible” with a notified deference decision if the action would result in the law and practice of the United Kingdom ceasing to be equivalent to the law and practice of the other country or territory to which the deference decision relates. (6) For the purposes of subsection (3) a duty to consult applies in respect of a relevant action if— (a) the duty imposed by section 138I or 138J to publish a draft of proposed rules applies in respect of the action, or (b) any other duty (whether or not imposed by a provision of this Act) to publish the proposal to take the action in question applies. (7) Section 138M(1) (consultation: exemptions for temporary product intervention rules) is to be ignored for the purposes of subsection (6) in determining whether a duty to consult applies in respect of a relevant action. (8) The requirement imposed by subsection (2)(b) must be carried out before the duty to consult in respect of the relevant action is carried out. (9) The requirements imposed by subsection (2) do not apply to the extent that the regulator takes a relevant action— (a) by the making of product intervention rules under section 137D if the condition in subsection (10) is met, (b) by the making of rules under Part 9C (see instead section 143G(3)), (c) by the making of rules under Part 9D (see instead section 144C(3)), (d) by the making of rules under Part 12B (see instead section 192XB(2)), (e) in order to comply with a direction given by the Financial Policy Committee of the Bank of England under section 9H of the Bank of England Act 1998 (directions required macro-prudential measures), or (f) in order to act in accordance with a recommendation made by that Committee under section 9Q of that Act (recommendations about the exercise of functions). (10) The condition referred to in subsection (9)(a) is that the FCA considers it necessary not to comply with the requirement imposed by subsection (2) for the purpose of advancing— (a) the consumer protection objective, or (b) if an order under section 137D(1)(b) is in force, the integrity objective.

Effect of rules etc on international trade obligations

33

In FSMA 2000 after section 409A (inserted by section 32) insert—

(409B) (1) This section applies where it appears to a regulator that there is a material risk that a relevant action it proposes to take would be incompatible with an international trade obligation. (2) The regulator must give written notice to the Treasury of the proposed action before proceeding to take it. (3) Subsection (2) applies only if a duty to consult applies in respect of the taking of the relevant action. (4) For the purposes of subsection (1) a regulator proposes to take a “relevant action” if— (a) it proposes to make rules under this Act or any other enactment, or (b) it proposes to make changes to its general policies and practices so far as relating to its supervisory functions under section 1L (FCA supervisory functions) or (as the case may be) section 2K (PRA supervisory function). (5) For the purposes of subsection (3) a duty to consult applies in respect of a relevant action if— (a) the duty imposed by section 138I or 138J to publish a draft of proposed rules applies in respect of the action, or (b) any other duty (whether or not imposed by a provision of this Act) to publish the proposal to take the action in question applies. (6) Section 138M(1) (consultation: exemptions for temporary product intervention rules) is to be ignored for the purposes of subsection (5) in determining whether a duty to consult applies in respect of a relevant action. (7) The requirement imposed by subsection (2) must be carried out before the duty to consult in respect of the relevant action is carried out. (8) The requirement imposed by subsection (2) does not apply to the extent that the regulator takes a relevant action— (a) by the making of product intervention rules under section 137D if the condition in subsection (9) is met, (b) in order to comply with a direction given by the Financial Policy Committee of the Bank of England under section 9H of the Bank of England Act 1998 (directions requiring macro-prudential measures), or (c) in order to act in accordance with a recommendation made by that Committee under section 9Q of that Act (recommendations about the exercise of functions). (9) The condition referred to in subsection (8)(a) is that the FCA considers it necessary not to comply with the requirement imposed by subsection (2) for the purpose of advancing— (a) the consumer protection objective, or (b) if an order under section 137D(1)(b) is in force, the integrity objective. (10) Subsection (11) applies in a case where a notice under subsection (2) is not given because of subsection (3) or (8)(a). (11) The regulator must give written notice to the Treasury of the relevant action it has taken as soon as reasonably practicable after taking it if it appears to the regulator that there is a material risk that the action is incompatible with an international trade obligation. (12) In this section “international trade obligation” means an obligation of the United Kingdom that relates to financial services or markets under— (a) a free trade agreement, as defined by section 5(1) of the Trade Act 2021, or (b) the agreement establishing the World Trade Organisation signed at Marrakesh on 15 April 1994.

Power to disapply or modify rules

34

• (1) FSMA 2000 is amended as follows.

• (2) After section 138B insert—

(138BA) (1) This section applies to rules made by a regulator if, or to the extent that, regulations made by the Treasury provide for it to apply. (2) The regulator may, on the application or with the consent of a person who is subject to the rules, give the person a permission that enables the person— (a) not to apply the rules, or (b) to apply the rules with the modifications specified in the permission. (3) Subsections (1) and (2) do not apply to— (a) rules made by either regulator under section 64A (rules of conduct); (b) rules made by either regulator under section 137O (threshold condition code); (c) rules made by the FCA under section 247 (trust scheme rules), section 248 (scheme particular rules), section 261I (contractual scheme rules) or section 261J (contractual scheme particulars rules); (d) rules made by the FCA under section 309Z(1) (rules of conduct). (4) The regulator may— (a) give permission under this section subject to conditions, and (b) revoke or vary permission given under this section. (5) Regulations under subsection (1) may make provision about procedural matters in relation to the giving of permission under this section. (6) Provision under subsection (5) may (among other things) include provision about— (a) the making of applications; (b) the determination of applications (including matters to be taken into account in doing so); (c) the giving and withdrawal of consent; (d) requirements as to notification or publication of decisions of a regulator under this section; (e) appeals in respect of decisions of a regulator under this section. (7) Before making regulations under this section in relation to rules made by a regulator the Treasury must consult the regulator.

• (3) In section 429 (Parliamentary control of statutory instruments), in subsection (2), in the list of sections beginning with “90B” insert at the appropriate place “138BA,”.

FCA and PRA engagement

Responses to recommendations of the Treasury

35

• (1) Section 1JA of FSMA 2000 (recommendations by Treasury in connection with general duties) is amended in accordance with subsections (2) and (3).

• (2) After subsection (2) insert—

(2A) The FCA must respond to each recommendation made to it under subsection (1) by notifying the Treasury in writing of— (a) action that the FCA has taken or intends to take in accordance with the recommendation, or (b) the reasons why the FCA has not acted or does not intend to act in accordance with the recommendation. (2B) The notice under subsection (2A) must be given before the end of 12 months beginning with the date the notice containing the recommendation was given under subsection (1). (2C) Where the FCA has given notice under subsection (2A) in relation to a recommendation, the FCA must by notice in writing update the Treasury on the matters mentioned in subsection (2A)(a) and (b) before the end of each subsequent period of 12 months. (2D) Subsection (2C) does not apply if the Treasury have notified the FCA in writing that no update (or further update) is required. (2E) The FCA is not required under subsection (2A) or (2C) to provide any information whose publication would in the opinion of the FCA be against the public interest.

• (3) In subsection (3), for “subsection (1)” substitute “subsection (1), (2A) or (2C)”.

• (4) Section 30B of the Bank of England Act 1998 (recommendations by Treasury) is amended in accordance with subsections (5) and (6).

• (5) After subsection (2) insert—