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New CEO regime comes into force for the FCA

Chris Hamblin, Editor, London, 5 July 2016

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Tomorrow the UK amends its Financial Services and Markets Act to set up the new appointment process for the Financial Conduct Authority's chief executive. It also makes the Treasury's influence over the FCA more formal and obliges the regulator to make rules about illegal lending, annuities and early exit pension charges.

Section 18 of the amending Act to the FSMA 2000 amends Schedule 1ZA Financial Services and Markets Act 2000 to say that the term of office of a person appointed as chief executive must not begin before: (a) that person has, in connection with the appointment, appeared before the Treasury Committee of the House of Commons, or (b) (if earlier) the end of the period of 3 months beginning with the day on which the appointment is made. This does not apply if the person is appointed as chief executive on an acting basis, pending a further appointment being made. This poses no threat to Andrew Bailey, the next CEO.

The backseat driver

The Bank of England and Financial Services Act 2016 (which amends the FSMA 2000 and other Acts, such as the Pension Schemes Act 2015, on the same date) also cuts the rug from under anyone who ever argued that the regulator is in some ways 'independent' of HM Treasury. In section 19 (which amends s1J Part 1A FSMA 2000) it exhorts the FCA to pay attention to HM Treasury's recommendations in connection with its general duties.

It states that the Treasury may, at any time, make recommendations to the FCA about aspects of Government economic policy to which the FCA should have regard when considering: how to act in a way that is compatible with its strategic objective; how to advance one or more of its operational objectives; how to discharge its duty to promote competition in the interests of consumers; and the importance of taking action to minimise the extent to which it is possible for a business to be used for a purpose connected with financial crime.

The Treasury must make recommendations of this sort at least once in each Parliament and should lay a public copy of the resulting letter before Parliament.

Illegal money-lending

Another interesting section, also being enshrined in the FSMA tomorrow, is one that deals with something that unscrupulous private banks do all over the world - lending money illegally. Section 29 adds to Part 20 Financial Services and Markets Act 2000 with a new Part 20B. It states that the Treasury may make grants or loans, or give any other form of financial assistance, to any person (including a firm, which might be an investigative firm, and perhaps also including a trust or police force) for the purpose of taking action against illegal money lending. This includes recompense for the costs of investigating it, or offences connected with it; the costs of prosecuting or taking other enforcement action in respect of it or offences connected with it; the cost of providing education, information and advice about illegal money lending, or support to its victims; and the cost of research about it.

“Illegal money lending” means the carrying out of a regulated activity as described in article 60B Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544) (regulated credit agreements) in circumstances that constitute an authorisation offence. Under s5 of this order, the acceptance of deposits is relevant if money received by way of deposit is lent to others, or if any other activity of the 'secret bank' accepting the deposit is financed wholly, or to a material extent, out of the capital of or interest on money received by way of deposit.

The Treasury must, from time to time, notify the FCA of the amount of the Treasury’s illegal money lending costs. The FCA is now obliged to make rules to require authorised persons, or any specified class of authorised person, to pay it specified amounts, or amounts calculated in a specified way, with a view to recovering these amounts. It will then have to pay the Treasury the amounts that it receives, minus its collection costs (which it may keep).

Annuities

Under s33, the FCA is now obliged to make rules to govern advice about transferring or otherwise dealing with annuity payments. These must require specified authorised persons to check that an individual (a) who has a right to payments under a relevant annuity, and (b) who is not exempted by virtue of regulations that the Treasury might make in future, has received appropriate advice before transferring or otherwise dealing with the right to those payments. The order envisions the Treasury exempting HNW individuals from these rules, but that is a matter for another day.

Pension charges

Section 35(1) obliges the FCA to make general rules to prohibit firms from imposing specified early exit charges on members of pension schemes and from including in those schemes provision for the imposition of specified early exit charges on the members. In doing so, it must try to stop early exit charges from deterring scheme members from taking, converting or transferring benefits. 'Charge' includes a reduction in the value of a member’s benefits that flow from a scheme.

These notes are from the original version, as it was originally enacted.

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