M2.—(1) This regulation applies where—
(a)a person (“the former employee”) has ceased to hold an employment in which he was a pensionable employee in consequence of—
(i)an offence of a fraudulent character, or
(ii)grave misconduct,
in connection with that employment, and
(b)the body who were his employing authority in that employment (“the former employing authority”) have suffered direct financial loss by reason of the offence or misconduct.
(2) Where this regulation applies and the former employing authority are an administering authority, they may transfer an appropriate amount from their superannuation fund—
(a)in the case of a county council, to the county fund,
(b)in the case of the Greater London Council, to the general fund,
(c)in the case of a London borough council, to the general rate fund, or
(d)in the case of the Severn-Trent Water Authority, to the appropriate account.
(3) Where this regulation applies and the former employing authority are not an administering authority, the appropriate administering authority shall, subject to paragraph (S), pay them an appropriate amount out of the superannuation fund if requested to do so.
(4) An appropriate amount is an amount which does not exceed the lesser of—
(a)the amount of the direct financial loss, and
(b)the amount of any contributions which could have, but have not, been returned to the former employee, or paid to his spouse or a dependant, under regulation C12(9).
(5) Where a payment in lieu of contributions has been made, or is due, in respect of the former employee, the administering authority may reduce a payment under paragraph (3) by half the amount of the payment in lieu of contributions.
(6) If after making a payment under paragraph (3) the administering authority are required to pay a transfer value in respect of the former employee, the former employing authority shall repay them the amount of that payment if requested to do so.