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