Bank of England and Financial Services Act 2016

Overview of the Act

1. The Bank of England and Financial Services Act 2016 amends governance and accountability arrangements at the Bank of England ("the Bank"), makes provision in relation to the Prudential Regulation Authority ("PRA") and the Financial Conduct Authority ("FCA"), expands the scope of and make changes to the Senior Managers and Certification Regime, makes provision for the enforceability of credit agreements, makes provision in relation to funding the teams that take action against illegal money lending, makes provision concerning the transposition of Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing ("the Directive"), and for the FCA to issue guidance in relation to the definition of ‘politically exposed persons’, requires the FCA to make rules preventing specified charges being imposed on members of pension schemes who wish to take their benefits before their retirement date, gives the Treasury power to make regulations in relation to transformer vehicles, permits the extension of the Government's Pension Wise service, makes provision about the Bank sharing information with the Treasury about resolution planning, and allows for some flexibility to change which legal entities are authorised to issue commercial banknotes in Scotland and Northern Ireland.
2. Part 1 of the Act makes provision in relation to the governance of the Bank. It makes the Deputy Governor for markets and banking a member of the court of directors, the Monetary Policy Committee ("MPC"), the Financial Policy Committee ("FPC"), and the new Prudential Regulation Committee ("PRC"), and gives the Government power to make further changes to the membership of the court of directors by secondary legislation. It gives the Bank's oversight functions to the court of directors and makes the FPC a committee of the Bank, rather than a sub-committee of the court. It reduces the required number of annual MPC meetings and provides for faster publication of minutes relating to those meetings.
3. Part 1 also gives the Comptroller and Auditor General power to carry out examinations of the economy, efficiency and effectiveness with which the Bank uses its resources ("value for money" examinations). This includes Bank companies and subsidiaries of the Bank. Part 1 also gives the Treasury power to carry out value for money reviews of the prudential regulation functions of the Bank.
4. Part 1 ends the status of the PRA as a subsidiary of the Bank, instead providing that the PRA is the Bank of England and creating a new Bank committee to be known as the Prudential Regulation Committee, with responsibility for the Bank's functions as the PRA.
5. Part 2 amends the Financial Services and Markets Act 2000 ("FSMA") by requiring that the term of office of the person appointed by the Treasury as the chief executive of the FCA may not start until the person has appeared before the Treasury Select Committee. Part 2 also gives the Treasury power to make recommendations to the FCA, and amends the regulatory principles which apply to the FCA and the PRA. In addition, Part 2 also extends the Senior Managers and Certification Regime to all firms which are authorised to provide financial services under FSMA, and amends the definition of "misconduct" applicable to senior managers so that, where there has been a regulatory contravention in an area for which they are responsible, senior managers no longer have to prove that they have taken reasonable steps to prevent that contravention to avoid being found guilty of misconduct. It will be necessary for the regulators to prove that a senior manager has not taken such steps before they can bring disciplinary proceedings against a senior manager on this ground.
6. Part 2 also clarifies the circumstances in which agreements relating to credit are enforceable and amends the circumstances in which credit agreements made through unauthorised persons are unenforceable. Part 2 amends FSMA by giving the Treasury the power to provide financial assistance for the purpose of taking action against illegal money lending and requires the FCA to make rules imposing a levy on authorised persons to recover the cost of financial assistance. It also requires the Secretary of State to ensure that appropriate attention is given to specified provisions in the Directive when it is transposed.  It also introduces an obligation for the FCA to issue guidance in relation to the definition of politically exposed persons, and gives the Secretary of State power to make regulations both in relation to that guidance, and providing for the handling of complaints in relation to the way in which regulated entities have implemented provisions about politically exposed persons. Part 2 gives the Treasury power to make regulations relating to transformer vehicles, which are used in transactions related to insurance linked securities.
7. Part 2 also extends the remit of the Government's Pension Wise service to holders of annuities specified by the Treasury so that it can deliver guidance to pensioners who will be eligible to sell their annuity income stream in 2017, and requires the FCA to make rules ensuring that those wishing to transfer a right to payments under an annuity have received appropriate advice before doing so where the annuity in question falls within a class specified in regulations made by the Treasury. In addition, the Act ensures that appointed representatives of authorised persons may give advice satisfying the requirements of the Pension Schemes Act 2015 as to the advice which people must have received before they can convert and transfer safeguarded benefits. Currently only firms which are authorised persons under FSMA in their own right may give such advice. The Act also requires the FCA to make rules preventing specified charges being imposed on members of FCA-regulated pension schemes who take their pension benefits at age 55 or after, but before their expected retirement age.
8. Part 2 imposes a duty on the Bank to provide information to the Treasury when firms’ resolution strategies are developed or updated. It also gives the Treasury a power to request specified information supporting the Bank’s assessment of public funds risks associated with the failure of a firm.
9. Part 3 gives the Treasury power to make regulations (with the consent of the Bank) which authorise a bank in the same group as an existing issuer to issue commercial banknotes in Scotland or Northern Ireland instead of the existing issuer.