S. 36 in force at 7.3.2016 by S.I. 2015/490, art. 2(1)(c) (with savings and transitional provisions in S.I. 2015/492 (as amended by S.I. 2015/1660))

S. 37 in force at 7.3.2016 by S.I. 2015/490, art. 2(1)(c) (with savings and transitional provisions in S.I. 2015/492 (as amended by S.I. 2015/1660))

S. 38 in force at 7.3.2016 by S.I. 2015/490, art. 2(1)(c) (with savings and transitional provisions in S.I. 2015/492 (as amended by S.I. 2015/1660))

http://www.legislation.gov.uk/ukpga/2013/33/part/4/crossheading/offence/2016-03-07Financial Services (Banking Reform) Act 2013An Act to make further provision about banking and other financial services, including provision about the Financial Services Compensation Scheme; to make provision for the amounts owed in respect of certain deposits to be treated as a preferential debt on insolvency; to make further provision about payment systems and securities settlement systems; to make provision about the accounts of the Bank of England and its wholly owned subsidiaries; to make provision in relation to persons providing claims management services; and for connected purposes.texttext/xmlenStatute Law Database2024-09-06Expert Participation2016-03-07PART 4Conduct of persons working in financial services sectorOffence
36Offence relating to a decision causing a financial institution to fail1

A person (“S”) commits an offence if—

a

at a time when S is a senior manager in relation to a financial institution (“F”), S—

i

takes, or agrees to the taking of, a decision by or on behalf of F as to the way in which the business of a group institution is to be carried on, or

ii

fails to take steps that S could take to prevent such a decision being taken,

b

at the time of the decision, S is aware of a risk that the implementation of the decision may cause the failure of the group institution,

c

in all the circumstances, S's conduct in relation to the taking of the decision falls far below what could reasonably be expected of a person in S's position, and

d

the implementation of the decision causes the failure of the group institution.

2

A “group institution”, in relation to a financial institution (“F”), means F or any other financial institution that is a member of F's group for the purpose of FSMA 2000 (see section 421 of that Act).

3

Subsections (1) and (2) are to be read with the interpretative provisions in section 37.

4

A person guilty of an offence under this section is liable—

a

on summary conviction—

i

in England and Wales, to imprisonment for a term not exceeding 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003) or a fine, or both;

ii

in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;

iii

in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both;

b

on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine, or both.

37Section 36: interpretation1

This section has effect for the interpretation of section 36.

2

Financial institution” means a UK institution which—

a

meets condition A or B, and

b

is not an insurer or a credit union.

3

Condition A is that it has permission under Part 4A of FSMA 2000 to carry on the regulated activity of accepting deposits.

4

Condition B is that—

a

it is for the purposes of FSMA 2000 an investment firm (see section 424A of that Act),

b

it has permission under Part 4A of that Act to carry on the regulated activity of dealing in investments as principal, and

c

when carried on by it, that activity is a PRA-regulated activity.

5

In subsection (2)—

a

UK institution” means an institution which is incorporated in, or formed under the law of any part of, the United Kingdom;

b

insurer” means an institution which is authorised under FSMA 2000 to carry on the regulated activity of effecting or carrying out contracts of insurance as principal;

c

credit union” means a credit union as defined by section 31 of the Credit Unions Act 1979 or a credit union as defined by Article 2(2) of the Credit Unions (Northern Ireland) Order 1985.

6

Subsections (3), (4) and (5)(b) are to be read in accordance with sections 22 and 22A of FSMA 2000, taken with Schedule 2 to that Act and any order under section 22.

7

A person is a “senior manager” in relation to a financial institution if, under an arrangement entered into by the institution, or by a contractor of the institution, in relation to the carrying on by the institution of a regulated activity, the person performs a senior management function.

8

A “senior management function” is a function designated as such—

a

by the FCA under subsection (6A) of section 59 of FSMA 2000 (approval for particular arrangements), or

b

by the PRA under subsection (6B) of that section.

9

A financial institution (“F”) is to be regarded as failing where—

a

F enters insolvency,

b

any of the stabilisation options in Part 1 of the Banking Act 2009 is achieved in relation to F, or

c

F is taken for the purposes of the Financial Services Compensation Scheme to be unable, or likely to be unable, to satisfy claims against F.

10

In subsection (9)(a) “insolvency” includes—

a

bankruptcy,

b

liquidation,

c

bank insolvency,

d

administration,

e

bank administration,

f

receivership,

g

a composition between F and F's creditors, and

h

a scheme of arrangement of F's affairs.

38Institution of proceedings1

In this section “an offence” means an offence under section 36.

2

Proceedings for an offence may be instituted in England and Wales only—

a

by the FCA, the PRA or the Secretary of State, or

b

by or with the consent of the Director of Public Prosecutions.

3

Proceedings for an offence may be instituted in Northern Ireland only—

a

by the FCA, the PRA or the Secretary of State, or

b

by or with the consent of the Director of Public Prosecutions for Northern Ireland.

4

In exercising its power to institute proceedings for an offence, the FCA or the PRA must comply with any conditions or restrictions imposed in writing by the Treasury.

5

Conditions or restrictions may be imposed under subsection (4) in relation to—

a

proceedings generally, or

b

such proceedings, or categories of proceedings, as the Treasury may direct.

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<note class="commentary I" eId="key-8fee51807d8d4febe5113839ba50c6d7">
<p>
<ref href="http://www.legislation.gov.uk/id/ukpga/2013/33/section/36">S. 36</ref>
in force at 7.3.2016 by
<ref href="http://www.legislation.gov.uk/id/uksi/2015/490">S.I. 2015/490</ref>
,
<ref href="http://www.legislation.gov.uk/id/uksi/2015/490/article/2/1/c">art. 2(1)(c)</ref>
(with savings and transitional provisions in
<ref href="">S.I. 2015/492</ref>
(as amended by
<ref href="">S.I. 2015/1660</ref>
))
</p>
</note>
<note class="commentary I" eId="key-a2efb9033a111586fc1438b403f1ded2">
<p>
S. 37 in force at 7.3.2016 by
<ref href="http://www.legislation.gov.uk/id/uksi/2015/490">S.I. 2015/490</ref>
,
<ref href="http://www.legislation.gov.uk/id/uksi/2015/490/article/2/1/c">art. 2(1)(c)</ref>
(with savings and transitional provisions in
<ref href="http://www.legislation.gov.uk/id/uksi/2015/492">S.I. 2015/492</ref>
(as amended by
<ref href="http://www.legislation.gov.uk/id/uksi/2015/1660">S.I. 2015/1660</ref>
))
</p>
</note>
<note class="commentary I" eId="key-3e27893dbcd64c91f7b0ece261ba6405">
<p>
<ref href="http://www.legislation.gov.uk/id/ukpga/2013/33/section/38">S. 38</ref>
in force at 7.3.2016 by
<ref href="http://www.legislation.gov.uk/id/uksi/2015/490">S.I. 2015/490</ref>
,
<ref href="http://www.legislation.gov.uk/id/uksi/2015/490/article/2/1/c">art. 2(1)(c)</ref>
(with savings and transitional provisions in
<ref href="">S.I. 2015/492</ref>
(as amended by
<ref href="">S.I. 2015/1660</ref>
))
</p>
</note>
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<portionBody period="#period2">
<part eId="part-4" period="#period4">
<num>
<strong>PART 4</strong>
</num>
<heading>Conduct of persons working in financial services sector</heading>
<hcontainer name="crossheading" eId="part-4-crossheading-offence" period="#period5">
<heading>
<em>Offence</em>
</heading>
<section eId="section-36" period="#period6">
<num>
<noteRef href="#key-8fee51807d8d4febe5113839ba50c6d7" marker="I1" class="commentary I"/>
36
</num>
<heading>Offence relating to a decision causing a financial institution to fail</heading>
<subsection eId="section-36-1">
<num>1</num>
<intro>
<p>A person (“S”) commits an offence if—</p>
</intro>
<paragraph eId="section-36-1-a">
<num>a</num>
<intro>
<p>at a time when S is a senior manager in relation to a financial institution (“F”), S—</p>
</intro>
<subparagraph eId="section-36-1-a-i">
<num>i</num>
<content>
<p>takes, or agrees to the taking of, a decision by or on behalf of F as to the way in which the business of a group institution is to be carried on, or</p>
</content>
</subparagraph>
<subparagraph eId="section-36-1-a-ii">
<num>ii</num>
<content>
<p>fails to take steps that S could take to prevent such a decision being taken,</p>
</content>
</subparagraph>
</paragraph>
<paragraph eId="section-36-1-b">
<num>b</num>
<content>
<p>at the time of the decision, S is aware of a risk that the implementation of the decision may cause the failure of the group institution,</p>
</content>
</paragraph>
<paragraph eId="section-36-1-c">
<num>c</num>
<content>
<p>in all the circumstances, S's conduct in relation to the taking of the decision falls far below what could reasonably be expected of a person in S's position, and</p>
</content>
</paragraph>
<paragraph eId="section-36-1-d">
<num>d</num>
<content>
<p>the implementation of the decision causes the failure of the group institution.</p>
</content>
</paragraph>
</subsection>
<subsection eId="section-36-2">
<num>2</num>
<content>
<p>
A “
<term refersTo="#term-group-institution">group institution</term>
”, in relation to a financial institution (“F”), means F or any other financial institution that is a member of F's group for the purpose of FSMA 2000 (see section 421 of that Act).
</p>
</content>
</subsection>
<subsection eId="section-36-3">
<num>3</num>
<content>
<p>Subsections (1) and (2) are to be read with the interpretative provisions in section 37.</p>
</content>
</subsection>
<subsection eId="section-36-4">
<num>4</num>
<intro>
<p>A person guilty of an offence under this section is liable—</p>
</intro>
<paragraph eId="section-36-4-a">
<num>a</num>
<intro>
<p>on summary conviction—</p>
</intro>
<subparagraph eId="section-36-4-a-i">
<num>i</num>
<content>
<p>in England and Wales, to imprisonment for a term not exceeding 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003) or a fine, or both;</p>
</content>
</subparagraph>
<subparagraph eId="section-36-4-a-ii">
<num>ii</num>
<content>
<p>in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;</p>
</content>
</subparagraph>
<subparagraph eId="section-36-4-a-iii">
<num>iii</num>
<content>
<p>in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both;</p>
</content>
</subparagraph>
</paragraph>
<paragraph eId="section-36-4-b">
<num>b</num>
<content>
<p>on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine, or both.</p>
</content>
</paragraph>
</subsection>
</section>
<section eId="section-37" period="#period5">
<num>
<noteRef href="#key-a2efb9033a111586fc1438b403f1ded2" marker="I2" class="commentary I"/>
37
</num>
<heading>Section 36: interpretation</heading>
<subsection eId="section-37-1">
<num>1</num>
<content>
<p>This section has effect for the interpretation of section 36.</p>
</content>
</subsection>
<subsection eId="section-37-2">
<num>2</num>
<intro>
<p>
<term refersTo="#term-financial-institution">Financial institution</term>
” means a
<abbr class="Acronym" title="United Kingdom">UK</abbr>
institution which—
</p>
</intro>
<paragraph eId="section-37-2-a">
<num>a</num>
<content>
<p>meets condition A or B, and</p>
</content>
</paragraph>
<paragraph eId="section-37-2-b">
<num>b</num>
<content>
<p>is not an insurer or a credit union.</p>
</content>
</paragraph>
</subsection>
<subsection eId="section-37-3">
<num>3</num>
<content>
<p>Condition A is that it has permission under Part 4A of FSMA 2000 to carry on the regulated activity of accepting deposits.</p>
</content>
</subsection>
<subsection eId="section-37-4">
<num>4</num>
<intro>
<p>Condition B is that—</p>
</intro>
<paragraph eId="section-37-4-a">
<num>a</num>
<content>
<p>it is for the purposes of FSMA 2000 an investment firm (see section 424A of that Act),</p>
</content>
</paragraph>
<paragraph eId="section-37-4-b">
<num>b</num>
<content>
<p>it has permission under Part 4A of that Act to carry on the regulated activity of dealing in investments as principal, and</p>
</content>
</paragraph>
<paragraph eId="section-37-4-c">
<num>c</num>
<content>
<p>when carried on by it, that activity is a PRA-regulated activity.</p>
</content>
</paragraph>
</subsection>
<subsection eId="section-37-5">
<num>5</num>
<intro>
<p>In subsection (2)—</p>
</intro>
<paragraph eId="section-37-5-a">
<num>a</num>
<content>
<p>
<term refersTo="#term-uk-institution">
<abbr class="Acronym" title="United Kingdom">UK</abbr>
institution
</term>
” means an institution which is incorporated in, or formed under the law of any part of, the United Kingdom;
</p>
</content>
</paragraph>
<paragraph eId="section-37-5-b">
<num>b</num>
<content>
<p>
<term refersTo="#term-insurer">insurer</term>
” means an institution which is authorised under FSMA 2000 to carry on the regulated activity of effecting or carrying out contracts of insurance as principal;
</p>
</content>
</paragraph>
<paragraph eId="section-37-5-c">
<num>c</num>
<content>
<p>
<term refersTo="#term-credit-union">credit union</term>
” means a credit union as defined by section 31 of the Credit Unions Act 1979 or a credit union as defined by Article 2(2) of the Credit Unions (Northern Ireland) Order 1985.
</p>
</content>
</paragraph>
</subsection>
<subsection eId="section-37-6">
<num>6</num>
<content>
<p>Subsections (3), (4) and (5)(b) are to be read in accordance with sections 22 and 22A of FSMA 2000, taken with Schedule 2 to that Act and any order under section 22.</p>
</content>
</subsection>
<subsection eId="section-37-7">
<num>7</num>
<content>
<p>
A person is a “
<term refersTo="#term-senior-manager">senior manager</term>
” in relation to a financial institution if, under an arrangement entered into by the institution, or by a contractor of the institution, in relation to the carrying on by the institution of a regulated activity, the person performs a senior management function.
</p>
</content>
</subsection>
<subsection eId="section-37-8" period="#period1">
<num>8</num>
<intro>
<p>A “senior management function” is a function designated as such—</p>
</intro>
<paragraph eId="section-37-8-a">
<num>a</num>
<content>
<p>by the FCA under subsection (6A) of section 59 of FSMA 2000 (approval for particular arrangements), or</p>
</content>
</paragraph>
<paragraph eId="section-37-8-b">
<num>b</num>
<content>
<p>by the PRA under subsection (6B) of that section.</p>
</content>
</paragraph>
</subsection>
<subsection eId="section-37-9">
<num>9</num>
<intro>
<p>A financial institution (“F”) is to be regarded as failing where—</p>
</intro>
<paragraph eId="section-37-9-a">
<num>a</num>
<content>
<p>F enters insolvency,</p>
</content>
</paragraph>
<paragraph eId="section-37-9-b">
<num>b</num>
<content>
<p>any of the stabilisation options in Part 1 of the Banking Act 2009 is achieved in relation to F, or</p>
</content>
</paragraph>
<paragraph eId="section-37-9-c">
<num>c</num>
<content>
<p>F is taken for the purposes of the Financial Services Compensation Scheme to be unable, or likely to be unable, to satisfy claims against F.</p>
</content>
</paragraph>
</subsection>
<subsection eId="section-37-10">
<num>10</num>
<intro>
<p>
In subsection (9)(a) “
<term refersTo="#term-insolvency">insolvency</term>
” includes—
</p>
</intro>
<paragraph eId="section-37-10-a">
<num>a</num>
<content>
<p>bankruptcy,</p>
</content>
</paragraph>
<paragraph eId="section-37-10-b">
<num>b</num>
<content>
<p>liquidation,</p>
</content>
</paragraph>
<paragraph eId="section-37-10-c">
<num>c</num>
<content>
<p>bank insolvency,</p>
</content>
</paragraph>
<paragraph eId="section-37-10-d">
<num>d</num>
<content>
<p>administration,</p>
</content>
</paragraph>
<paragraph eId="section-37-10-e">
<num>e</num>
<content>
<p>bank administration,</p>
</content>
</paragraph>
<paragraph eId="section-37-10-f">
<num>f</num>
<content>
<p>receivership,</p>
</content>
</paragraph>
<paragraph eId="section-37-10-g">
<num>g</num>
<content>
<p>a composition between F and F's creditors, and</p>
</content>
</paragraph>
<paragraph eId="section-37-10-h">
<num>h</num>
<content>
<p>a scheme of arrangement of F's affairs.</p>
</content>
</paragraph>
</subsection>
</section>
<section eId="section-38" period="#period2">
<num>
<noteRef href="#key-3e27893dbcd64c91f7b0ece261ba6405" marker="I3" class="commentary I"/>
38
</num>
<heading>Institution of proceedings</heading>
<subsection eId="section-38-1">
<num>1</num>
<content>
<p>
In this section “
<term refersTo="#term-an-offence">an offence</term>
” means an offence under section 36.
</p>
</content>
</subsection>
<subsection eId="section-38-2">
<num>2</num>
<intro>
<p>Proceedings for an offence may be instituted in England and Wales only—</p>
</intro>
<paragraph eId="section-38-2-a">
<num>a</num>
<content>
<p>by the FCA, the PRA or the Secretary of State, or</p>
</content>
</paragraph>
<paragraph eId="section-38-2-b">
<num>b</num>
<content>
<p>by or with the consent of the Director of Public Prosecutions.</p>
</content>
</paragraph>
</subsection>
<subsection eId="section-38-3">
<num>3</num>
<intro>
<p>Proceedings for an offence may be instituted in Northern Ireland only—</p>
</intro>
<paragraph eId="section-38-3-a">
<num>a</num>
<content>
<p>by the FCA, the PRA or the Secretary of State, or</p>
</content>
</paragraph>
<paragraph eId="section-38-3-b">
<num>b</num>
<content>
<p>by or with the consent of the Director of Public Prosecutions for Northern Ireland.</p>
</content>
</paragraph>
</subsection>
<subsection eId="section-38-4">
<num>4</num>
<content>
<p>In exercising its power to institute proceedings for an offence, the FCA or the PRA must comply with any conditions or restrictions imposed in writing by the Treasury.</p>
</content>
</subsection>
<subsection eId="section-38-5">
<num>5</num>
<intro>
<p>Conditions or restrictions may be imposed under subsection (4) in relation to—</p>
</intro>
<paragraph eId="section-38-5-a">
<num>a</num>
<content>
<p>proceedings generally, or</p>
</content>
</paragraph>
<paragraph eId="section-38-5-b">
<num>b</num>
<content>
<p>such proceedings, or categories of proceedings, as the Treasury may direct.</p>
</content>
</paragraph>
</subsection>
</section>
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