Part 4: Financial Services Compensation Scheme
Section 169: Overview
382.This section introduces Part 4 of the Act.
Section 170: Contingency Funding
383.This section inserts new section 214A into the Financial Services and Markets Act 2000.
384.The new section confers a power on the Treasury to make regulations to permit the Financial Services Compensation Scheme (the FSCS) to impose levies to build up contingency funds in advance of possible defaults by firms which would give rise to the payment of compensation under the scheme (“pre-funding”). It also sets out certain matters which may be covered in those regulations and allows the Financial Services Authority (the FSA) to make rules relating to contingency funds provided they are compatible with the regulations the Treasury has made.
Section 171: Special resolution regime
385.This section inserts new section 214B into the Financial Services and Markets Act 2000.
386.The new section confers a power on the Treasury to require the FSCS to contribute to the costs incurred in applying the stabilisation powers of the special resolution regime (see Part 1 of the Act) to banks which are encountering financial difficulties. The section allows upfront payments if deemed appropriate. It imposes a duty on the Treasury to make regulations setting out the costs for which a contribution may be required, how the contribution is to be calculated and other matters, including provision for the costs to be independently verified. New section 214B (4) requires that the scheme’s contributions must not exceed the amount of the compensation which the scheme would have had to pay to eligible claimants if the bank had been unable to satisfy claims against it, taking into account any amounts the scheme is likely to have recovered from the insolvent bank’s estate. New section 214B(5) requires the appointment of an independent valuer to calculate this amount of recovery. This person may be the same person as the independent valuer appointed under section 54 of Part 1 of the Banking Act. New section 214B(7) allows the Financial Services Authority to make rules relating to contingency funds provided they are compatible with the regulations the Treasury has made.
Section 172: Investing in National Loans Fund
387.This section inserts new section 223A into the Financial Services and Markets Act 2000.
388.The new section enables the FSCS to invest the levies collected to build up contingency funds in the National Loans Fund and provides for that investment to be treated as money borrowed by the Treasury.
Section 173: Borrowing from the National Loans Fund
389.This section inserts new section 223B into the Financial Services and Markets Act 2000.
390.The new section allows the Treasury to make loans from the National Loans Fund to the FSCS and to make regulations about the amount that can be borrowed and the collection of levies to secure its repayment. It also allows the FSA to make rules relating to borrowing from the National Loans Fund provided they are compatible with the regulations the Treasury has made.
Section 174: Procedure for claims
391.This section inserts new sections 214(1A), 214(1B) and 214(1C) into the Financial Services and Markets Act 2000. The purpose of these provisions is to facilitate the speedy payment of compensation to depositors or to facilitate the speedy transfer of their accounts to another bank under Part 2 of this Act.
392.New section 214(1A) allows the FSA to make rules to enable the FSCS to deem claims under the scheme to have been made, to avoid the need to wait for actual claims to be made.
393.New section 214(1C) allows the FSA to make rules to enable the FSCS to deal with certain kinds of claim without having to make calculations of the entitlement of individual claimants.
Section 175: Rights in insolvency
394.This section amends section 215 of the Financial Services and Markets Act 2000 to make it clear that the FSA may make rules which enable the FSCS to recover compensation it has paid from any person from whom a claimant under the scheme could have obtained damages in respect of the loss the person had suffered.
Section 176: Information
395.This section inserts new section 218A into the Financial Services and Markets Act 2000 and amends section 219.
396.New section 218A confers a power on the FSA to make rules allowing it to obtain information that will assist the FSCS in carrying out its work, or in preparing for a possible need to pay compensation (even when no default is imminent). It also allows the FSA to use its existing power to require individual authorised persons to provide information to obtain information that would be of use to the FSCS.
397.The amendments to section 219 allow the FSCS to obtain information from authorised persons or certain other persons from the time the authorised person could be declared in default for the purposes of the scheme. They also allow the FSCS to obtain information from a bank which is subject to the special resolution regime (or from the Bank of England) to enable the maximum amount the FSCS would be able to contribute to the costs of the special resolution regime to be calculated.
Section 177: Payments in error
398.This section inserts new section 223C into the Financial Services and Markets Act 2000.
399.The new section provides that levies collected by the FSCS can be used to cover the costs of any compensation payments made in error. The new provision does not cover payments made in bad faith.
Section 178: Regulations
400.This section amends section 429 of the Financial Services and Markets Act 2000 to provide that regulations made by the Treasury under new sections 214A and 214B are subject to the affirmative resolution procedure Regulations under the new section 223B will be subject to the negative resolution procedure.
Section 179 Delegation of functions
401.This section inserts new section 221A into the Financial Services and Markets Act 2000.
402.The new section provides that the FSCS can make arrangements with a third party to carry out any of its functions. This does not change the scheme’s responsibility for the decisions that are taken. Before entering into an arrangement the FSCS must be satisfied that the person is competent to carry out the function and has been given sufficient directions.
Section 180: Functions under this Act
403.This section inserts new section 224A into the Financial Services and Markets Act 2000.
404.The new section provides that the new functions of the FSCS conferred in this Act, for example, those functions of the Financial Services Compensation Scheme under Part 2, are to be regarded as among its functions under the Financial Services and Markets Act 2000.
