PART 4Conduct of persons working in financial services sector

Offence

I136Offence relating to a decision causing a financial institution to fail

1

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 F6the general limit in a magistrates’ court (or 6 months, if the offence was committed before F52 May 2022) 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.

I237Section 36: interpretation

1

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.

F48

“Senior management function” means—

a

a function of a description specified in rules made by the FCA under section 59(3)(a) or (b) of FSMA 2000 which is designated as a senior management function by the FCA under section 59(6A) of that Act;

b

a function of a description specified in rules made by the PRA under section 59(3)(a) of that Act.

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,

F2ca

building society insolvency,

cb

investment bank insolvency,

d

administration,

e

bank administration,

F3ea

building society special administration,

f

receivership,

g

a composition between F and F's creditors, and

h

a scheme of arrangement of F's affairs.

F111

For the purposes of subsection (10)—

  • bank administration” has the same meaning as in the Banking Act 2009 (see section 136 of that Act);

  • bank insolvency” has the same meaning as in that Act (see section 90 of that Act);

  • building society insolvency” and “building society special administration” have the same meaning as in the Building Societies Act 1986 (see section 119 of that Act);

  • investment bank insolvency” means any procedure established by regulations under section 233 of the Banking Act 2009.

I338Institution of proceedings

1

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.