The Investment Services Regulations 1995

PART I GENERAL

Citation and commencement

1.—(1) These Regulations may be cited as the Investment Services Regulations 1995.

(2) These Regulations, except regulations 27 and 31, shall come into force on 1st January 1996, and those regulations shall come into force on 1st January 1997.

Interpretation: general

2.—(1) In these Regulations—

“the Consumer Credit Act” means the Consumer Credit Act 1974(1);

“the Financial Services Act” means the Financial Services Act 1986(2);

“another EEA State” means an EEA State other than the United Kingdom;

“appointed representative” has the same meaning as in the Financial Services Act;

“authorised”, in relation to the provision of a listed activity, shall be construed in accordance with regulation 4 or, as the case may be, regulation 19 below;

“authorised person” has the same meaning as in the Financial Services Act;

“the Bank” means the Bank of England;

“the Board” means The Securities and Investments Board(3);

“branch” means one or more places of business established or proposed to be established in the same EEA State for the purpose of providing listed services;

“the Capital Adequacy Directive” means the Council Directive on the capital adequacy of investment firms and credit institutions (No. 93/6/EEC)(4);

“the commencement date” means 1st January 1996;

“connected UK authority”, in relation to an investment firm providing or proposing to provide any listed service in the United Kingdom, means an authority in the United Kingdom which has regulatory functions in relation to that service;

“Consumer Credit Act business” means consumer credit business, consumer hire business or ancillary credit business;

“consumer credit business”, “consumer hire business” and “ancillary credit business” have the same meanings as in the Consumer Credit Act;

“core investment service” means a service listed in Section A of the Annex to the Investment Services Directive, the text of which is set out in Schedule 1 to these Regulations together with the text of Section B of that Annex which is relevant to the interpretation of Section A;

“credit institution” means a credit institution as defined in article 1 of the First Council Directive, that is to say, an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account;

“designated agency” has the same meaning as in the Financial Services Act;

“the Director” means the Director General of Fair Trading;

“EEA State” means a State which is a contracting party to the agreement on the European Economic Area signed at Oporto on the 2nd May 1992(5) as adjusted by the Protocol signed at Brussels on 17th March 1993(6);

“establish”, in relation to a branch, means establish the place of business or, as the case may be, the first place of business which constitutes the branch;

“European authorised institution” means a credit institution whose authorisation under the First Council Directive and the Second Council Directive covers one or more core investment services;

“the European Commission” means the Commission of the Communities;

“European investment firm” has the meaning given by regulation 3 below;

“European subsidiary” has the same meaning as in the Banking Coordination (Second Council Directive) Regulations 1992(7), as those regulations have effect immediately before the commencement date;

“exempted person” has the same meaning as in the Financial Services Act;

“50 per cent. controller” has the same meaning as in regulation 46;

“firm” includes an individual and a body corporate;

“the First Council Directive” means the First Council Directive on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions (No. 77/780/EEC)(8);

“home-regulated investment business”, in relation to a European investment firm, means investment business which consists in the provision of one or more listed services which its authorisation as an investment firm authorises it to provide;

“home State”, in relation to—

(a)

an investment firm which has no registered office, means the EEA State in which the firm’s head office is situated; and

(b)

an investment firm which has a registered office, means the EEA state in which that office is situated;

“investment business” has the same meaning as in the Financial Services Act;

“investment firm” has the meaning given in paragraph (2) below;

“the Investment Services Directive” means the Council Directive on investment services in the securities field (No. 93/22/EEC)(9);

“listed service” means a service listed in Section A or C of the Annex to the Investment Services Directive;

“member” and “rules”, in relation to a recognised self-regulating organisation, have the same meanings as in the Financial Services Act;

“quasi-European investment firm” has the meaning given by regulation 3(2) below;

“recognised self-regulating organisation” has the same meaning as in the Financial Services Act;

“relevant supervisory authority”, in relation to another EEA State, means the authority in that State which has regulatory functions in relation to any core investment service, whether or not it also has such functions in relation to any non-core investment service;

“requisite details”, in relation to an investment firm means—

(a)

particulars of the programme of operations of the business to be carried on by the firm, including a description of the particular core investment services and non-core investment services to be provided; and

(b)

where a branch is established or proposed to be established—

(i)

particulars of the structural organisation of the branch;

(ii)

the address in the EEA State in which the branch is or is to be established from which information about the business may be obtained; and

(iii)

the names of the managers of the business;

“the Second Council Directive” means the Second Council Directive on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions and amending the First Council Directive (No. 89/646/ EEC)(10);

“supervisory authority”, in relation to another EEA State, means an authority in that State which has regulatory functions in relation to one or more listed services;

“UK authorised institution” and “UK subsidiary” have the same meanings as in the Banking Coordination (Second Council Directive) Regulations 1992(11);

“UK investment firm” and “UK authorised investment firm” have the meaning given by regulation 18 below; and

“UK regulatory authority”, in relation to an investment firm providing or proposing to provide a core or non-core investment service in the United Kingdom, means an authority in the United Kingdom which has regulatory functions in relation to that service.

(2) In these Regulations, “investment firm” means any person, other than one within paragraph (3) below, whose regular occupation or business is the provision of any one or more core investment services to third parties on a professional basis.

(3) The persons within this paragraph are persons to whom the Investment Services Directive does not apply by virtue of the provisions of paragraph 2 of article 2 of that directive, the text of which is set out in Schedule 2 to these Regulations.

(4) For the purposes of paragraph (2) above, where a person (the first person) provides one of the services referred to in paragraph 1(a) of Section A of the Annex to the Investment Services Directive (reception and transmission of orders) solely for the account of and under the full and unconditional responsibility of another person (the second person), that service shall be regarded as a service provided not by the first person but by the second person.

(5) In these Regulations “parent undertaking”, “share”, “subsidiary undertaking” and“undertaking” have the same meanings as in Part VII of the Companies Act 1985(12) or Part VIII the Companies (Northern Ireland) Order 1986(13) except that—

(a) “subsidiary undertaking” also includes, in relation to an investment firm incorporated in or formed under the law of another EEA State, any undertaking which is a subsidiary undertaking within the meaning of any rule of law in force in that State for purposes connected with the implementation of the Seventh Company Law Directive based on article 54(3)(g) of the Treaty on consolidated accounts (No. 83/349/EEC)(14); and

(b) “parent undertaking” shall be construed accordingly.

(6) Any reference in these Regulations to the carrying on of home-regulated investment business in the United Kingdom—

(a) is a reference to the carrying on of such business in reliance on regulation 5(1)(a) below; and

(b) shall be construed in accordance with section 1(3) of the Financial Services Act.

PART II RECOGNITION IN UK OF EUROPEAN INVESTMENT FIRMS

Preliminary

European investment firms

3.—(1) An investment firm is a European investment firm for the purposes of these regulations if—

(a) it is incorporated in or formed under the law of another EEA State;

(b) its head office is in that State;

(c) it is for the time being, either a European authorised institution or authorised to act as an investment firm by a relevant supervisory authority in that State; and

(d) in the case of an investment firm which is not a European authorised institution and was not on the commencement date a European subsidiary, the requirements of paragraph 1 of Schedule 3 to these Regulations have been complied with in relation to its provision of a service or its establishment of a branch.

(2) In these Regulations “quasi-European investment firm” means an investment firm other than a European authorised institution—

(a) which is not a European investment firm; but

(b) which would be such an investment firm if the requirements of paragraph 1 of Schedule 3 to these Regulations had been complied with in relation to its provision of a service or its establishment of a branch.

(3) Schedule 3 to these Regulations (which contains requirements to be complied with by or in relation to European investment firms) shall have effect.

Authorised services

4.  For the purposes of these Regulations a European investment firm is authorised to provide in its home State any listed service which its authorisation as an investment firm or as a credit institution authorises it to provide.

Effect of recognition

Authorisations and licences not required

5.—(1) Subject to paragraph (2) below, nothing in the following enactments, namely—

(a) sections 3 and 4 of the Financial Services Act (restrictions on carrying on investment business); and

(b) sections 21, 39(1) and 147(1) of the Consumer Credit Act (Consumer Credit Act businesses needing a licence),

shall prevent a European investment firm from providing in the United Kingdom any listed service which it is authorised to provide in its home State.

(2) In relation to a European investment firm in respect of which a prohibition under these Regulations is in force—

(a) paragraph (1)(a) above shall not apply if the prohibition is under regulation 9 below; and

(b) paragraph (1)(b) above shall not apply if the prohibition is under regulation 15 below.

Procedural requirements for carrying on listed services

6.—(1) A European investment firm (other than a credit institution authorised in its home State to provide one or more core investment services) shall not—

(a) provide in the United Kingdom by the provision of services any listed service; or

(b) establish a branch in the United Kingdom for the purpose of providing such a service,

unless the requirements of paragraph 1 of Schedule 3 to these Regulations have been complied with in relation to its provision of the service or, as the case may be, its establishment of the branch.

(2) A European investment firm (other than a credit institution authorised in its home State to provide one or more core investment services) which does not have a branch in the United Kingdom shall not change the requisite details of its activities in the United Kingdom unless the requirements of paragraph 4 of Schedule 3 to these regulations have been complied with in relation to its making of the change.

(3) A European investment firm (other than a credit institution authorised in its home member state to provide one or more core investment services) shall not change the requisite details of a branch established by it in the United Kingdom unless the requirements of paragraph 5 of Schedule 3 to these Regulations have been complied with in relation to its making of the change.

(4) An investment firm which contravenes paragraph (1), (2) or (3) above shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 5 on the standard scale; but such a contravention shall not invalidate any transaction.

(5) In proceedings brought against an investment firm for an offence under paragraph (4) above it shall be a defence for the investment firm to show that it took all reasonable precautions and exercised all due diligence to avoid the commission of the offence.

(6) Proceedings in respect of an offence under any provision of this regulation shall not be instituted—

(a) in England and Wales, except by the Board or by or with the consent of the Secretary of State or the Director of Public Prosecutions; or

(b) in Northern Ireland, except by the Board or by or with the consent of the Secretary of State or the Director of Public Prosecutions for Northern Ireland.

Effect of non-recognition

Prohibition on carrying on certain listed services

7.—(1) A quasi-European investment firm shall not—

(a) provide in the United Kingdom by the provision of services any listed service; or

(b) establish a branch in the United Kingdom for the purpose of providing such a service.

(2) An investment firm which contravenes paragraph (1) above shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 5 on the standard scale; but such a contravention shall not invalidate any transaction.

(3) In proceedings brought against an investment firm for an offence under paragraph (2) above it shall be a defence for the investment firm to show that it took all reasonable precautions and exercised all due diligence to avoid the commission of the offence.

(4) Proceedings in respect of an offence under this regulation shall not be instituted—

(a) in England and Wales, except by the Board or by or with the consent of the Secretary of State or the Director of Public Prosecutions; or

(b) in Northern Ireland, except by the Board or by or with the consent of the Secretary of State or the Director of Public Prosecutions for Northern Ireland.

Functions of Board

Duty to prepare for supervision

8.—(1) In any case where the Board receives from a relevant supervisory authority in an investment firm’s home State a notice given in accordance with paragraph 3 of Schedule 3 to these Regulations, the Board shall, before the expiry of the relevant period draw to the attention of the firm such provisions of these Regulations, the relevant Acts or regulations or rules made under those Acts as, having regard to the services mentioned in the notice, the Board considers appropriate.

(2) In any case where the Board receives from the relevant supervisory authority in an investment firm’s home State such a notice as is mentioned in paragraph (1) above stating that the firm intends to establish a branch in the United Kingdom—

(a) the Board shall also, before the expiry of the relevant period, consider whether the situation as respects the investment firm is such that the powers conferred by regulation 9(1) below are likely to become exercisable; and

(b) if so, the Board may impose, as soon as the requirements of paragraph 1 of Schedule 3 to these Regulations have been complied with in relation to the firm, such restriction under regulation 10 below as appears to it desirable.

(3) In any case where the Bank receives from the relevant supervisory authority in an investment firm’s home State such a notice as is mentioned in regulation 13(1) below stating that the firm intends to establish a branch in the United Kingdom, the Bank may request the Board to exercise the powers conferred on it by regulation 10 below in relation to the firm and, if the Board is satisfied that the situation with respect to the firm is such that the powers conferred by regulation 9(1) below are likely to become exercisable, the Board may impose, as soon as the requirements of paragraph 1 of Schedule 3 to these Regulations have been complied with in relation to the firm, such restriction under regulation 10 as appears to it, after consulting the Bank, to be desirable.

(4) In any case where the Boad receives from an investment firm a notice given in accordance with paragraph 4 or 5 of Schedule 3 to these Regulations, the Board shall draw to the attention of the firm such provisions of these Regulations, the relevant Acts or regulations or rules made under those Acts as, having regard to the proposed change mentioned in the notice, the Board considers appropriate.

(5) In this regulation—

(a) “the relevant Acts” means the Financial Services Act and the Consumer Credit Act; and

(b) “the relevant period” means—

(i) in relation to a notice given in accordance with paragraph 3 of Schedule 3 to these Regulations which states that the investment firm intends to establish a branch in the United Kingdom, the period of two months beginning with the day on which the Board received the notice;

(ii) in any other case, the period of one month beginning with the day on which the Board received the notice.

Power to prohibit the provision of listed services

9.—(1) If it appears to the Board that a European investment firm—

(a) has contravened or is likely to contravene any provision of the Financial Services Act or any rules or regulations made under it;

(b) in purported compliance with any such provision, has furnished it with false, inaccurate or misleading information;

(c) has contravened or is likely to contravene any prohibition or requirement imposed under that Act; or

(d) has failed to comply with any statement of principle issued under that Act,

it may impose on the investment firm a prohibition under this regulation, that is to say, a prohibition on providing or purporting to provide in the United Kingdom any listed services.

(2) Where the investment firm is a member of a recognised self-regulating organisation—

(a) the reference in paragraph (1) above to rules made under the Financial Services Act shall be taken to include a reference to the rules of that organisation; and

(b) the reference in that paragraph to any prohibition or requirement imposed under that Act shall be taken to include a reference to any prohibition or requirement imposed by virtue of the rules of that organisation.

(3) A prohibition under this regulation—

(a) may be absolute; or

(b) may be limited, that is to say, imposed for a specified period or until the occurrence of a specified event or until specified conditions are complied with;

and any period, event or conditions specified in the case of a limited prohibition may be varied by the Board on the application of the investment firm concerned.

(4) Any prohibition imposed under this regulation may be withdrawn by written notice served by the Board on the investment firm concerned; and any such notice shall take effect on such date as is specified in the notice.

(5) Schedule 4 to these Regulations (which makes supplemental provision with respect to prohibitions imposed under this regulation and restrictions imposed under regulation 10 below) shall have effect.

Power to restrict provision of listed services

10.—(1) Where it appears to the Board that the situation as respects a European investment firm providing any listed service in the United Kingdom is such that the powers conferred by regulation 9(1) above are exercisable, the Board may, instead of or as well as imposing a prohibition, exercise—

(a) in relation to the investment firm; or

(b) except in the case of the power conferred by section 65 of the Financial Services Act, in relation to any appointed representative of the investment firm,

the powers conferred on the Board by Chapter VI of Part I of that Act (powers of intervention).

(2) Except where they are required to be exercised by virtue of section 128C of that Act(15) (enforcement in support of overseas regulatory authority), the powers conferred by that Chapter shall not, subject to paragraph (3) below, be exercisable in relation to—

(a) a European investment firm providing any listed service in the United Kingdom which is a member of a recognised self-regulating organisation and is subject to the rules of such an organisation in the provision of listed services provided by it in the United Kingdom; or

(b) an appointed representative whose principal or, in the case of such a representative with more than one principal, each of whose principals is—

(i) a member of a recognised self-regulating organisation; and

(ii) subject to the rules of such an organisation in providing the listed service in respect of which it has accepted responsibility for the appointed representative’s activities.

(3) The powers conferred by section 67(1)(b) of the Financial Services Act may on any of the grounds specified in regulation 9(1) above be exercised in relation to a person mentioned in paragraph (2) above at the request of any recognised self-regulating organisation of which he or, in the case of an appointed representative, any of his principals is a member.

(4) In this regulation, “principal” has the same meaning as in the Financial Services Act.

Limitations on Board’s powers

11.—(1) This regulation applies where it appears to the Board that the situation is such that its power—

(a) to impose a prohibition on a European investment firm under regulation 9 above;

(b) to publish a statement with respect to such a firm under section 60 (public statement as to person’s misconduct) of the Financial Services Act;

(c) to make an application with respect to such a firm under section 61(1) (injunctions) of that Act;

(d) to impose a prohibition or requirement on such an investment firm under Chapter VI of Part I of that Act (powers of intervention);

(e) to vary a prohibition or requirement imposed on such an investment firm under that Chapter; or

(f) to refuse an application for the variation or rescission of a prohibition or requirement so imposed,

is exercisable by virtue of any contravention of any provision which is made pursuant to a provision of the Investment Services Directive that confers power on the host States and which is conferred under that Act.

(2) The Board shall require the investment firm in writing to remedy the situation.

(3) If the investment firm fails to comply with the requirement under paragraph (2) above within a reasonable time, the Board shall give a notice to that effect to the relevant supervisory authority in the investment firm’s home State requesting that authority—

(a) to take all appropriate measures for the purpose of ensuring that the investment firm concerned remedies the situation which has given rise to the issue of the notice; and

(b) to inform the Board of the measures it proposes to take or has taken or the reasons for not taking such measures.

(4) Subject to paragraph (5) below, the Board shall not take any such action as is mentioned in sub-paragraph (a) to (f) of paragraph (1) above with respect to a European investment firm unless it is satisfied—

(a) that the relevant supervisory authority has failed or refused to take measures for the purpose mentioned in paragraph (3)(a) above; or

(b) that the measures taken by that authority have proved inadequate for that purpose.

(5) Where the Board decides that it should take action as mentioned in any of sub-paragraphs (a) to (e) of paragraph (1) above with respect to a European investment firm as a matter of urgency in order to protect the interests of investors, it may take that action—

(a) before complying with paragraphs (2) and (3) above; or

(b) where it has complied with those requirements, before it is satisfied as mentioned in paragraph (4) above;

but in such a case it shall, at the earliest opportunity, inform the relevant supervisory authority in the investment firm’s home State and the European Commission of the action taken.

(6) In any case where—

(a) by virtue of paragraph (5) above, the Board has taken action as mentioned in any of sub-paragraphs (a) to (e) of paragraph (1) above before complying with paragraphs (2) and (3) above or, as the case may be, before it is satisfied as mentioned in paragraph (4) above; and

(b) the European Commission decides under the Investment Services Directive that the Board must withdraw or amend the statement, withdraw the application, or rescind or vary the prohibition or requirement,

the Board shall in accordance with the decision withdraw or amend the statement, withdraw the application, or rescind or vary the prohibition or requirement.

(7) For the purposes of paragraph (6)(b) above the Board shall be taken to withdraw or amend a statement if it publishes a further statement retracting or, as the case may be, correcting it; and the Board shall after publication of the further statement send a copy of it to any person to whom a copy of the previous statement was sent under section 60(5) of the Financial Services Act.

(8) In any case where—

(a) the Board has, by virtue of sub-paragraph (5) above, given notice to a European investment firm under section 60(2) of the Financial Services Act before complying with paragraphs (2) and (3) above or, as the case may be, before it is satisfied as mentioned in paragraph (4) above;

(b) the statement to which the notice relates has not been published; and

(c) the European Commission decides under the Investment Services Directive that the Board must not publish the statement, or must publish a different statement under that section,

the Board shall in accordance with the decision withdraw the notice or give a different notice in substitution.

Obligation of Board where investment firm ceases to be a European investment firm etc.

12.  Where the Board is informed that—

(a) a person has ceased to be a European investment firm; or

(b) a European investment firm has ceased to provide any particular listed service in the United Kingdom,

the Board shall inform every other authority which it knows is a connected UK authority of that fact.

Functions of the Bank

Duty to prepare for supervision

13.—(1) In any case where the Bank receives from the relevant supervisory authority in an investment firm’s home State a notice given in accordance with paragraph 3 of Schedule 3 to these Regulations, the Bank shall, before the expiry of the relevant period, draw to the attention of the firm such provisions of these Regulations, the relevant Acts or regulations or rules made under those Acts as, having regard to the services mentioned in the notice, the Bank considers appropriate.

(2) In any case where the Bank receives from an investment firm a notice given in accordance with paragraph 4 or 5 of Schedule 3 to these Regulations, the Bank shall draw to the attention of the firm such provisions of these Regulations, the relevant Acts or regulations or rules made under those Acts as, having regard to the proposed change mentioned in the notice, the Bank considers appropriate.

(3) In this regulation, “the relevant Acts” and “the relevant period” have the same meanings as in regulation 8 above.

Obligation of Bank where investment firm ceases to be a European investment firm etc.

14.  Where the Bank is informed that—

(a) a person in respect of whom it has received a notice in accordance with paragraph 3 of Schedule 3 to these Regulations has ceased to be a European investment firm; or

(b) a European investment firm in respect of whom it has received such a notice has ceased to provide any particular listed service in the United Kingdom,

the Bank shall inform every other authority which it knows is a connected UK authority of that fact.

Functions of Director

Power to prohibit the carrying on of Consumer Credit Act business

15.—(1) If it appears to the Director that paragraph (2) below has been or is likely to be contravened as respects a European investment firm, he may impose on the investment firm a prohibition under this regulation, that it to say, a prohibition on carrying on, or purporting to carry on, in the United Kingdom any Consumer Credit Act business which consists of or includes provision of any one or more listed service.

(2) This paragraph is contravened as respects a European investment firm if—

(a) the investment firm or any of the investment firm’s employees, agents or associates (whether past or present); or

(b) where the investment firm is a body corporate, any controller of the firm or an associate of any such controller,

does any of the things specified in paragraphs (a) to (d) of section 25(2) of the Consumer Credit Act(16).

(3) A prohibition under this regulation may be absolute or may be imposed for a specified period or until the occurrence of a specified event or until specified conditions are complied with; and any period, event or conditions specified in the case of a prohibition may be varied by the Director on the application of the investment firm concerned.

(4) Any prohibition imposed under this regulation may be withdrawn by written notice served by the Director on the investment firm concerned; and any such notice shall take effect on such date as is specified in the notice.

(5) In this regulation “associate” has the same meaning as in section 25(2) of the Consumer Credit Act and “controller” has the meaning given by section 189(1) of that Act.

(6) Schedule 5 to these Regulations (which makes supplemental provision with respect to prohibitions imposed under this regulation and restrictions imposed under regulation 16 below) shall have effect.

Power to restrict the carrying on of Consumer Credit Act business

16.—(1) In this regulation “restriction” means a direction that a European investment firm may not provide in the United Kingdom, otherwise than in accordance with such condition or conditions as may be specified in the direction, any Consumer Credit Act business which—

(a) consists of or includes the provision of any listed service; and

(b) is specified in the direction.

(2) Where it appears to the Director that the situation as respects a European investment firm is such that the powers conferred by regulation 15(1) above are exercisable, the Director may, instead of imposing a prohibition, impose such restriction as appears to him desirable.

(3) Any restriction imposed under this regulation—

(a) may be withdrawn; or

(b) may be varied with the agreement of the investment firm concerned,

by written notice served by the Director on the investment firm; and any such notice shall take effect on such date as is specified in the notice.

(4) An investment firm which contravenes or fails to comply with a restriction shall be guilty of an offence and liable—

(a) on conviction on indictment, to a fine;

(b) on summary conviction, to a fine not exceeding the statutory maximum.

(5) The fact that a restriction has not been complied with (whether or not constituting an offence under paragraph (4) above) shall be a ground for the imposition of a prohibition under regulation 15 above.

PART III RELATIONS WITH THIRD COUNTRIES

Treasury directions for implementing certain EC decisions

17.—(1) In this regulation “relevant decision” means any decision of the Council or the Commission of the Communities under article 7.5 of the Investment Services Directive (relations with third countries, limitation or suspension of decisions regarding applications for authorisations).

(2) For the purpose of implementing a relevant decision the Treasury may issue a direction within any of paragraphs (3), (4) or (5) below.

(3) A direction is within this paragraph if it is a direction to the Board—

(a) to refuse an application for authorisation made by an investment firm incorporated in or formed under the law of any part of the United Kingdom, other than a UK authorised institution;

(b) to defer its decision on such an application either indefinitely or for such period as may be specified in the direction; or

(c) to serve a notice of objection on a person—

(i) who has given notice under regulation 41 below of his intention to become a 50 per cent. controller of any description of such a firm; or

(ii) who has become such a controller without giving the required notice under that regulation.

(4) A direction is within this paragraph if it is a direction to the Bank—

(a) to refuse an application for admission to the list maintained for the purposes of section 43 of the Financial Services Act (listed money market institutions) made by an investment firm incorporated in or formed under the law of any part of the United Kingdom, other than a UK authorised institution;

(b) to defer its decision on such an application either indefinitely or for such period as may be specified in the direction; or

(c) to serve a notice of objection on a person—

(i) who has given notice under regulation 41 below of his intention to become a 50 per cent. controller of any description of such a firm; or

(ii) who has become such a controller without giving the required notice under that regulation.

(5) A direction is within this paragraph if it is a direction to a recognised self-regulating organisation—

(a) to refuse an application for admission to membership of the organisation concerned made by an investment firm incorporated in or formed under the law of any part of the United Kingdom other than a UK authorised institution;

(b) to defer its decision on such an application either indefinitely or for such period as may be specified in the direction; or

(c) to serve a notice of objection on a person—

(i) who has given notice under regulation 41 below of his intention to become a 50 per cent. controller of any description of such a firm; or

(ii) who has become such a controller without giving the required notice under that regulation.

(6) A direction may relate to a particular firm or class of firm and may be given before the application in question or, as the case may be, any notice under regulation 41 below is received.

(7) Any notice of objection served by virtue of a direction falling within paragraph (3)(c), (4)(c) or (5)(c) above shall state the grounds upon which it is served.

(8) A direction under this regulation may be revoked at any time by the Treasury, but such revocation shall not affect anything done in accordance with the direction before it was revoked.

(9) In consequence of the provision made by this regulation—

(a) section 29(1) of the Financial Services Act (particulars of notice) shall have effect as if the Board were not required to serve a notice of its intention to refuse an application in a case in which the application is to be refused in pursuance of a direction given under this regulation but were required instead to give a notice refusing the application, stating the reasons for the refusal;

(b) section 29(4) of the Financial Services Act (notice of proposed refusal, withdrawal or suspension) shall have effect as if a notice given in pursuance of this regulation refusing authorisation were not required to give particulars of the rights mentioned in that section; and

(c) section 97(1) of the Financial Services Act (references to Financial Services Tribunal) shall have effect as if it did not confer any right on a person to whom a notice is given in pursuance of this regulation refusing authorisation to require that the matter be referred to the Financial Services Tribunal.

PART IV RECOGNITION IN OTHER EEA STATES OF UK INVESTMENT FIRMS

Preliminary

UK investment firms

18.—(1) An investment firm is a UK investment firm for the purposes of these Regulations if it is incorporated in or formed under the law of any part of the United Kingdom or, being an individual, has his head office in the United Kingdom.

(2) A UK investment firm is a UK authorised investment firm for the purposes of these Regulations if it is for the time being an authorised person under the Financial Services Act(17) or is for the time being an exempted person under that Act by virtue of being included in the list maintained by the Bank for the purposes of section 43.

Authorised services

19.  For the purposes of these Regulations a UK authorised investment firm is authorised to provide in the United Kingdom any listed service which it is lawful for it to carry on in the United Kingdom.

Procedural requirements

Procedural requirements for carrying on certain listed services

20.—(1) Subject to paragraph (2) below, a UK authorised investment firm other than a UK authorised institution shall not—

(a) provide in another EEA State by the provision of services any listed service which it is authorised to carry on in the United Kingdom; or

(b) establish a branch in another EEA State for the purpose of providing such a service,

unless the requirements of paragraph 1 of Schedule 6 to these Regulations have been complied with in relation to its provision of the service or, as the case may be, its establishment of the branch.

(2) Paragraph (1) above shall not require a UK subsidiary which, immediately before the commencement date, complies with the requirements of paragraph 1 of Schedule 6 to the Banking Coordination (Second Council Directive) Regulations 1992(18) to give further notice of any matter of which it has given notice under that Schedule.

(3) A UK authorised investment firm (other than a UK authorised institution) shall not change the requisite details it has given of the services it provides in another EEA State in which it has no branch unless the requirements of paragraph 5 of Schedule 6 to these Regulations have been complied with in relation to its making of the change.

(4) A UK authorised investment firm (other than a UK authorised institution) shall not change the requisite details of a branch established by it in another EEA State unless the requirements of paragraph 6 of Schedule 6 to these Regulations have been complied with in relation to its making of the change.

(5) In paragraphs (3) and (4) above “requisite details” in relation to a UK authorised investment firm which, immediately before the commencement date, is a UK subsidiary shall include any details it has furnished pursuant to the provisions of the Banking Coordination (Second Council Directive) Regulations 1992 with respect to any listed service it provides by the provision of services or with respect to any branch it has established in another EEA State from which it provides any listed service.

(6) An investment firm which contravenes paragraph (1), (3) or (4) above shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 5 on the standard scale.

(7) In proceedings brought against an investment firm for an offence under paragraph (6) above it shall be a defence for the firm to show that it took all reasonable precautions and exercised all due diligence to avoid the commission of the offence.

(8) Proceedings in respect of an offence under any provision of this regulation shall not be instituted—

(a) in England and Wales, except by the Board or by or with the consent of the Secretary of State or the Director of Public Prosecutions; or

(b) in Northern Ireland, except by the Board or by or with the consent of the Director of Public Prosecutions for Northern Ireland.

(9) Schedule 6 to these Regulations (which contains requirements to be complied with by or in relation to UK authorised investment firms) shall have effect.

PART V AMENDMENTS OF FINANCIAL SERVICES ACT

Authorisation by membership of recognised self-regulating organisations

21.—(1) Section 7 of the Financial Services Act (authorisation by membership of recognised self-regulating organisation) shall have effect as if it included provision that a person who—

(a) is a European investment firm or quasi-European investment firm; and

(b) is a member of a recognised self-regulating organisation,

is not, by virtue of its membership of that organisation, an authorised person as respects any home-regulated investment business.

(2) Paragraph 1 of Schedule 2 to that Act(19) (requirements for recognition of self-regulating organisations) shall have effect as if it included provision that the rules and practices of the organisation must be such as to secure—

(a) that the requirements of paragraph (3) below are met with respect to each member which is a UK investment firm and is not a UK authorised institution; and

(b) that a UK investment firm (other than a UK authorised institution) is admitted to membership only if the requirements of paragraph (4) below are met with respect to the firm.

(3) The requirements of this paragraph are that—

(a) the head office of the firm, and, if the firm has a registered office, its registered office, must be situated in the United Kingdom;

(b) in the case of a firm which is neither a body corporate nor a partnership constituted under the law of Scotland, the firm must carry on business in the United Kingdom;

(c) the firm must have adequate capital to meet the requirements of any rules applicable to it requiring the maintenance of financial resources; and

(d) except in the case of a firm which is subject to rules of the organisation making provision with respect to the matters dealt with in section 48(2)(l) of the Financial Services Act (protection of investors on death etc. of natural person), its business is effectively directed by two or more persons.

(4) The requirements of this paragraph are that—

(a) the firm has submitted to the organisation concerned a programme of operations containing at least the following information—

(i) a description of the listed services that the firm proposes to provide; and

(ii) a description of the firm’s structure; and

(b) in a case in which the firm is—

(i) a subsidiary undertaking;

(ii) a subsidiary undertaking of the parent undertaking; or

(iii) controlled by the 50 per cent. controller,

of an investment firm or credit institution which is for the time being authorised to act as such a firm or institution by the relevant supervisory authority in another EEA State, the organisation concerned has consulted that authority.

(5) Paragraph 2 of Schedule 2 to the Financial Services Act shall have effect as if it included provision that the rules and practices of the organisation relating to the admission of members must be such as to secure that each applicant for membership that is a UK investment firm is informed of the organisation’s decision on the application not later than six months after the date on which the application was received.

Applications for authorisation

22.  Section 26 of the Financial Services Act (applications for authorisation) shall have effect as if it included provision that an application for authorisation in respect of any home-regulated investment business may not be made by a European investment firm or quasi-European investment firm.

Grant and refusal of authorisation

23.—(1) Section 27 of the Financial Services Act (grant and refusal of authorisation) shall have effect as if it included provision that where a European investment firm or a quasi-European investment firm holds an authorisation granted under that section, the firm is not by virtue of that authorisation an authorised person as respects any home-regulated investment business.

(2) That section shall also have effect in relation to a relevant firm, that is to say, a UK investment firm which is not a UK authorised institution, as if it included provision—

(a) that the Board may not grant authorisation to a relevant firm unless the Board is satisfied that the requirements of paragraph (3) below are met;

(b) that the Board may not grant authorisation to a relevant firm where it is—

(i) a subsidiary undertaking;

(ii) a subsidiary undertaking of the parent undertaking; or

(iii) controlled by the 50 per cent. controller,

of an investment firm or credit institution which is for the time being authorised to act as such a firm or institution by the relevant supervisory authority in another EEA State, unless the Board has consulted that authority;

(c) that the Board is required to specify, in a notice given under section 27(8) of the Financial Services Act to a relevant firm, that the date on which authorisation takes effect is the date upon which the notice is given; and

(d) that the Board is under an obligation to notify each applicant who is a relevant firm of the Board’s decision on the application not later than six months after the date on which the application was received.

(3) The requirements of this paragraph are that—

(a) the head office of the firm, and, if the firm has a registered office, its registered office, must be situated in the United Kingdom;

(b) in the case of a firm which is neither a body corporate nor a partnership constituted under the law of Scotland, the firm must carry on business in the United Kingdom;

(c) the firm must have adequate capital to meet the requirements of any rules applicable to it requiring the maintenance of financial resources; and

(d) except in the case of a firm which is subject to rules of the organisation making provision with respect to the matters dealt with in section 48(2)(l) of the Financial Services Act (protection of investors on death etc. of natural person), its business is effectively directed by two or more persons.

Authorisation in other EEA State

24.  Section 31 of the Financial Services Act (authorisation in other EEA State) shall have effect as if it included provision that an investment firm to which that section applies and which is a European investment firm or a quasi-European investment firm is not, by virtue of that section, an authorised person as respects any home-regulated investment business.

Certain EEA regulated markets

25.  A person who provides the trading facilities constituting a market which—

(a) appears on the list drawn up by another EEA State pursuant to Article 16 of the Investment Services Directive; and

(b) operates without any requirement that a person dealing on the market should have a physical presence in the EEA State from which the trading facilities are provided or on any trading floor that the market may have,

shall not be an exempted person by virtue of section 36 of the Financial Services Act as respects anything done in connection with or for the purposes of the provision of those trading facilities which constitutes investment business.

Exempted persons

26.—(1) Section 43 of the Financial Services Act (listed money market institutions) shall have effect as if it included provision that an investment firm which—

(a) is a European investment firm or quasi-European investment firm; and

(b) is for the time being included in a list maintained for the purposes of that section,

is not, by virtue of its inclusion in that list, an exempted person as respects any home-regulated investment business.

(2) That section shall also have effect as if it included provision that the conditions and arrangements referred to in subsection (2) must be such as to secure that—

(a) no European investment firm, other than one on which an absolute prohibition has been imposed under regulation 9 of these Regulations or under regulation 15 of the Banking Coordination (Second Council Directive) Regulations, is refused admission to the list, or removed from it, for reasons relating to—

(i) the fitness of the firm to provide listed services;

(ii) the financial standing of the firm; or

(iii) any other matter for which, under the Investment Services Directive, responsibility is reserved to a supervisory authority in the firm’s home State;

(b) where any power that the Bank has by virtue of those conditions and arrangements is exercisable by virtue of a European investment firm’s contravention of any provision made by the Bank pursuant to any provision of the Investment Services Directive that confers power on host States, the exercise of the power is subject to such restrictions as are necessary for the purposes of complying with article 19 of the Investment Services Directive;

(c) the Bank is under an obligation—

(i) upon admitting a UK investment firm which is neither an authorised person nor a UK authorised institution to the list, to issue the firm with a written statement specifying the core investment services which that firm is permitted to provide by virtue of its inclusion in the list;

(ii) upon becoming aware of the occurrence of any change in the range of core investment services which such a firm is permitted to provide by virtue of its inclusion in the list, to withdraw the previous statement and to issue the firm in question with a further written statement reflecting the change;

(iii) upon becoming aware that such a firm has become an authorised person or a UK authorised institution, to withdraw from the firm the written statement specifying the core investment services which the firm is permitted to provide by virtue of its inclusion in the list; and

(iv) to inform each applicant for admission to the list who is a UK investment firm but who is neither an authorised person nor a UK authorised institution of the Bank’s decision on the application not later than six months after the date on which the application was received; and

(d) no UK investment firm which is neither an authorised person nor a UK authorised institution is admitted to the list unless the requirements of paragraph (3) below are met.

(3) The requirements of this paragraph are that—

(a) the head office of the firm, and if the firm has a registered office, its registered office, must be situated in the United Kingdom;

(b) the firm must be a fit and proper person to carry on listed services;

(c) in the case of a firm which is neither a body corporate nor a partnership constituted under the law of Scotland, the firm must carry on business in the United Kingdom;

(d) the firm must have adequate capital to meet the requirements of any rules applicable to it requiring the maintenance of financial resources;

(e) either the firm will, if admitted to the list, be subject to conditions making provision with respect to the matters mentioned in section 48(2)(l) of the Financial Services Act (protection of investor on death etc. of natural person) or its business will be effectively directed by two or more persons of sufficiently good repute and experience to provide listed services;

(f) the firm must have submitted to the Bank a programme of operations of the business to be carried on by the firm containing at least the following information—

(i) a description of the particular listed services that the firm proposes to provide; and

(ii) particulars of the firm’s structure; and

(g) in the case of a firm which is not and is not seeking to become, an authorised person but which is—

(i) a subsidiary undertaking;

(ii) a subsidiary undertaking of the parent undertaking; or

(iii) controlled by the 50 per cent. controller,

of an investment firm or credit institution which is for the time being authorised to act as such a firm or institution by a relevant supervisory authority in another EEA State, the Bank has consulted that authority.

(4) That section shall also have effect as if it enabled the Bank to regard itself as satisfied with respect to any matter relevant for the purposes of its supervision of a person admitted to the list maintained for the purposes of section 43 of that Act who is a UK investment firm or a European authorised investment firm if—

(a) any relevant regulatory authority informs the Bank that it is satisfied with respect to the matter; and

(b) the Bank is satisfied as to the nature and scope of the supervision exercised by that regulatory authority.

(5) In paragraph (4) above, “relevant regulatory authority”—

(a) in relation to a UK investment firm means any UK regulatory authority; and

(b) in relation to a European investment firm means a supervisory authority in the firm’s home State.

Appointed representatives

27.  Section 44 of the Financial Services Act (appointed representatives) shall have effect as if it included provision that a UK investment firm is not, by virtue of that section, an exempted person as respects a service specified in paragraph 1(a) of Section A of the Annex to the Investment Services Directive (reception and transmission of orders) unless that activity is carried out solely for the account of an investment firm.

Statement of services covered by authorisation

28.—(1) Section 102 of the Financial Services Act (register of authorised persons and recognised organisations etc.) shall have effect as if it required the Board—

(a) upon it first appearing to it that a UK investment firm is a UK authorised investment firm to which this regulation applies, to issue the firm with a written statement specifying the core investment services which that firm is permitted to provide;

(b) upon becoming aware of the occurrence of any change in the range of core investment services which such a UK authorised investment firm is permitted to provide, to withdraw the previous statement and issue the firm in question with a further written statement reflecting the change; and

(c) upon a UK authorised investment firm ceasing to be a UK authorised investment firm to which this regulation applies, to withdraw from the firm the statement specifying the core investment services it was permitted to provide.

(2) This regulation applies to a UK authorised investment firm which is an authorised person.

Reciprocal facilities for investment business

29.—(1) No notice shall be served under section 183 of the Financial Services Act (reciprocal facilities for financial business) on a UK investment firm which—

(a) appears to the Secretary of State or the Treasury to be a subsidiary undertaking of a person connected with a country outside the United Kingdom; and

(b) is carrying on, or appears to the Secretary of State or the Treasury to intend to carry on, any investment, insurance or banking business in, or in relation to, the United Kingdom,

if the sole ground for giving that notice is the ground specified in paragraph (2) below.

(2) The ground referred to in paragraph (1) above is that it appears to the Secretary of State or the Treasury that by reason of—

(a) the law of the country concerned; or

(b) any action taken by, or the practices of, the government or any other authority or body in that country,

investment firms connected with the United Kingdom are unable to provide core investment services in, or in relation to, that country on terms as favourable as those on which investment firms connected with that country are able to provide such services in, or in relation to, the United Kingdom.

Exemption from liability for damages

30.  No recognised self-regulating organisation which is a competent authority designated by the United Kingdom for the purposes of Article 22 of the Investment Services Directive or for the purposes of Article 9 of the Capital Adequacy Directive and none of the officers, servants or members of the governing body of such an organisation shall be liable in damages for anything done or omitted in the discharge or purported discharge of its functions as such an authority unless the act or omission is shown to have been in bad faith.

Recognised professional bodies

31.  Paragraph 2 of Schedule 3 to the Financial Services Act (requirements for recognition of recognised professional bodies) shall have effect as if it included provision that the rules, practices and arrangements of a recognised professional body must be such as to secure that no UK investment firm can be certified by the body for the purposes of Part I of the Financial Services Act if it appears to the body that any core investment services provided by the firm are provided by it otherwise than in an incidental manner in the course of a professional activity.

Other amendments of Financial Services Act

32.  The provisions of the Financial Services Act which are mentioned in Schedule 7 to these Regulations shall have effect subject to the amendments there specified.

Construction of Part V

33.  If and to the extent that a European investment firm is an authorised person, nothing in this Part of these Regulations, except regulations 21(1), 23(1) and 24 and paragraphs 5, 6, 11(2), 20 and 28 of Schedule 7, shall affect the operation of the Financial Services Act in relation to it.

PART VI AMENDMENTS OF CONSUMER CREDIT ACT

Effect of standard licence

34.—(1) Section 22 of the Consumer Credit Act(20) (standard and group licences) shall have effect as if it included provision that a standard licence held by a European investment firm or quasi-European investment firm does not cover the provision by that firm of any listed services.

(2) In this regulation and regulation 35 below “standard licence” has the meaning given by section 22(1)(a) of the Consumer Credit Act.

Grant of standard licence

35.  Section 25 of the Consumer Credit Act (licensee to be a fit person) shall have effect as if—

(a) it included provision that a standard licence shall not be issued to a European investment firm or quasi-European investment firm in respect of any listed services; and

(b) the reference in subsection (2)(b) to any provision made by or under that Act, or by or under any enactment regulating the provision of credit to individuals or other transactions with individuals, included a reference to any corresponding provision in force in another EEA State.

Conduct of business

36.—(1) Section 26 of the Consumer Credit Act (conduct of business), and any existing regulations made otherwise than by virtue of section 54 of that Act, shall have effect as if any reference to a licensee included a reference to a European investment firm carrying on any Consumer Credit Act business where that business consists of the provision of a listed service.

(2) Section 54 of that Act (conduct of business regulations), and any existing regulations made by virtue of that section, shall have effect as if any reference to a licensee who carries on a consumer credit business included a reference to a European investment firm which carries on such a business.

(3) In this regulation “existing regulations” means regulations made under section 26 of that Act before the commencement date.

The register

37.  Section 35 of the Consumer Credit Act (the register) shall have effect as if the particulars to be included in the register included—

(a) particulars of information received by the Director under regulation 12 or 14 above;

(b) particulars of prohibitions and restrictions imposed by him under regulation 15 or 16 above;

(c) such particulars of documents received by him under paragraph 3(2), 4(3) or 5(3) of Schedule 3 to these Regulations as he thinks fit; and

(d) particulars of such other matters (if any) arising under these Regulations as he thinks fit.

Enforcement of agreements

38.—(1) Section 40 of the Consumer Credit Act (enforcement of agreements by unlicensed trader) shall have effect as if the reference in subsection (1) to a regulated agreement, other than a non-commercial agreement, made when the creditor or owner was unlicensed did not include a reference to such an agreement made when the creditor or owner was a relevant firm.

(2) Section 148 of that Act (enforcement of agreement for services of unlicensed trader) shall have effect as if the reference in subsection (1) to an agreement for the services of a person carrying on an ancillary credit business made when that person was unlicensed did not include a reference to such an agreement made when that person was a relevant firm.

(3) Section 149 of that Act (enforcement of regulated agreements made on the introduction of an unlicensed credit-broker) shall have effect as if references in subsections (1) and (2) to introductions by an unlicensed credit-broker did not include references to introductions by a credit-broker who was a relevant firm.

(4) In this regulation “relevant firm” means a European investment firm—

(a) to which paragraph (1) of regulation 5 above applies by virtue of sub-paragraph (b) of that paragraph; and

(b) which is not precluded from making the agreement or introductions in question by a restriction imposed under regulation 16 above.

Restrictions on disclosure of information

39.  Section 174 of the Consumer Credit Act(21) (restrictions on disclosure of information) shall have effect as if in subsection (3A) the reference to the Director’s functions under the Consumer Credit Act included a reference to his functions under these Regulations.

Power to modify subordinate legislation in relation to European investment firms

40.—(1) If the Secretary of State is satisfied that it is necessary to do so for the purpose of implementing the Investment Services Directive so far as relating to any particular European investment firm, he may, on the application or with the consent of the firm, by order direct that all or any of the provisions of—

(a) any regulations made under section 26 of the Consumer Credit Act(22); or

(b) any regulations or orders made under Parts IV to VIII of that Act(23),

shall not apply to the firm or shall apply to it with such modifications as may be specified in the order.

(2) An order under this regulation may be subject to conditions.

(3) An order under this regulation may be revoked at any time by the Secretary of State; and the Secretary of State may at any time vary any such order on the application or with the consent of the European investment firm to which it applies.

PART VII NOTIFICATION OF CONTROLLERS

Notification of new or increased control

41.—(1) No person shall become a minority, 10 per cent., 20 per cent., 33 per cent. or 50 per cent. controller of a UK authorised investment firm which is not a UK authorised institution unless—

(a) he has served on each relevant regulator written notice that he intends to become such a controller of the firm; and

(b) each relevant regulator has done one of the following, that is to say—

(i) has notified him in writing before the end of the period of three months beginning with the date of service of that notice on the regulator that there is no objection to his becoming such a controller of the firm; or

(ii) has allowed that period to elapse without serving on him under regulation 42 below a written notice of objection to his becoming such a controller.

(2) Paragraph (1) above applies also in relation to a person becoming a partner in a UK authorised investment firm which is not a UK authorised institution but is a partnership formed under the law of any part of the United Kingdom.

(3) A relevant regulator may, after receiving a notice under paragraph (1)(a) above from any person, by notice in writing require him to provide such additional information or documents as the regulator concerned may reasonably require for deciding whether to serve a notice of objection.

(4) Where additional information or documents are required from any person by a notice under paragraph (3) above the time between the giving of the notice and the receipt of the information or documents shall be added to the period mentioned in paragraph (1)(b) above.

(5) A notice given by a person under paragraph (1)(a) above shall not be regarded as compliance with that paragraph except as respects his becoming a controller of the firm in question within the period of one year beginning—

(a) in a case where a person has become a controller without his having been served with a notice of objection, with the date on which he became such a controller; and

(b) in a case in which he has been served with one or more notices of objection and the notice or, as the case may be, each of them, has been quashed, with the date upon which the notice is quashed or, if more than one notice was served, with the date of the quashing of the last such notice to be quashed.

Objection to new or increased control

42.—(1) A relevant regulator may serve a notice of objection on a person who has given a notice under regulation 41 above unless the regulator concerned is satisfied, having regard to the need to ensure the sound and prudent management of the firm, that the person in question is a fit and proper person to become a controller of the description in question.

(2) Before deciding whether to serve a notice of objection under this regulation in any case where—

(a) the person concerned is, or is a 50 per cent. controller of, an investment firm which is for the time being authorised to act as such by the relevant supervisory authority in another EEA State; and

(b) the notice under regulation 41 above stated the intention to become a 50 per cent. controller,

each relevant regulator shall consult the relevant supervisory authority in the investment firm’s home State.

(3) Before serving a notice of objection under this regulation, a relevant regulator shall serve the person concerned with a preliminary written notice stating that the regulator is considering the service on that person of a notice of objection; and that preliminary notice—

(a) shall specify the reasons why the regulator is not satisfied as mentioned in paragraph (1) above; and

(b) shall give particulars of the rights conferred by paragraph (4) below.

(4) A person served with a notice under paragraph (3) above may, within the period of one month beginning with the day on which the notice is served, make written representations to the regulator who served the notice; and where such representations are made, that regulator shall take them into account in deciding whether to serve a notice of objection.

(5) Where a person required to give notice under regulation 41 above in relation to his becoming a controller of any description becomes a controller of that description without having given notice as required by that regulation, any regulator to whom the person concerned failed to give notice may serve him with a notice of objection under this regulation at any time within three months after becoming aware of his having done so and may, for the purpose of deciding whether to serve him with such notice, require him by notice in writing to provide such information or documents as the regulator concerned may reasonably require.

(6) The period mentioned in regulation 41(1)(b) above (with any extension under paragraph (4) of that regulation) and the period mentioned in paragraph (5) above shall not expire, if it would otherwise do so, until fourteen days after the end of the period within which representations can be made under paragraph (4) above.

(7) Where the reasons stated in a notice of objection under this regulation relate specifically to matters which—

(a) refer to a person identified in the notice other than the person seeking to become a controller of the relevant description; and

(b) are in the opinion of the regulator serving the notice prejudicial to that person in relation to any office or employment,

the regulator concerned shall, unless it considers it impracticable to do so, serve a copy of the notice on that person.

(8) A notice of objection under this regulation shall—

(a) specify the reasons why the regulator concerned is not satisfied as mentioned in paragraph (1) above; and

(b) given particulars of the right to require the matter to be referred to the Financial Services Tribunal under the provisions of section 97 of the Financial Services Act or, as the case may be, of any right that the person concerned may have to appeal against the notice under any rules or arrangements made by the regulator concerned.

(9) Where a case is not required by the person on whom a notice of objection has been served to be referred to the Financial Services Tribunal or, as the case may be, an appeal is not made by him against the notice, the regulator concerned may give public notice that he has objected to that person becoming a controller of the relevant description and the reasons for the objection.

(10) Section 97 of the Financial Services Act (references to the Tribunal) shall have effect as if any reference to a notice served under section 59(4) of that Act included a reference to a notice of objection served by the Board under this regulation.

Contraventions of regulation 41

43.—(1) Subject to paragraph (2) below, any person who contravenes regulation 41 above by—

(a) failing to give the notice required by sub-paragraph (a) of paragraph (1) of that regulation; or

(b) becoming a controller of any description to which that regulation applies before the end of the period mentioned in sub-paragraph (b) of that paragraph in a case in which no relevant regulator has served him with the preliminary notice under regulation 42(3) above,

shall be guilty of an offence.

(2) A person shall not be guilty of an offence under paragraph (1) above if he shows that he did not know the acts or circumstances by virtue of which he became a controller of the relevant description; but where a person becomes a controller of any such description without such knowledge and subsequently becomes aware of the fact that he has become such a controller he shall be guilty of an offence unless he gives each relevant regulator written notice of the fact that he has become such a controller within fourteen days of becoming aware of that fact.

(3) Any person who—

(a) before the end of the period mentioned in paragraph (1)(b) of regulation 41 above becomes a controller of any description to which that paragraph applies after being served with a preliminary notice under regulation 42(3) above;

(b) contravenes regulation 41 above by becoming a controller of any description after having been served with a notice of objection to his becoming a controller of that description; or

(c) having become a controller of any description in contravention of that regulation (whether before or after being served with such a notice of objection) continues to be such a controller after such a notice has been served on him,

shall be guilty of an offence.

(4) A person guilty of an offence under paragraph (1) or (2) above shall be liable on summary conviction to a fine not exceeding level 5 on the standard scale.

(5) A person guilty of an offence under paragraph (3) above shall be liable—

(a) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both;

(b) on summary conviction, to a fine not exceeding level 5 on the standard scale and, in respect of an offence under sub-paragraph (c) of that paragraph, to a fine not exceeding £100 for each day on which the offence has continued.

Restrictions on voting rights

44.—(1) The powers conferred by this regulation shall be exercisable where a person—

(a) has contravened regulation 41 above by becoming a controller of any description after being served with a notice of objection to his becoming a controller of that description; or

(b) having become a controller of any description in contravention of that regulation continues to be one after such a notice has been served on him.

(2) The Board or, in a case in which the person concerned is a controller of a UK authorised investment firm which is an exempted person by virtue of being admitted to the list maintained by the Bank for the purposes of section 43 of the Financial Services Act and is not an authorised person, the Bank, may, by notice in writing served on the person concerned direct that any specified shares to which this regulation applies shall, until further notice, be subject to the restriction that no voting rights shall be exercisable in respect of the shares.

(3) This regulation applies—

(a) to all the shares in the firm of which the person in question is a controller of the relevant description which are held by him or any associate of his and which were not so held immediately before he became such a controller of the firm; and

(b) where the person in question became a controller of the relevant description of a firm as a result of the acquisition by him or any associate of his of shares in another company, to all the shares in that company which are held by him or any associate of his and which were not so held before he became such a controller of that firm.

(4) A copy of any notice served on the person concerned under paragraph (2) above shall be served on the firm or company to whose shares it relates and, if it relates to shares held by an associate of that person, on that associate.

Prior notification of ceasing to be a relevant controller

45.—(1) A person shall not cease to be a minority, 10 per cent., 20 per cent., 33 per cent. or 50 per cent. controller of a UK authorised investment firm which is not a UK authorised institution unless he has first given to each relevant regulator written notice of his intention to cease to be such a controller of the firm.

(2) If, after ceasing to be such a controller of such a firm, a person will, either alone or with any associate or associates—

(a) still hold 10 per cent. or more of the shares in the firm or another person of whom it is a subsidiary undertaking;

(b) still be entitled to exercise or control the exercise of 10 per cent. or more of the voting power at any general meeting of the firm or of another person of whom it is such an undertaking; or

(c) still be able to exercise a significant influence over the management of the firm or another person of whom it is such an undertaking by virtue of—

(i) a holding of shares in; or

(ii) an entitlement to exercise, or control the exercise of, the voting power at any general meeting of,

the firm or, as the case may be, the other person concerned,

his notice under paragraph (1) above shall state the percentage of the shares or voting power which he will (alone or with any associate or associates) hold or be entitled to exercise or control.

(3) Subject to paragraph (4) below, any person who contravenes paragraph (1) or (2) above shall be guilty of an offence.

(4) Subject to paragraph (5) below, a person shall not be guilty of an offence under paragraph (3) above if he shows that he did not know of the acts or circumstances by virtue of which he ceased to be a controller of the relevant description in sufficient time to enable him to comply with paragraph (1) above.

(5) Notwithstanding anything in paragraph (4) above, a person who ceases to be a controller of a relevant description without having complied with paragraph (1) above shall be guilty of an offence if, within fourteen days of becoming aware of the fact that he has ceased to be such a controller—

(a) he fails to give each relevant regulator written notice of that fact; or

(b) he gives each relevant regulator such a notice but any such notice fails to comply with paragraph (2) above.

(6) A person guilty of an offence under this regulation shall be liable on summary conviction to a fine not exceeding level 5 on the standard scale.

Construction of Part VII

46.—(1) In this Part of these Regulations—

(a) a “minority controller” means a controller not falling within sub-paragraph (a) or (b) of paragraph (2) below;

(b) a “10 per cent. controller” means a controller in whose case the percentage referred to in the relevant paragraph is 10 or more but less than 20;

(c) a “20 per cent. controller” means a controller in whose case the percentage referred to in the relevant paragraph is 20 or more but less than 33;

(d) a “33 per cent. controller” means a controller in whose case the percentage referred to in the relevant paragraph is 33 or more but less than 50; and

(e) a “50 per cent. controller” means a controller in whose case the percentage referred to in the relevant paragraph is 50 or more,

and for these purposes “controller” has the meaning given in paragraph (2) below and “the relevant paragraph”, in relation to a controller, means whichever one of sub-paragraph (a) or (b) of paragraph (2) below gives the greater percentage of his case.

(2) A “controller”, in relation to an investment firm, means a person who, either alone or with any associate or associates—

(a) holds 10 per cent. or more of the shares in the firm or another person of whom the firm is a subsidiary undertaking;

(b) is entitled to exercise, or control the exercise of, 10 per cent. or more of the voting power at any general meeting of the firm or another person of whom the firm is such an undertaking; or

(c) is able to exercise a significant influence over the management of the firm or another person of whom the firm is such an undertaking by virtue of—

(i) a holding of shares in; or

(ii) an entitlement to exercise, or control the exercise of, the voting power at any general meeting of,

the firm or, as the case may be, the other person concerned.

(3) In this Part of these Regulations “associate”, in relation to a person entitled to exercise or control the exercise of voting power in relation to, or holding shares in, an undertaking, means—

(a) the wife or husband or son or daughter of that person;

(b) the trustees of any settlement under which that person has a life interest in possession or, in Scotland, a life interest;

(c) any company of which that person is a director;

(d) any person who is an employee or partner of that person;

(e) if that person is a company—

(i) any director of that company;

(ii) any subsidiary undertaking of that company;

(iii) any director or employee of any such subsidiary undertaking; and

(f) if that person has with any other person an agreement or arrangement with respect to the acquisition, holding or disposal of shares or other interests in that undertaking or body corporate or under which they undertake to act together in exercising their voting power in relation to it, that other person.

(4) For the purposes of paragraph (3) above—

• “son” includes stepson and “daughter” includes stepdaughter; and

• “settlement” includes any disposition or arrangement under which property is held on trust.

(5) References in this Part of these Regulations to a “relevant regulator”, in relation to an investment firm, are references to—

(a) any recognised self-regulating organisation to whose rules the firm is subject in providing core investment services;

(b) the Board, in a case in which the firm in question is subject, in providing core services, to rules made by the Board; and

(c) the Bank, in a case in which the firm in question is not an authorised person and is an exempted person by virtue of being admitted to the list maintained for the purposes of section 43 of the Financial Services Act.

(6) References in this Part of these Regulations to “voting rights”, in relation to an undertaking, shall be construed in accordance with paragraph 2 of Schedule 10A to the Companies Act 1985(24) or paragraph 2 of Schedule 10A to the Companies (Northern Ireland) Order 1986(25).

(7) Nothing in this Part of these Regulations shall require a person to give notice of his intention to become or to cease to be a controller of any description pursuant to an agreement entered into before the commencement date to acquire or dispose of a holding of shares or an entitlement to exercise or control the exercise of voting power.

Prosecution of offences under Part VII

47.  Proceedings in respect of an offence under any provision of this Part of these Regulations shall not be instituted—

(a) in England and Wales, except by the Board or by or with the consent of the Secretary of State or the Director of Public Prosecutions; or

(b) in Northern Ireland, except by the Board or by or with the consent of the Secretary of State or the Director of Public Prosecutions for Northern Ireland.

PART VIII MISCELLANEOUS

Restrictions on disclosure of information

48.—(1) This paragraph applies to any confidential information which—

(a) any person who works or has worked for any person designated by the United Kingdom as a competent authority for the purposes of Article 22 of the Investment Services Directive or Article 9 of the Capital Adequacy Directive; or

(b) any auditor or expert instructed by such an authority,

has received in the course of discharging his duties as such a person, auditor or expert in relation to an investment firm having its head or registered office in an EEA State.

(2) Section 179 of the Financial Services Act shall not apply to information to which paragraph (1) above applies.

(3) Information to, which paragraph (1) above applies shall not be disclosed by any person referred to in sub-paragraph (a) or (b) of that paragraph, or by any person receiving it directly or indirectly from such a person, except in any of the circumstances specified in Article 25 of the Investment Services Directive, the text of which is set out in Schedule 8 to these Regulations; and for these purposes such information—

(a) may, subject to the provisions of paragraph (5) below, be disclosed in the circumstances described in Article 25.8 of the Investment Services Directive; and

(b) may, until 2nd July 1996, be disclosed in the circumstances described in Article 25.9 of that Directive.

(4) Information received under Article 25.2 of the Investment Services Directive may not be communicated in the circumstances referred to in Article 25.7 of that Directive without the express consent of the supervisory authority from whom it was obtained.

(5) Information of the kind described in the third paragraph of Article 25.8 of the Investment Services Directive may not be disclosed in the cases referred to in Article 25.8 except with the express consent of whichever is relevant of the authorities mentioned in the third paragraph of Article 25.8.

(6) Information which is obtained from the supervisory authorities of another EEA State may not be disclosed for any of the purposes mentioned in the first paragraph of Article 25.9 of the Investment Services Directive without the express consent of the authorities that disclosed the information; and such information may be used only for the purposes that caused those authorities to agree to disclose it.

(7) Any person who contravenes any provision of this regulation shall be guilty of an offence and liable—

(a) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both;

(b) on summary conviction, to imprisonment for a term not exceeding three months or to a fine not exceeding level 5 on the standard scale or to both.

(8) Proceedings in respect of an offence under this Regulation shall not be instituted—

(a) in England and Wales, except by or with the consent of the Secretary of State or the Director of Public Prosecutions; or

(b) in Northern Ireland, except by or with the consent of the Secretary of State or the Director of Public Prosecutions for Northern Ireland.

(9) In proceedings brought against any person for an offence under this regulation, it shall be a defence for him to prove that he took all reasonable precautions and exercised all due diligence to avoid the commission of the offence.

Regulated markets

49.—(1) The Board shall keep a list upon which it shall enter the name of each market of which the United Kingdom is the home State and which appears to the Board to satisfy the conditions set out in paragraph (2) below,

(2) The conditions referred to in paragraph (1) above are that the market in question—

(a) is a market for instruments of a kind listed in section B of the Annex to the Investment Services Directive (the text of which is set out in Schedule 1 to these Regulations);

(b) functions regularly;

(c) is subject to rules made or approved by a UK regulatory authority that define—

(i) the conditions for the operation of the market;

(ii) the conditions for access to the market;

(iii) where the Council Directive coordinating the conditions for the admission of securities to official stock exchange listing (No. 79/279/EEC)(26) is applicable, the conditions governing admission to listing imposed in that directive; and

(iv) where that directive is not applicable, the conditions that must be satisfied by an instrument before it can effectively be dealt in on the market: and

(d) has rules that give effect to the provisions of articles 20 and 21 of the Investment Services Directive.

(3) If it appears to the Board that a market the name of which the Board has entered on the list kept by it by virtue of this regulation has ceased to comply with any of the conditions set out in paragraph (2) above, the Board shall forthwith remove the name of the market in question from the list.

(4) In this Regulation—

(a) “home State”, in relation to a market, means the EEA State in which the registered office of the person providing trading facilities is situated or, if that person has no registered office, the EEA State in which his head office is situated; and

(b) “UK regulatory authority”, in relation to a regulated market, means an authority in the United Kingdom which has regulatory functions in relation to that market.

Power of Board to give directions

50.—(1) If, on the application of a UK authorised investment firm other than a UK authorised institution, it appears to the Board that—

(a) compliance by that firm with any provision of any rules made by the Board under section 49 of the Financial Services Act (financial resources rules) is, on any particular occasion, not required by any provisions of the Capital Adequacy Directive; and

(b) the Board may, consistently with the provisions of that Directive, exempt the firm from complying with the relevant provision,

it may direct that the firm need not, on the occasion in question, comply with such requirements as it may specify in writing.

(2) The power conferred by paragraph (1) above may be exercised unconditionally or subject to conditions.

(3) If it appears to the Board that, having regard to any change in the circumstances of a UK authorised investment firm other than a UK authorised institution since the end of the period for which the firm last prepared annual accounts, the firm requires financial resources additional to those which it is required to maintain by virtue of rules made under section 49 of the Financial Services Act that give effect to the provisions of Annex IV to the Capital Adequacy Directive, it may direct the firm to increase the amount of its financial resources so that they are equivalent to such proportion of its fixed overheads for the twelve months preceding the date of the direction as the Board considers appropriate.

(4) Any failure by a firm to comply with any condition imposed under paragraph (2) above or with any direction given under paragraph (3) above shall be treated as a failure by the firm to comply with an obligation imposed on it under the Financial Services Act or, in the case of a firm which is a member of a recognised self-regulating organisation, with the rules of that organisation.

Board’s power to obtain information from group members

51.—(1) Subject to paragraph (2) below, the Board may require a UK authorised investment firm (other than a UK authorised institution) which is a member of a group to supply it, or, in a case in which the requirement is imposed at the request of a recognised self-regulating organisation, the organisation concerned, with such information as the Board may reasonably require in order to assess, or enable the assessment of, the adequacy of the financial resources available to a group of which the firm concerned is a member.

(2) The powers conferred by this regulation shall not be exercisable in relation to an investment firm which is a member of a recognised self-regulating organisation and is subject to the rules of such an organisation in carrying on all the investment business carried on by it unless such an organisation has requested the exercise of the powers.

(3) If it appears to the Board to be necessary to do so for the purpose of assessing, or enabling the assessment of, the adequacy of the financial resources available to a group which includes amongst its members a UK authorised investment firm which is not a UK authorised institution, it may also exercise the powers conferred by paragraph (1) above in relation to any of the persons mentioned in paragraph (4) below.

(4) The persons referred to in paragraph (3) above are any person who is or has at any relevant time been—

(a) a partnership of which the investment firm in question is or was a member;

(b) a parent undertaking, subsidiary undertaking or related company of that firm;

(c) a subsidiary undertaking of a parent undertaking of that firm;

(d) a parent undertaking of a subsidiary undertaking of that firm; or

(e) any undertaking which is a 50 per cent. controller of that firm.

(5) The Board may exercise the powers conferred by this regulation at the request of the relevant supervisory authority in the home State of a European investment firm for the purpose of assisting that authority to assess the adequacy of the financial resources available to a group of which the firm is a member or to enable such an assessment to be made.

(6) In this Regulation, “related company” means any body corporate in which a member of a group of which an investment firm is a member has a qualifying interest; and for these purposes what constitutes a qualifying interest shall be determined in accordance with sub-paragraphs (2) to (4) of paragraph 30 of Schedule 1 to the Financial Services Act(27).

Powers of entry

52.  Any officer, servant or agent of the Board may, on producing (if required to do so) evidence of his authority, enter upon any premises occupied by a person on whom a requirement has been imposed under regulation 51 above for any of the following purposes—

(a) obtaining any information that the person has been required to give under that regulation;

(b) verifying the accuracy of any information that the person has given in pursuance of such a requirement;

(c) verifying that the person is able to give any information that he may reasonably be required to give under that regulation.

Contravention of regulation 51 or 52

53.—(1) Any authorised person who fails to comply with a requirement imposed on it under regulation 51 above or who intentionally obstructs a person exercising rights conferred by regulation 52 above shall be treated as having failed to comply with a requirement imposed on it under the Financial Services Act, or, in the case of a person who is a member of a recognised self-regulating organisation, the rules of that organisation.

(2) Any person, other than an authorised person, who, without reasonable excuse, fails to comply with a requirement imposed on him under regulation 51 above or intentionally obstructs a person exercising rights under regulation 52 above shall be guilty of an offence and liable on summary conviction to imprisonment for a term not exceeding three months or to a fine not exceeding level 5 on the standard scale or to both.

(3) Proceedings in respect of an offence under this regulation shall not be instituted—

(a) in England and Wales, except by the Board or by or with the consent of the Secretary of State or the Director of Public Prosecutions; or

(b) in Northern Ireland, except by the Board or by or with the consent of the Secretary of State or the Director of Public Prosecutions for Northern Ireland.

Directions to the Bank

54.—(1) If it appears to the Treasury—

(a) that any action proposed to be taken by the Bank would be incompatible with the provisions of the Investment Services Directive or the Capital Adequacy Directive; or

(b) that any action which the Bank has power to take is required for the purpose of implementing any provision of those Directives,

they may direct the Bank not to take or, as the case may be, to take the action in question.

(2) A direction under this regulation may contain such supplementary or incidental requirements as the Treasury think necessary or expedient.

(3) A direction under this regulation is enforceable by injunction or, in Scotland, by an order under section 45 of the Courts of Session Act 1988(28).

Position of European subsidiaries

55.  The provisions of Schedule 9 to these Regulations (which makes provision with respect to certain European subsidiaries) shall have effect.

PART IX SUPPLEMENTAL

The Board’s functions under the Regulations

56.—(1) The functions of the Board under these Regulations, except its function of instituting proceedings, shall be treated for the purposes of the Financial Services Act and the Transfer of Functions (Financial Services) Order 1992(29) as if they were functions under Chapter VI of Part I of that Act which—

(a) had been functions of the Secretary of State; and

(b) had been transferred to the Board by the Financial Services Act 1986 (Delegation) Order 1987(30).

(2) The function of the Board of instituting proceedings under these Regulations shall be treated for the purposes of the Financial Services Act and the Transfer of Functions (Financial Services) Order 1992 as if it were a function to which section 114 of the Financial Services Act applies by virtue of the provisions of section 201(4) of that Act which had been transferred to the Board by the Financial Services Act 1986 (Delegation) Order 1987 so as to be exercisable concurrently with the Secretary of State.

Minor and consequential amendments

57.—(1) The provisions mentioned in Schedule 10 to these Regulations shall have effect subject to the amendments there specified, being minor amendments or amendments consequential on the provisions of these Regulations.

(2) Any deed, contract or other instrument made before the commencement date shall have effect, unless the context otherwise requires, as if any reference to a person authorised under the Financial Services Act (however expressed) included a reference to a European investment firm.

Transitional provisions and savings

58.  Schedule 11 to these Regulations shall have effect with respect to the transitional and other matters there mentioned.

Derek Conway

Simon Burns

Two of the Lords Commissioners of Her Majesty’s Treasury

18th December 1995