Part 7: Miscellaneous
Treasury support for banks
Section 228: Consolidated Fund
504.Subsection (1) provides for any expenditure incurred by the Treasury in connection with the exercise of the powers in Parts 1 to 3 of this Act, by the Treasury or Secretary of State (with the consent of the Treasury) in connection with the giving of financial assistance to or in respect of banks or other financial institutions or in connection with the provision of financial assistance by the Treasury to the Bank of England to be paid from money provided by Parliament. Financial assistance includes giving guarantees or indemnities.
505.Subsection (2) makes clear that expenditure in respect of financial assistance in respect of banks or financial institutions falls within subsection (1)(b) where it is expected to facilitate the business of banks or financial institutions generally. But it does not matter if that is not the sole or principal expected effect of, or motive for, the assistance.
506.Subsection (3) provides that “financial assistance” has the meaning given by section 257 and that an order under that section may restrict or expand the effect of subsection (2).
507.Subsection (4) makes it clear that the section has effect in relation to expenditure incurred before or after Royal Assent and expenditure incurred in pursuance of obligations entered into before or after Royal Assent.
508.Subsection (5) provides for expenditure referred to in subsection (1) to be met directly from the Consolidated Fund where the Treasury are satisfied that the expenditure is too urgent for the money to be provided by Parliament pursuant to an Appropriation Act or Consolidated Fund Act.
509.Subsection (6) obliges the Treasury to lay a report before Parliament where it relies on subsection (5). The report must not identify the institution to or in respect of which the money is paid. Under subsection (7) a report may be delayed or dispensed with on public interest grounds.
Section 229: National Loans Fund
510.This section allows the Treasury to draw money from the National Loans Fund for the purpose of making a loan to or in respect of a bank or other financial institution when the loan is required urgently in order to protect the stability of the financial systems of the United Kingdom.
511.Subsection (6) obliges the Treasury to lay a report before Parliament where it relies on subsection (1). The report must not identify the institution to or in respect of which the money is paid. Under subsection (7) a report may be delayed or dispensed with on public interest grounds.
Section 230: “Financial institution”
512.This section allows the Treasury to define “financial institution” for the purposes of sections 228 and 229 by statutory instrument.
Section 231: Reports
513.Subsection (1) requires the Treasury to lay a report before the House of Commons about arrangements entered into that involve or may require money to be provided by Parliament under section 228(1).
514.Under subsection (2) reports are to be prepared in respect of each successive six-month period beginning with the period starting on 1 April 2009. But the Treasury is not obliged to lay a report if no such arrangements have been entered into during the relevant period. Where a report is required to be laid, subsection (3) requires that to take place as soon as reasonably practicable after the end of the relevant period.
515.Subsection (4) requires the Treasury to ensure that a report does not specify any specific arrangements entered into or identify (or enable the identification of) beneficiaries of the arrangements).
516.Subsection (5) provides that the Treasury must aim to give as much information as possible in a report. But this is subject to subsection (4) and other considerations of public interest.
Section 232: Definition
517.This section provides that an institution is an investment bank if it fulfils three conditions: that it holds one of three specified permissions under Part 4 of the Financial Services and Markets Act 2000, that it holds client assets and that it is a UK incorporated institution. The section also defines ‘client assets’ as being assets which are being held by an institution on behalf of a client (whether or not on trust). The Treasury may, by order, bring other financial institutions into the scope of this definition, may exclude certain classes of institution from this definition and may amend what is meant by ‘client assets’.
Section 233: Insolvency regulations
518.Section 233 provides that the Treasury may make regulations which alter existing insolvency procedures insofar as they apply to investment banks. The Treasury may modify insolvency law as it applies to investment banks, or alternatively, set up a new insolvency scheme.
519.Subsection (3) establishes objectives to which the Treasury must have regard in making regulations, including that the Treasury must balance the need to facilitate the return of client assets with the need to protect the rights of other creditors. The other objectives are to aim to provide certainty, to minimise disruption to business and to the markets and to maximise the effectiveness of the UK financial services industry.
Section 234: Regulations: details
520.Section 234 establishes that the new regulations may provide for the manner in which an institution is to be placed into a new insolvency regime, the objectives of the new scheme and the role of the courts and the administrator or liquidator. The Section also provides for how the new procedures will sit with other new procedures (such as the bank insolvency procedure laid out in this Act if the institution also has a deposit-taking arm) and for the creation of rights over assets.
Section 235: Regulations: procedure
521.Section 235 establishes the procedure under which regulations may be made and provides that both the power to make provision about the definition of “investment bank” and the regulation-making power should be subject to the affirmative procedure. The Section provides that the Treasury should consult before making regulations and the power to make regulations will cease after two years if not used.
Section 236: Review
522.This section introduces a requirement for the Treasury to appoint a person or persons to carry out a review of any regulations made under Sections 232-235 above. The review must be carried out within two years of the regulations being made. It will consider the effectiveness of the regulations in achieving the objectives and whether the regulations should continue to have effect (or whether they should be put on statutory footing).
Banking (Special Provisions) Act 2008
Section 237: Compensation: valuer
523.This section declares that the power under section 9 of the Banking (Special Provisions) Act 2008 to make provision for the appointment of a valuer includes power to replicate, or to make provision of a kind that may be made under, section 55(1) to (3) of the Act.
Bank of England
Section 238: UK Financial Stability
524.This section amends Part 1 of the Bank of England Act 1998, which relates to constitution of the Bank and the functions of the Court of Directors, to include provision relating to a financial stability objective. Subsection (1) inserts three new sections as 2A to 2C and subsection (2) amends the current section 2.
525.New section 2A(1) provides that the Bank has an objective of contributing to the protection and enhancement of financial stability in the United Kingdom.
526.New section 2A(2) confirms that the Bank must aim to work with other relevant bodies, such as the Treasury and the FSA, in pursuing this objective.
527.New section 2A(3) provides that the Bank’s strategy in relation to financial stability shall be determined and reviewed by the Court of Directors of the Bank of England. The Court must consult the Treasury before it sets the strategy. (See also new section 2B(2) in relation to recommendations from the Financial Stability Committee.)
528.New section 2B(1) requires there to be a new sub-committee of the Court – the Financial Stability Committee. This Committee is to be chaired by the Governor of the Bank of England (when present), with other membership consisting of the two deputy Governors and four directors of the Bank’s Court, who are to be appointed by the Chair of the Court of Directors.
529.New section 2B(2) sets out the functions of the Committee. One function is to make recommendations to the Court regarding the Bank’s financial stability strategy, which the Court must consider. Other functions include advising the Bank whether and how it should use the stabilisation powers conferred on it as part of the special resolution regime in Part 1 of this Act and advise on the actions the Bank should take in respect of a particular institution. This is most likely to be necessary in the case of a bank or building society that has entered, or is about to enter, the SRR. Another function of the committee is to monitor the Bank’s oversight of inter-bank payment systems. It also provides for the Court of Directors to delegate other functions to the Committee, as it considers appropriate for pursuing the Financial Stability Objective.
530.New section 2B (3) and (4) allow the Treasury to appoint a non-voting member to the Committee and the Committee to co-opt other non-voting members.
531.New subsection 2B (5) allows the Chair of Court to replace the ‘non-executive’ members of the Committee, drawn from the membership of the Court of Directors.
Financial stability committee: supplemental
532.New section 2C (2) and (3) set the procedure to be followed if a member of the Committee has a direct or indirect, current or reasonably likely future interest in a matter to be considered by the Committee. An example of a reasonably likely future interest would be if the Committee was considering a bank in financial difficulty, and a member of the Committee was an executive of a firm which anticipated acquiring a holding in the bank.
533.Any such interest must be disclosed and the member has no vote unless the Committee resolves that there is no conflict of interest.
534.New section 2C(4) provides for the Committee to delegate certain of its functions to two or more of the voting members on the Committee.
535.Subsection (2) amends section 2 of the Bank of England Act 1998 by adding a new subsection (5) which makes the Bank’s powers to determine its objectives subject to the statutory objectives relating to monetary policy and financial stability.
Section 239: Number of Directors
536.This section amends the Bank of England Act 1998, and provides that the maximum size of the Court of Directors reduces from nineteen to twelve. As well as the Governors and two deputy Governors of the Bank of England it allows for there to be a maximum of nine other directors. In practice, these are likely to be non-executive directors, who are not employees of the Bank.
537.Subsection (4) provides that when this provision comes into force, the then current directors of the Bank must vacate office (but will be eligible for re-appointment).
Section 240: Meetings
538.This section amends the Bank of England Act 1998 (at paragraph 12 of Schedule 1) to provide that the Court of Directors of the Bank of England must meet at least 7 times in each calendar year, rather than monthly as at present.
539.Subsection (3) enables the Governor or, in his absence, a Deputy Governor or the Chair of Court to summon a meeting of the Court.
Section 241: Chair of Court
540.This section amends the Bank of England Act 1998 (at paragraph 13 of Schedule 1) with a new sub-paragraph (3), which provides that the Chancellor of the Exchequer designates a member of Court as the Chair of Court (the current Act required the Governor to be the chair of Court). It also provides for the Chancellor to designate deputies to serve in the absence of the Chair.
541.Subsection (2) substitutes a new section 3(4) of the Act to provide that the Chair of Court (when present) is to chair the sub-committee of non-executive directors established under the Bank of England Act.
Section 242: Quorum
542.This section amends the Bank of England Act 1998 to allow for the Committee of non-executive directors, and the Court of Directors to determine their own quorums.
Section 243: Tenure
543.Subsection (1) of this section provides for someone appointed as a Governor of the Bank or a Deputy to serve no more than two terms in either role. This does not stop a person serving in one role for two terms subsequently serving in another.
544.Subsection (3) provides that those members of the Monetary Policy Committee who are appointed by the Chancellor, rather than those appointed by the Governor, may serve a maximum of two terms.
Section 244: Immunity
545.This section provides that the Bank of England has legal immunity in its capacity as a monetary authority, which includes its functions as a central bank and its financial stability functions. This provides immunity from legal claims for damages. The section protects the Bank, its directors, officers, and servants (or purporting to act as such). The immunity does not extend to actions taken in bad faith or actions taken in contravention of the European Convention on Human Rights.
Section 245: Weekly return
546.This section removes the requirement, established in the Bank Charter Act, 1844, that the Bank of England must produce a weekly return of accounts. As a result, the Bank of England will be able to determine whether, and in what form, it produces a return.
Section 246: Information
547.This section permits the Bank of England to disclose information relating to the financial stability of the individual financial institutions or aspects of the financial system of the United Kingdom. It may disclose information to HM Treasury, the Financial Services Authority, the Financial Services Compensation Scheme, and overseas central banks and regulators. The provision overrides other confidentiality requirements and is without prejudice to any other power to disclose information.
548.This will enable the Bank of England to share relevant information that it may have received in relation to its financial stability functions, for example from an institution administered under the special resolution regime.
Section 247: Bank of England Act 1946
549.This section states that nothing in the Act affects the generality of the powers in section 4 of the Bank of England Act 1946.
Financial Services Authority
Section 248: Variation of permission
550.This section amends section 45(1)(c) of the Financial Services and Markets 2000 to specify when the Financial Services Authority can use its power on its own initiative to vary the permission relating to the regulated activities which an authorised person may has permission to undertake, or to impose or change a restriction upon the authorised person. The Authority may use this power if it considers it desirable to do so to protect the interests of consumers. The amendment specifies that this means consumers relating to the authorised person in question or other authorised persons.
Section 249: Functions
551.This section modifies the application of references to the functions of the Financial Services Authority to encompass the functions in the Act.
552.Subsection (1) specifies that references to functions of the Authority by or under the Financial Services and Markets Act, 2000 are taken to include a reference to functions conferred under the Act.
553.Subsection (2) specifies that any other references to functions of the Authority in an enactment are taken to include a reference to the functions under the Act.
554.Subsection (3) enables the Treasury by Order to disapply subsections (1) or (2), in case of a reference to functions which needs to be given a narrower meaning.
Section 250: Information
555.This section requires the Financial Services Authority to collect information relevant to financial stability of financial institutions or the financial system and enables it to use its powers in section 165 of the Financial Services and Markets Act 2000 for this purpose. The Authority may also use other existing powers to collect information as it sees fit. This information (which the Authority will be able to share under its existing powers) will be used to support the Authorities’ oversight of financial stability and will inform the work of the Financial Stability Committee of the Bank of England which is established in this Act.
Section 251: Financial assistance to building societies
556.This section provides HM Treasury with power to make amendments to the Building Societies Act, 1986 and certain consequential amendments with regard to the provision of financial assistance to building societies.
557.Subsection (1) provides a power to modify the Building Societies Act 1986 and that the financial assistance under the section may be provided by HM Treasury, the Bank of England, and other central banks (including the European Central Bank).
558.This section concerns the facilitation of those listed in subsection (1) to provide liquidity assistance to building societies where necessary.
559.The Building Societies Act 1986 (c.53) includes various provisions that deal with the ability of building societies to grant floating charges and other provisions which impose limits on what building societies can lend and how they fund themselves.
560.Section 11 of the Banking (Special Provisions) Act 2008 (c.2) makes similar provision to this section, but in relation to financial assistance provided by the Bank of England, the new provisions applies in addition to the Treasury and other central banks (including the ECB) and removes the reference to financial assistance provided for the purpose of maintaining financial stability, which in the context of a provision which removes restrictions where there is a public interest in providing financial assistance to building societies may be too narrow.
561.Subsection (2) sets out the purpose of the modifications of the 1986 Act, which is to modify provisions which would be capable of preventing, impeding or affecting the provision of financial assistance under the section. The subsection sets out examples of the matters which may be modified in the 1986 Act, which include provisions about establishment, constitution or powers, restrictions on raising funds or borrowing, provision about security and the application of insolvency law and other legislation concerning companies to building societies.
562.Subsection (3) provides that the order may disapply or modify the provisions referred to in subsection (2). The provisions can be by way of textual amendment or modification of the effect of a provision. An order to modify the Building Societies Act 1986 under this section is subject to the affirmative resolution procedure.
563.Subsection (7) provides that the Treasury may, by order, make further provision to modify or disapply the prohibition on floating charges in section 9B of the Building Societies Act 1986 beyond provision in relation to the institutions listed in subsection (1), if the Treasury think it is likely to help building societies to use, give effect to or take advantage of financial assistance offered by one of the institutions listed in subsection (1).
Section 252: Registration of charges
564.This section disapplies the requirements in Part 25 of the Companies Act, 2006, that institutions must register certain charges that they enter into at Companies House and in a public register at their office. The section provides that the requirements do not apply to charges granted in favour of the Bank of England, other central banks or the European Central Bank. This is because registration could otherwise lead to early disclosure of liquidity support.
565.Subsection (2) provides that the reference to Part 25 of the Companies Act 2006 also covers related provisions in the 2006 Act with reference to the registration requirements placed upon overseas companies in relation to certain charges. The reference to the 2006 Act is also treated as including reference to the corresponding provisions of the Companies Act 1985, which will remain in force generally until 1st October 2009. Further, the subsection provides that this section is also treated as referring to the corresponding provisions of companies law in Northern Ireland which remain generally in force until 1st October 2009.
Section 253: Registration of charges: Scotland
566.This section is consequential to section 252 above, and provides that the disapplication of Part 25 of the Companies Act (and related provisions) as provided for in section 252, shall also apply to the Bankruptcy and Diligence (Scotland) Act 2007 (the 2007 Act) which introduces a registration scheme for Scottish floating charges. This section therefore disapplies certain provisions of the 2007 Act, where these provisions would restrict the efficacy of section 252 above and for the same reasons as Part 25 of the Companies Act 2006 is disapplied.
567.Subsection (2) amends the 2007 Act such that, where floating charges covered by the Act are to be granted to a central bank, they are considered to have been created when the document creating the charge is executed. This alters the standard provisions with regard to the 2007 Act which stipulates that floating charges subject to the 2007 Act are created only when registered on the Scottish Register of Floating Charges. This provision will continue to apply except for cases where the charge is in favour of a ‘central institution’, that is, the Bank of England or another central bank (as defined in subsection (7)).
568.Subsections (3) to (6) further amend the 2007 Act in such a way as to ensure that floating charges issued in favour of a central institution are not required to be registered, by disapplying the appropriate provisions of that Act.
Funds attached rule (Scotland)
Section 254: Abolition for cheques
569.Subsection (1) explains what is meant by the “funds attached” rule. It describes the rule of Scots law whereby, when a Act of exchange (e.g. a cheque) is presented for payment, the amount stated on the Act is assigned to the holder of the Act. Where insufficient funds are available to satisfy the Act, such lesser amount as is available is assigned to the holder of the Act.
570.Subsection (2) provides for the abolition of the “funds attached” rule in relation to cheques. The abolition has effect only in relation to cheques presented for payment after this section comes into force.
571.Subsection (3) establishes that the meanings of terms used in this section are as defined in the Acts of Exchange Act 1882. Specifically:
“Act of exchange” has the meaning given in section 3 of the Act, namely “an unconditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand or at a fixed or determinable future time a sum certain in money to or to the order of a specified person, or to bearer”; and
“cheque” means “a Act of exchange drawn on a banker payable on demand” as defined in section 73 of the Act.
572.Subsection (4)(a) amends section 53(2) of the Acts of Exchange Act 1882, in which the “funds attached” principle is set out. The amendment provides that section 53(2) no longer applies in relation to cheques.
573.Subsection (4)(b) repeals section 75A of the Acts of Exchange Act 1882, which was inserted by section 11 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 to deal with a problem that arose in relation to stopped cheques in the context of the operation of the “funds attached” rule. With the abolition of the rule in relation to cheques, the problem which section 75A addressed ceases to arise.
574.Subsection (5) repeals section 11 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. See also paragraph 520 above.
575.In accordance with section 263 in Part 8, this section will come into force automatically two months after the Banking Act receives Royal Assent.
Financial collateral arrangements
Section 255: Regulations
576.This section concerns a power to make regulations concerning financial collateral arrangements. Financial collateral arrangements are arrangements between specified types of persons, often involved in the financial markets, where the obligations under an agreement are secured by the provision of collateral (under the Directive, cash and financial instruments, such as shares) either by way of creating security over collateral or by title transfer of the collateral.
577.The background to the power is the EU Financial Collateral Arrangements Directive (2002/47/EC). The Directive covers the ground of removing formalities in relation to financial collateral arrangements, making provisions in relation to how such arrangements may be enforced, how they must be capable of taking effect, in particular in relation to the effect of insolvency proceedings and of choice of law in relation to particular forms of financial collateral arrangements.
578.This Directive is implemented in UK law by the Financial Collateral Arrangements (No.2) Regulations 2003, S.I. 2003/3226 (the 2003 Regulations). The power exercised to make the regulations was section 2(2) of the European Communities Act 1972 (ECA). The power under the ECA relates to the scope of the Directive and the new power, as noted in subsection (3), extends beyond provision in connection with the Directive.
579.Subsection (2) sets out the scope of what are financial collateral arrangements, that collateral may be cash, securities or in any other form and that an arrangement can be by way of security or title transfer.
580.Subsection (3) sets out that the power enables the Treasury to cover the ground relating to the Directive, but also to go beyond that field to include provisions that the Treasury thinks are necessary or desirable for the purpose of enabling financial collateral arrangements to be commercially useful and effective.
581.Subsection (4) sets out examples of the provision that may be made under the power to disapply or modify legislation, the scope relates to the scope of the Directive and the 2003 Regulations.
582.The section also includes power to make provision on a retrospective basis.
Section 256: Supplemental
583.This section provides the Parliamentary procedure applicable to the regulations made under the previous section concerning financial collateral arrangements together with incidental, consequential and transitional provision that may be made.