The Financial Institutions (Prudential Supervision) Regulations 1996

(1A) Where the person concerned is a qualifying person or a qualifying undertaking, the circumstances referred to in paragraph (1) above are circumstances in which the matters are such as— (a) to give the auditor reasonable cause to believe, as regards the person or undertaking— (i) that there is or has been, or may be or may have been, a contravention of any provision of the Act or any rules or regulations made under it and that the contravention is likely to be of material significance; (ii) that, in purported compliance with any such provision, he or it has furnished the Board with false, inaccurate or misleading information; (iii) that there is or has been, or may be or may have been, a contravention of any prohibition or requirement imposed under the Act and that the contravention is likely to be of material significance; or (iv) that his or its continuous functioning may be affected; or (b) to preclude the auditor from stating in his report that the annual accounts of the person or undertaking have been properly prepared in accordance with the relevant requirements. (1B) The rules, prohibitions and requirements referred to in paragraph (1A) above include— (a) where the person concerned is a member of a recognised self-regulating organisation, the rules of that organisation and any prohibition or requirement imposed by virtue of those rules; (b) where that person is a person certified by a recognised professional body, the rules of that body which regulate the carrying on by that person of investment business and any prohibition or requirement imposed by virtue of those rules.

• (5) In paragraph (2) of that rule—

• (a) there shall be inserted at the beginning the words “Where the person concerned is neither a qualifying person nor a qualifying undertaking,”; and

• (b) the words from “for determining” to the end shall be omitted.

Friendly Societies (Auditors) Order 1994

4

• (1) In relation to any time before it is varied or revoked by an order made under subsection (9) of section 79 of the Friendly Societies Act, the Friendly Societies (Auditors) Order 1994[^f00019] shall have effect as if it were amended as follows.

• (2) In article 2—

• (a) for the definition of “auditor” there shall be substituted the following definition—

• ‘auditor’ means— an auditor of a society; or an auditor of a body with which a society to which section 37(2) or (3) of the Act applies is closely linked by control where he is also either an auditor of the society or an accountant appointed by the society to make a report under section 62(3)(d) of the Act;

• (b) after that definition there shall be inserted the following definitions—

• ‘contravention’, in relation to any provision of the Act, includes any failure to comply with that provision;
• ‘of material significance’ means of material significance for the exercise of the Commission’s functions;

• (c) after the definition of “relevant information” there shall be inserted the following definition—

• ‘reporting accountant’ means an accountant appointed to make a report under section 62(3)(d) of the Act by a friendly society to which section 37(2) or (3) of the Act applies;

; and

• (d) for the word “and” immediately following the definition of “society” there shall be substituted the following definition—

• ‘the society concerned’ means— in relation to an auditor of a society, that society; in relation to an auditor of a body with which a society to which section 37(2) or (3) of the Act applies is closely linked by control, that society; in relation to a reporting accountant, the society in relation to which his report is made;

• (3) In paragraph (1) of article 3—

• (a) after the words “The auditor” there shall be inserted the words “or reporting accountant”; and

• (b) for the words “paragraph (2) below” there shall be substituted the words “paragraph (1A) or (2) below”.

• (4) After that paragraph there shall be inserted the following paragraph—

(1A) Where the society concerned is one to which section 37(2) or (3) of the Act applies, the circumstances referred to in paragraph (1) above are circumstances in which the information of the description prescribed in paragraph (3) below is such as— (a) to give the auditor or reporting accountant reasonable cause to believe, as regards the society concerned— (i) that its authorisation could be withdrawn under section 40(3) of the Act; (ii) that there is or has been, or may be or may have been, a failure to satisfy any of the criteria of prudent management in section 50(3) of the Act and that the failure is likely to be of material significance; (iii) that there is or has been, or may be or may have been, a contravention of any provision of the Act and that the contravention is likely to be of material significance; or (iv) that its continuous functioning may be affected; or (b) in the case of the auditor of the society concerned, to preclude him from stating in his report that its annual accounts have been prepared— (i) so as to conform with the requirements of Part VI of the Act and regulations made under it; or (ii) so as to give a true and fair view of the matters specified in section 73(5) of the Act.

• (5) In paragraph (2) of that article—

• (a) there shall be inserted at the beginning the words “Where the institution concerned is not one to which section 37(2) or (3) of the Act applies,”;

• (b) for the words “an auditor” there shall be substituted the words “the auditor”;

• (c) in sub-paragraph (a), for the words “the society of which he is the auditor” there shall be substituted the words “the society concerned”; and

• (d) in sub-paragraph (b), the words from “for the exercise” to the end shall be omitted.

• (6) In paragraph (3) of that article—

• (a) after the words “the auditor”, in the first place where they occur, there shall be inserted the words “or reporting accountant”; and

• (b) for the words “the society of which he is the auditor” there shall be substituted the words “the society concerned”.

Auditors (Insurance Companies Act 1982) Regulations 1994

5

• (1) In relation to any time before they are varied or revoked by regulations made under subsection (2) of section 21A of the Insurance Companies Act, the Auditors (Insurance Companies Act 1982) Regulations 1994[^f00020] shall have effect as if they were amended as follows.

• (2) In regulation 2—

• (a) for the definition of “auditor”, there shall be substituted the following definitions—

• ‘auditor’ means— auditor of an insurance company to which Part II of the Act applies; or auditor of a body with which a UK or non-EC company is closely linked by control who is also auditor of the company; ‘of material significance’ means of material significance for determining whether any of the powers of intervention conferred on the Secretary of State by sections 38 to 45 of the Act should be exercised;

• (b) after that definition there shall be inserted the following definitions—

• ‘the company concerned’ means— in relation to an auditor of an insurance company to which Part II of the Act applies, that company; in relation to an auditor of a body with which a UK or non-EC company is closely linked by control, that company; ‘contravention’, in relation to any provision of the Act, includes any failure to comply with that provision;

; and

• (c) in the definition of “matters”, after the word “applies” there shall be inserted the words “, or of a body with which a UK or non-EC company is closely linked by control,”.

• (3) In paragraph (1) of regulation 3, for the words “paragraph (2)” there shall be substituted the words “paragraph (1A) or (2)”.

• (4) After that paragraph there shall be inserted the following paragraph—

(1A) Where the company concerned is a UK or non-EC company, the circumstances referred to in paragraph (1) above are circumstances in which the matters are such as— (a) to give the auditor reasonable cause to believe, as regards the company concerned— (i) that its authorisation could be withdrawn under section 11 of the Act otherwise than by virtue of subsection (2)(ab) of that section; (ii) that there is or has been, or may be or may have been, a failure to fulfil any of the criteria of sound and prudent management and that the failure is likely to be of material significance; (iii) that there is or has been, or may be or may have been, a contravention of any provision of the Act and that the contravention is likely to be of material significance; or (iv) that its continuous functioning may be affected; or (b) in the case of the auditor of the company concerned, to preclude him from stating in his report that its annual accounts have been properly prepared in accordance with the Companies Act 1985 or section 17 of the Act.

• (5) In paragraph (2) of that regulation—

• (a) there shall be inserted at the beginning the words “Where the company concerned is not a UK or non-EC company,”; and

• (b) the words from “for determining” to the end shall be omitted.

SCHEDULE 5 — MINOR AND CONSEQUENTIAL AMENDMENTS

Banking Act

1

In the Table in subsection (1) of section 84 of the Banking Act (disclosure for facilitating discharge of functions by other supervisory authorities)—

• (a) the entry relating to the Friendly Societies Commission shall be numbered 5A; and

• (b) in entry 15, the words “or section 84 of the Companies Act 1989” and the words “or section” shall be omitted.

2

After subsection (2A) of section 106 of the Banking Act (interpretation) there shall be inserted the following subsections—

(2B) Any reference in this Act to the First Council Directive or the Second Council Directive is a reference to that Directive as amended by the Prudential Supervision Directive (within the meaning of the Financial Institutions (Prudential Supervision) Regulations 1996). (2C) Any reference in this Act— (a) to an undertaking being closely linked with any person, or being closely linked with any person by control; or (b) to an undertaking’s close links with any person, shall be construed in accordance with regulation 2 of those Regulations.

Building Societies Act

3

In subsection (10) of section 31 of the Building Societies Act (voluntary schemes), for the words “section 26(1)” there shall be substituted the words “section 25A”.

4

In subsections (13A) and (15) of section 53 of the Building Societies Act (confidentiality of information obtained by Commission), for the words “facilitating or assisting”, in each place where they occur, there shall be substituted the words “enabling, facilitating or assisting”.

5

After subsection (2A) of section 119 of the Building Societies Act (interpretation) there shall be inserted the following subsections—

(2B) Any reference in this Act to the First Council Directive or the Second Council Directive is a reference to that Directive as amended by the Prudential Supervision Directive (within the meaning of the Financial Institutions (Prudential Supervision) Regulations 1996). (2C) Any reference in this Act— (a) to an undertaking being closely linked with any person, or being closely linked with any person by control; or (b) to an undertaking’s close links with any person, shall be construed in accordance with regulation 2 of those Regulations.

Friendly Societies Act

6

After subsection (1) of section 119 of the Friendly Societies Act (general interpretation) there shall be inserted the following subsections—

(1A) References in this Act to the first or third general insurance Directive, or to the first or third life Directive, are references to that Directive as amended by the Prudential Supervision Directive (within the meaning of the Financial Institutions (Prudential Supervision) Regulations 1996). (1B) References in this Act— (a) to an undertaking being closely linked with any person, or being closely linked with any person by control; or (b) to an undertaking’s close links with any person, shall be construed in accordance with regulation 2 of those Regulations.

Insurance Companies Act

7

After subsection (3) of section 96 of the Insurance Companies Act (general interpretation) there shall be inserted the following subsection—

(2B) Any reference in this Act— (a) to an undertaking being closely linked with any person, or being closely linked with any person by control; or (b) to an undertaking’s close links with any person, shall be construed in accordance with regulation 2 of the Financial Institutions (Prudential Supervision) Regulations 1996).

8

After subsection (1B) of section 96A of the Insurance Companies Act (interpretation of expressions derived from insurance Directives) there shall be inserted the following subsection—

(1C) Any reference in this Act to the first or third general insurance Directive, or to the first or third long term insurance Directive, is a reference to that Directive as amended by the Prudential Supervision Directive (within the meaning of the Financial Institutions (Prudential Supervision) Regulations 1996).

9

In the Table in paragraph 3(1) of Schedule 2B to the Insurance Companies Act (disclosure for facilitating discharge of functions by other regulatory authorities), in entry 14, the words “or section 84 of the Companies Act 1989” and the words “or section” shall be omitted.

Banking Coordination (Second Council Directive) Regulations 1992

10

After paragraph (1) of regulation 2 of the Banking Coordination (Second Council Directive) Regulations 1992[^f00021] (interpretation: general) there shall be inserted the following paragraph—

(2B) Any reference in these Regulations to the First Council Directive or the Second Council Directive is a reference to that Directive as amended by the Prudential Supervision Directive (within the meaning of the Financial Institutions (Prudential Supervision) Regulations 1996).

Investment Services Regulations 1995

11

After paragraph (1) of regulation 2 of the Investment Services Regulations 1995[^f00022] (interpretation: general) there shall be inserted the following paragraph—

(2B) Any reference in these Regulations to the First Council Directive or the Second Council Directive is a reference to that Directive as amended by the Prudential Supervision Directive (within the meaning of the Financial Institutions (Prudential Supervision) Regulations 1996).

Signed

Bowen Wells — Simon Burns — Two of the Lords Commissioners of Her Majesty’s Treasury — 27th June 1996

Explanatory note

(This note is not part of the Regulations)

These Regulations give effect to European Parliament and Council Directive 95/26/EC (OJ No. L168, 18.7.95, p.7) amending Directives 77/780/EEC and 89/646/EEC in the field of credit institutions, Directives 73/239/EEC and 92/49/EEC in the field of non-life insurance, Directives 79/267/EEC and 92/96/EEC in the field of life assurance, Directive 93/22/EEC in the field of investment firms and Directive 85/611/EEC in the field of undertakings for collective investment in transferable securities (UCITS) with a view to reinforcing prudential supervision.

Part I of the Regulations, together with Schedule 1, defines various words and phrases, including “closely linked”, for the purposes of the Regulations.

Part II of the Regulations makes provision for banking institutions. It amends sections 9 and 11 of the Banking Act 1987 (c. 22) so that the Bank of England must refuse an application for authorisation (and may revoke authorisation) where a credit institution is closely linked to another person and where those close links would prevent the effective exercise of the Bank’s supervisory functions in relation to the institution. The protection given by section 47 of the Banking Act to certain auditors is extended. Part V of the Banking Act is amended so as to permit the disclosure of information in certain circumstances.

Part III of the Regulations makes provision for building societies. Amendments are made to the Building Societies Act 1986 (c. 53) which broadly correspond to those made to the Banking Act.

Part IV of and Schedules 2 and 3 to the Regulations make provision in relation to financial services. Sections 27, 28 and 43 of, and paragraph 2 of Schedule 2 to the Financial Services Act 1986 (c. 60) are to have effect in such a way as to reflect the requirements of the Directive in relation to the grant and revocation of authorisation of investment firms and other authorised institutions, and the recognition of self-regulating organisations. The protection given by section 109 of the Act to certain auditors is extended. Provision is made for the disclosure of information in relation to investment firms and UCITS.

Part V of the Regulations makes provision for friendly societies to which section 37(2) or (3) of the Friendly Societies Act 1992 (c. 40) applies (“Directive societies”). Amendments are made to the Friendly Societies Act 1992 which broadly correspond to those made to the Banking Act. Directive societies are required to have their principal place of business situated in the United Kingdom or, in the case of those Directive societies registered under the Friendly Societies Act 1974 (c. 46), in the British Islands.

Part VI of the Regulations makes provision for insurance companies. Amendments are made to the Insurance Companies Act 1982 (c. 50) which broadly correspond to those made to the Banking Act. In addition, Part VI imposes a duty on certain insurance companies to notify the Secretary of State if they become closely linked to another person.

Part VII of the Regulations deals with miscellaneous and supplemental matters, including transitory provisions for States which are parties to the European Economic Area Agreement but which may not have implemented the Directive fully before the coming into force of the Regulations.

Schedule 4 to the Regulations amends statutory instruments made in 1994 dealing with the duties of auditors of banks and other institutions to which the Directive applies.

Schedule 5 to the Regulations makes minor and consequential amendments to the Banking Act 1987, the Building Societies Act 1986, the Friendly Societies Act 1992 and the Insurance Companies Act 1982, the Banking Coordination (Second Council Directive) Regulations 1992 (SI 1992 No. 3218) and the Investment Services Regulations 1995 (SI 1995 No. 3275).

Footnotes

[^f00001]: See S.I. 1990/1304.

[^f00002]: 1972 c. 68. By virtue of the amendment of section 1(2) of the European Communities Act 1972 by section 1 of the European Economic Area Act 1993 (c. 51), regulations may be made under section 2(2) of the European Communities Act to implement obligations of the United Kingdom created or arising by or under the Agreement on the European Economic Area signed at Oporto on 2nd May 1992 (Cm 2073) and the Protocol adjusting the Agreement signed at Brussels on 17th March 1993 (Cm 2183).

[^f00003]: 1987 c. 22.

[^f00004]: 1986 c. 53.

[^f00005]: 1986 c. 60.

[^f00006]: 1992 c. 40.

[^f00007]: 1982 c. 50.

[^f00008]: Cm 2073.

[^f00009]: Cm 2183.

[^f00010]: O.J. No. L.168, 18.7.95, p.7.

[^f00011]: 1985 c. 6.

[^f00012]: S.I. 1995/3275.

[^f00013]: S.I. 1992/1315.

[^f00014]: S.I. 1987/942.

[^f00015]: 1974 c. 46.

[^f00016]: S.I. 1994/524.

[^f00017]: S.I. 1994/525.

[^f00018]: S.I. 1994/526.

[^f00019]: S.I. 1994/132.

[^f00020]: S.I. 1994/449.

[^f00021]: S.I. 1992/3218.

[^f00022]: S.I. 1995/3275.