UK: Regulatory Reform - rolling out the building blocks for legal cutover on 1 April 2013

Statutory instruments to fill in the regulatory framework - following the enactment of the Financial Services Act 2012 (the 2012 Act), which amends the Financial Services and Markets Act 2000 (FSMA) - are now being rolled out.  They deal with the panoply of issues required for the smooth transition of regulation from the Financial Services Authority (UK) to the Prudential Regulation Authority (PRA) and the Financial Conduct Authority to take full effect on 1 April 2013 (legal cutover date).   For ease of reference, we have set out links to the Orders and Regulations made to date, together with a brief summary of their effect.  We will keep this page updated in the run-up to 1 April 2013.

The Financial Services Act 2012 (Commencement No. 1) Order 2013:

• Provisions of the Act coming into force on 24th January 2013 for all purposes - essentially powers for Treasury to make subordinate legislation, definitions
• Provisions of the Act coming into force on 24th January 2013 for the purposes of making orders or regulations
• Provisions of the Act coming into force on 24th January 2013 for various limited purposes (e.g. issuing policy statements, statements of principle, directions, requirements)
• Provisions of the Act coming into force on 19th February 2013 for the purposes of making appointments (e.g. Deputy Governors, financial stability strategy and Financial Policy Committee, further amendments relating to Bank of England and the new Regulators)

The Financial Services Act 2012 (Transitional Provisions) (Rules and Miscellaneous Provisions) Order 2013:

• In force 20 February 2013, setting out the interpretation of terms used in the purposes of the Order
• Provides that until 1 April 2013, references to the FCA are not treated as meaning the FSA and vice versa
• Enables the FCA, the PRA and the Bank of England to designate various instruments made by the FSA (eg rules) which will be treated as if they had been made by the designating body - sets out procedural requirements for designation
• Provides for instruments not designated before commencement to cease to have effect
• Enables FSA to appoint persons to discharge certain specified FCA functions of the FCA before commencement
• Provides for certain functions currently exercisable by the FSA to be treated as exercisable by the FCA
• Procedural requirements for consultation in respect of rules made by the FCA where they rules replicate threshold conditions in Schedule 6 to FSMA
• Transitional provision relating to waivers and modifications of rules, and to applications for a waiver or modification or rules
• Transitional provision in respect of the Bank of England Act 1998

The Financial Services and Markets Act 2000 (Prescribed Financial Institutions) Order 2013:

• Into force on 1 April 2013
• Prescribes the financial institutions which are within the scope of consolidated (or supplementary) supervision by virtue of EU law and which are primarily financial in nature: insurance holding companies; financial holding companies; and mixed financial holding companies
• Prescribes all financial institutions for the purposes of Part 12A in so far as that Part applies to the parent undertakings of recognised investment exchanges or to the Bank of England in the exercise of its functions in relation to recognised clearing houses

The Financial Services and Markets Act 2000 (Qualifying EU Provisions) Order 2013

• Into force on 1 April 2013
• Specifies EU law provisions:
  • for general purposes including in respect of the functions of the FCA and PRA and the power of the regulators to appoint an investigator under section 168
  • for disciplinary measures and sets out which Regulator is responsible for taking disciplinary action under each specified provision of EU law
  • for purposes connected with the regulation of clearing houses and investment exchanges under Part 18 of FSMA
  • for injunction or restitution powers under Part 25 of FSMA (including in connection with recognised clearing houses)
  • for the fee-raising powers of the FCA, the PRA and the Bank of England.

The Financial Services Act 2012 (Commencement No. 2) Order 2013:

• Brought Schedule 4 of FSMA on EEA passport rights and Treaty rights into force on 27th February 2013 for the purpose of making regulations
• Brings into force remaining provisions listed in the Schedule for all purposes on 1 April 2013

The Financial Services and Markets Act 2000 (Exercise of Powers under Part 4A) (Consultation with Home State Regulators) Regulations 2013:

• Into force on 1 April 2013
• Prescribe that the appropriate regulator must consult with the home state regulator:
  • when giving permission unless the permission relates only to a “relevant activity”
  • when varying permission, unless the permission relates only to a “relevant activity” or where the effect of the variation is to give permission for the purposes of a single market directive other than the one for the purposes of which the existing permission was granted

The Financial Services and Markets Act 2000 (EEA Passport Rights) (Amendment) Regulations 2013:

• Into force on 1 April 2013
• Prescribe when FCA must give the PRA copies of notices relating to the exercise of rights by EEA firms under single market directives to establish a branch in the UK
• Require the FCA and the PRA to notify each other when an EEA firm or a non-UK firm exercising other Treaty rights qualifies for authorisation under FSMA

The Financial Services Act 2012 (Transitional Provisions) (Permission and Approval) Order 2013:

• Into force on 1 April 2013
• Transitional provisions
  • for permissions under FSMA to carry on regulated activity:
    • things done by or in relation to the FSA pre-commencement to be treated as having be done by or in relation to the PRA, or the PRA and FCA
    • provision in respect of applications for permission, requirements on permission, variation of permission and cancellation of permission
  • in respect of approvals for persons to perform functions specified in rules made by a regulator
  • in respect of the authorisation of Lloyd’s to undertake certain regulated activities
  • in relation to the authorisation of EEA firms exercising rights to establish a branch or provide services in the United Kingdom under certain single market directives relating to financial services or under other EU Treaty rights.

The Financial Services Act 2012 (Transitional Provisions) (Enforcement) Order 2013:

• Into force on 1 April 2013
• Provides for the imposition of penalties and disciplinary measures in relation to the performance of controlled functions before commencement
• But disapplies disciplinary powers:
  • against sponsors in relation to contraventions before commencement
  • provisions relating to the publication of warning notices in relation to warning notices given before commencement
  • against auditors for failure to comply with trust scheme rules before commencement
  • against recognised clearing houses and recognised investment exchanges in relation to contraventions before commencement
• Transitional provision in relation to:
  • the exercise of powers over EEA firms exercising passporting rights under various single market directives
  • the exercise of disciplinary powers in relation to contravention of requirements occurring before commencement
  • persons disqualified before commencement from being the auditor of, or acting as the actuary for, an authorised person or class of authorised person
  • injunctions and restitution
  • prosecution of offences which occurred before commencement
• Provision for various notices and other matters given or imposed by the FSA before commencement to be treated as if given or imposed by the PRA/PRA and FCA

The Financial Services Act 2012 (Transitional Provisions) (Miscellaneous Provisions) Order 2013:

• Into force on 1 April 2013 (except as below)
• Transitional provisions in respect of:
  • the board of the FSA (renamed as the FCA)
  • the FCA’s and PRA's first annual reports
  • the Consumer and Practitioner Panels
  • references to “consumers” in certain provisions of FSMA
  • control of business transfers under Part 7 of FSMA
  • appeals to the Upper Tribunal
  • information gathering and investigation powers in Part 11 of FSMA, and in respect of legally privileged information
  • control over authorised persons
  • the scheme manager of the financial services compensation scheme (FSCS)
  • recognised clearing houses (including amendments to the Companies Act 1989 relating to them), recognised investment exchanges, and Lloyd’s of London
  • insolvency under Part 24 of FSMA
  • complaints
  • a reference in FSMA to Solvency II
  • in relation to the making of rules by the Bank of England under FSMA (as amended by the 2012 Act) - this last provision comes into force on 25 March 2013

The Financial Services Act 2012 (Consequential Amendments and Transitional Provisions) Order 2013

• Into force on 1 April 2013
• Various revocations, including revocation of the Financial Services and Markets Act 2000 (Misleading Statements and Practices) Order 2001
• Amends secondary legislation to reflect the roles of the FCA and the PRA and amendments made by the FS Act to the Financial Services and Markets Act 2000 (including amendments to RAO, FPO and 2007 Money Laundering Regulations)
• Substitutes references to Part 4 and Part 10 of FSMA with references to new Parts 4A and 9A respectively
• Substitutes references to the UKLA and "competent authority for listing in the UK" with references to the FCA

The Financial Services Act 2012 (Mutual Societies) Order 2013

• Into force on 1 April 2013
• Provides for functions of the Financial Services Authority relating to mutual societies to be exercisable by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

The Financial Services and Markets Act 2000 (Over the Counter Derivatives, Central Counterparties and Trade Repositories) Regulations 2013

• Into force on 1 April 2013 (immediately after section 6 of the Financial Services Act 2012 comes fully into force)
• Implement certain Articles Regulation (EU) 648/2012 on OTC derivatives, central counterparties and trade repositories (EMIR)
• Amend Part 18 of FSMA to make the provisions concerning clearing houses compatible with EMIR
  • create a new category of clearing house (“recognised central counterparty”) being those central counterparties subject to, and recognised under, EMIR
  • disapply some provisions of Part 18 of FSMA for these bodies
• Amend the Companies Act 1989 to implement and facilitate the EMIR requirements on segregation and portability of accounts
• Amend the Regulations on Recognition Requirements for Investment Exchanges and Clearing Houses - disapplies regulations for recognised central counterparties and provides that requirements of EMIR must be met for recognition as a recognised central counterparty
• Designate the Bank of England as the competent authority under EMIR for central counterparties
• Designate the FCA as competent authority under EMIR for financial and non-financial counterparties, trading venues, trade repositories and clearing members of central counterparties for most cases, but gives PRA certain competent authority functions in relation to PRA authorised persons
• Empower FCA to obtain information and to impose penalties for contravention of EMIR
• Make provision with regard to applications and notifications to FCA under EMIR
• Give the Bank of England enforcement powers in relation to the EMIR requirements re acquisition of control over central counterparties
• Provide for ESMA to gain access to telephone and data traffic records and make on-site inspections with the authorisation of the High Court, or in Scotland the Court of Session
• Make consequential amendments, transitional and saving provisions
• Require review of the regulations before 1st April 2018 and subsequently at intervals of not more than five years.

The Financial Services and Markets Act 2000 (Threshold Conditions) Order 2013

• Into force on 1 April 2013
• Will amend Schedule 6 to FSMA and set out the threshold conditions for firms for authorisation by the PRA or the FCA 

The Financial Services and Markets Act 2000 (PRA-regulated Activities) Order 2013

• Into force on 1 April 2013 except for:
  • articles 1, 2, 8 and 9 came into force on 8 March 2013
  • articles 3 and 4 came into force on 8 March 2013 for the purpose of making designations under article 3 to take effect on or after 1st April 2013
• Specifies as “PRA-regulated activities” accepting deposits,effecting or carrying out contracts of insurance, acting as a managing agent at Lloyd’s, arranging by the Society of Lloyd’s of contracts of insurance written at Lloyd’s
• Dealing in investments as principal will be a PRA-regulated activity to the extent designated by the PRA - sets out criteria for designation, designation procedure, requirement for PRA to keep under review, withdrawal or lapse of designation;  requires PRS to issue a statement of policy and procedure to be followed

The Uncertificated Securities (Amendment) Regulations 2013

• Into force on 1 April 2013
• Transfer responsibility for approval and regulation of operators of relevant systems from HMT to the Bank of England
• Empower the Bank of England to require skilled persons reports in respect of operators of relevant systems, and to appoint investigators to make inquiries about operators of relevant systems
• Substitute a new Schedule 2 to the 2001 Regulations replacing provisions regarding the prevention of restrictive practices with provision to prevent operators of relevant systems from adopting and maintaining excessive regulatory provision - makes operators of relevant systems subject to the Competition Act 1998 without exemption, and their rules and practices subject to scrutiny of the Bank of England

The Financial Services and Markets Act 2000 (Financial Services Compensation Scheme) Order 2013

• Into force on 1 April 2013
• Specifies that rules to compensate persons where relevant persons or successors are unable, or likely to be unable, to satisfy claims against them
  • may be made by PRA in respect of deposits, under contracts of insurance, in respect of the activity of managing the underwriting capacity of a Lloyd’s syndicate as a managing agent at Lloyd’s and in respect of the activity of arranging by Lloyd’s deals in contracts of insurance written at Lloyd’s
  • may otherwise be made by FCA

The Financial Services Act 2012 (Consequential Amendments) Order 2013

• Into force 1 April 2013
• Amends references to Financial Services Authority Instruments in various enactments and to provisions of FSMA which have been amended by the 2012 Act

The Financial Services Act 2012 (Misleading Statements and Impressions) Order 2013

• Into force 1 April 2013
• Specifies relevant activities, relevant investments and relevant benchmarks for Part 7 of the 2012 Act (which repeals the current section 397 of FSMA and create criminal offences relating to the making of false or misleading statements, or the creation of a false or misleading impression, in connection with a relevant agreement, relevant investment or relevant benchmark

The Financial Services Act 2012 (Consequential Amendments and Transitional Provisions) (No. 2) Order 2013

• Into force on 10 April 2013
• Consequential amendments to subordinate legislation:
  • Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19))
  • Financial Services and Markets Act 2000 (EEA Passport Rights) Regulations 2001 (S.I. 2001/2511) - includes
    • transitional provisions treating certain things done by or in relation to FSA before 1st April 2013 as having been done by or in relation to the PRA
  • Company, Limited Liability Partnership and Business Names (Sensitive Words and Expressions) Regulations 2009 (S.I. 2009/2615)
  • Recognised Auction Platforms Regulations 2011 (S.I. 2011/2699)

The Bank of England Act 1998 (Macro-prudential Measures) Order 2013

• Prescribes macro-prudential measures for the purposes of section 9H of the Bank of England Act 1998  - power of the Financial Policy Committee of the Bank of England (FPC) to direct the FCA and the PRA
• Specifies the imposition of requirements by the PRA on UK banks and UK investment firms
  • to maintain additional own funds (in other words, capital requirements) by reference to residential property exposures, commercial property exposures or financial sector exposures, and by reference to the failure to maintain such own funds
  • to treat such exposures as if they gave rise to an increased level of risk.
• Enables the FPC to direct requirements to be imposed either on a solo basis or on a consolidated basis
• Enables FPC to direct the PRA to implement the measures prescribed by the Order in relation to UK banks and UK investment firms which are PRA-authorised persons
• Provides that if  an FPC direction specifies a particular increase (for example an increase in the risk weighting to be applied to residential property exposures), which is  followed by a subsequent direction identical in substance (save in relation to the level of increase), the PRA is not obliged to provide a cost benefit analysis when consulting on rules impementing the subsequent direction.

The Financial Services Act 2012 (Commencement No. 3) Order 2013

• Brought into force sections 17 and 18 of FSMA (for the purposes of rule-making) on 19 March 2013

• section 39 of FSMA (for the purpose of introducing paragraph 28 of Schedule 11 to FSMA in so far as it relates to the fixing of standard terms) on 19th March 2013

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2013

• Into force on 2 April 2013
• Amends the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the RAO) to specify new regulated activities, including activities relating to the setting of benchmarks
• Adjusts the definition of consumer in sections 1G, 1H and 425A of FSMA so that the consumer protection objective applies to the new regulated activities and those affected by the carrying on of the new regulated activities may benefit from the provisions in the Act to protect consumers 
• Provides for a Part 4A permission to be deemed extended to firms (with an existing Part 4 permission) already carrying on the activity of providing information to the administrator of a benchmark listed in Schedule 5 to the Principal Order that was required for the determination of that benchmark
• Provides for grant of an interim permission to persons wishing to undertake administering, analysing or determining activities and enables the FCA to modify its rules in their application to persons with an interim permission
• Sets out application of FSMA to persons with interim permission

The government has also published a number of draft statutory instruments in connection with the Banking Reform Bill which would effect amendments to FSMA.  These will be considered in a separate entry.