The Financial Services and Markets Act 2000

The text of the Act is on the IPSO website

This article is very long. It comprises the following main sections:
Introduction
An overview of the Act
An outline of the Act in more detail

Introduction
This substantial piece of legislation, comprising over 400 sections and 20 substantial schedules, was given the Royal Assent on 14th. June 2000. It was announced in July 2000 that its main provisions are expected to be brought into effect in 'about a year's time'.

The following summary of the Act draws heavily on the Explanatory Notes provided on the IPSO website. For the link, see above

The Financial Services Authority
This Act provides the legal framework for the Financial Services Authority, which takes over as the single regulator of the financial services industry and gives the FSA a range of statutory powers.

Historically the regulation of financial services has been the responsibility of a range of different bodies:
· the Financial Services Authority itself (formerly the Securities and Investment Board);
· the Self-Regulating Organisations ('SROs'): most recently the Personal Investment Authority, the Investment Management Regulatory Organisation and the Securities and Futures Authority
· the former Supervision and Surveillance Branch of the Bank of England;
· the Building Societies Commission;
· the Insurance Directorate of the Treasury;
· the Friendly Societies Commission; and
· the Registry of Friendly Societies.

Responsibilities of these bodies are being transferred to the FSA. Certain functions under the Banking Act 1987 were transferred by the Bank of England Act 1998. In other cases, the FSA entered into contracts with the relevant bodies to perform regulatory functions on their behalf. For example, the Treasury contracted with the FSA for the performance of certain functions under the Insurance Companies Act 1982. Many staff transferred to the FSA and relocated to its headquarters. This process of integration will be completed when this Act is brought into force.

The Act will broadly continue the regime for recognised investment exchanges and clearing houses under the Financial Services Act 1986, although the FSA's powers under the new Act are wider. The FSA will have powers to regulate the Lloyd's insurance market. The recognised professional bodies regime under the Financial Services Act 1986 will not continue. Professional firms (such as solicitors, accountants and actuaries) carrying on mainstream regulated activities will be authorised and regulated directly by the FSA. However, some categories of professional firm will benefit from an exclusion from the scope of regulation under the Act, subject to arms-length oversight by and certain powers of the FSA. The Act does not affect the professional bodies' wider powers to regulate the professional activities of members of their respective professions.

The Act is intended to co-ordinate and modernise financial regulation currently established under a number of different Acts:
· the Credit Unions Act 1979
· the Insurance Companies Act 1982
· the Financial Services Act 1986
· the Building Societies Act 1986
· the Banking Act 1987
· the Friendly Societies Act 1992
·
These Acts are generally supplemented by secondary legislation or rules. It is intended that the powers under sec426 of the new Act will be used so that the relevant parts of the existing legislation, and rules and regulations made under it, will be substantially repealed when the Act comes into force. Certain other enactments will also be repealed, or substantially repealed, including the Policyholders Protection Acts 1975-97, the Industrial Assurance Acts 1923-48 and the Insurance Brokers (Registration) Act 1977.

The Act also provides for the transfer of the remaining functions of the Building Societies Commission, the Friendly Societies Commission and the Registry of Friendly Societies.

The Act also sets up the Financial Services and Markets Tribunal, establishes the framework for a single financial services ombudsman and provides the framework for compensation schemes for consumers of financial services.

Company Law Aspects
There are aspects of this Act that may be regarded as traditional company law topics. These include the rules in Part VI on listing particulars and prospectuses (including liability for misleading statements, etc.), and the modern successor to the licensed dealers rules, restricting participation in the business of share dealing to those who are authorised or exempt (Parts II to V).

Since 1986 the amount and the complexity of regulatory control of the financial services industry in general, and of those parts of it which relate to company securities in particular, have grown to such an extent that it must now be regarded as a separate, but related, area of law. This causes a difficulty to those who teach and study company law (how to define the syllabus) and draws a distinction between those practitioners who are involved with the regulation of financial services and those who are not. It is not an easy area to dabble in.

An overview of the Act
The Act is in 30 Parts, which cover the following areas:

Part I, The Regulator.
Sets out the general duties and statutory objectives of the FSA (the former SIB). Its overall objectives are market confidence, public awareness, consumer protection and the reduction of financial crime. It must follow the principles of good governance and have effective consultation arrangements.

Part II, Regulated and Prohibited Activities
Prohibits persons who are not authorised (or exempt) from carrying on a regulated activity in the UK and from holding themselves out as being authorised or exempt. It also sets out arrangements for the regulation of financial promotion similar to the regulation of advertisements and cold calling under the 1986 Act and provides for criminal offences relating to these areas.

Part III, Authorisation and Exemption
Sets out the framework for becoming an authorised person and gives the Treasury power to exempt certain persons from the requirement to be authorised. Authorised persons will include those given permission under Part IV and certain persons from other member States of the EU. This Act provides for a single route to authorisation to operate in the financial services industry, replacing the several sector-based regimes. The main means of becoming authorised is to obtain permission under Part IV.

Part IV, Permission to Carry on Regulated Activities
Lays down the procedure for obtaining permission to carry on regulated activities, the powers of the FSA to grant such permissions, the factors to be taken into account when doing so, and powers to impose prohibitions and restrictions, etc. The decisions of the FSA, e.g. to refuse permission, impose conditions or to vary or cancel a permission, can be referred to the Financial Services Tribunal.

Part V, Performance of Regulated Activities
Confers on the FSA powers to enable it to ensure that people who work for authorised persons are 'fit and proper'. The Authority may issue prohibition orders against individuals thought not to be fit and proper and exercise various disciplinary powers, including the imposition of financial penalties. There is also a right of civil action for a private individual who suffers loss because an authorised or exempt person is in breach of the provisions.

Part VI, Official Listing of securities, listing particulars, prospectuses, etc
Confirms the FSA as the 'competent authority' to maintain the official list of securities, in place of the London Stock Exchange (a change originally made by SI 2000/968). The FSA is to maintain the official list, admit securities for listing, and order discontinuance and suspension of listing. It also has control over the listing particulars.
This Part includes the legal duties of those responsible for listing particulars and prospectuses, including the penalties and the rights of civil action for misleading particulars.
Also in this Part are provisions for the FSA to require the issuers of securities to have sponsors, the duties they are to perform and the ability to issue a public censure of a sponsor.

Part VII, Control of Business Transfers (banking and insurance companies)
Creates a mechanism for the transfer of banking and insurance business, subject to a court procedure and regulatory scrutiny.

Part VIII, Penalties for Market Abuse
Confers powers on the FSA to impose penalties for market abuse or to publish a public statement that someone has engaged in market abuse. The Act sets out the kinds of behaviour which constitute market abuse (broadly described as behaviour based on information not generally available to the rest of the market; that it is likely to give the regular market user a false or misleading impression; or that the regular user would be likely to regard it as behaviour which would distort the market). The Act places a duty on the FSA to produce a code to help determine whether particular behaviour amounts to market abuse. This code will carry evidential weight, and in some circumstances will provide a defence, or 'safe harbour', against allegations of abuse. It sets out the procedures the FSA must follow when proposing to impose a penalty. It also confers a right to refer a decision to impose a penalty to the Tribunal.
The Treasury can specify both the markets and the investments traded on those markets to which the regime applies.

Part IX, Hearings and Appeals
This Part establishes the Financial Services and Markets Tribunal. Various sections in the Act provide a right to refer a matter to the Tribunal once the FSA has notified the person concerned of its decision. This Part sets out the procedural framework for referrals to the Tribunal and for appeals from the Tribunal to the Court of Appeal, or in Scotland to the Court of Session, on a point of law. It gives the Lord Chancellor a general power to make rules for the Tribunal's operation. Schedule 13 sets out further details of the Tribunal's constitution and operation.
This Part also confers on the Lord Chancellor a power to establish a scheme to provide legal assistance in proceedings before the Tribunal for individuals in connection with a penalty for market abuse.

Part X, Rules and Guidance
Gives the FSA powers to set regulatory requirements for persons authorised under the Act sets out the procedures that the FSA must follow in exercising those powers. It also sets out the circumstances in which those who suffer loss as a result of an authorised person being in breach of a rule have a right of action for damages.

Part XI, Information Gathering and Investigations.
Powers of the FSA to require the production of information and documents, to require reports to be compiled, to conduct investigations and to obtain access to premises.

Part XII, Control over Authorised Persons
This Part affects those persons who intend to acquire control over UK authorised persons by virtue of their shareholding or voting rights, and any increases and decreases in the extent of a person's control.

Part XIII, Incoming Firms: Intervention by the FSA.
Confers power on the FSA and the Director General of Fair Trading to intervene in the business of EEA and Treaty firms ('incoming firms') who are authorised under Schedules 3 and 4.

Part XIV, Disciplinary Measures.
Gives the FSA powers to take disciplinary measures (including making public statements and imposing financial penalties) against authorised persons who fail to comply with statutory requirements.

Part XV, The Financial Services Compensation Scheme.
Provides for a single Financial Services Compensation Scheme to compensate customers who suffer loss due to the inability of an authorised person to meet its liabilities.

Part XVI, The Ombudsman Scheme.
Requires the FSA to establish a single ombudsman scheme covering the whole industry.

Part XVII, Collective Investment Schemes.
Six chapters about collective investment schemes, including unit trusts, open-ended investment companies ('oeics') and overseas schemes. It includes for authorisation of schemes, their trustees, managers and operators and the rules applicable to them. There is also provision for overseas collective investment schemes promoted in the UK:

Part XVIII, Recognised Investment Exchanges and Clearing Houses.
Sets out the regulatory regime for recognised investment exchanges and clearing houses. These recognised bodies are exempt from the need to be authorised. This regime is similar to that under the Financial Services Act 1986.

Part XIX, Lloyd's.

Part XX, Provision of Financial Services by Members of the Professions.
This Part of the Act provides that professionals (e.g. solicitors, actuaries and accountants), who are not carrying on mainstream regulated are exempt from the requirement to obtain permission from the FSA to carry out regulated activities. The arrangements include arms-length supervision by the FSA of the way in which the professional bodies supervise and regulate their members, and the way such professionals carry on regulated activities. This will involve, amongst other things, the FSA monitoring the effectiveness of the complaints and redress arrangements of designated professional bodies.

Part XXI, Mutual Societies.
Building societies, friendly societies and industrial and provident societies.

Part XXII, Auditors and Actuaries.
The appointment of auditors and actuaries by authorised persons, and their responsibilities.

Part XXIII, Public Record and Disclosure of Information.
Requires the FSA to maintain a public record of authorised (and certain other) persons, and makes provision as to the purposes for which confidential information may be disclosed by and to the FSA and other persons having functions under the Act.

Part XXIV, Insolvency.
Allows the FSA to petition the courts to wind up or initiate other insolvency procedures against authorised (and certain other) persons. It also enables the FSA to be heard by the court when such proceedings are commenced by third parties.

Part XXV, Injunctions and Restitution.
Gives the FSA and the Secretary of State powers to seek injunctions in relation to regulatory contraventions and offences for which the FSA has powers to prosecute. It also provides for restitution to be paid to those who have incurred a loss as a result of such a contravention.

Part XXVI, Notices.
Procedures for the FSA to follow when giving notice of proposed actions.

Part XXVII, Offences.
Creates offences, such as making misleading statements and supplying false information to the FSA, together with general provisions about offences under the Act and the institution of proceedings, e.g. under Part V of the Criminal Justice Act 1993 (insider dealing) and in relation to money laundering.

Part XXVIII, Miscellaneous.

Part XXIX, Interpretation.

Part XXX, Supplemental.

There are 20 Schedules.

An outline of the Act in more detail

PART I, THE REGULATOR.
Sets out the general duties and statutory objectives of the FSA. It also, with Schedule 1, imposes requirements about the FSA's constitution and accountability and about the exercise of certain of its functions.

Sec1. The Financial Services Authority (the former SIB)
The FSA is a company limited by guarantee. It was originally formed as the Securities and Investment Board for the purpose of carrying out functions under the Financial Services Act 1986. It later assumed functions under the Banking Act and exercised functions under other financial regulatory legislation.

Sec2. The FSA's general duties
Requires the FSA to discharge its general functions in accordance with its objectives and with regard to a number of principles. The objectives do not in themselves impose specific statutory duties or functions on the FSA. Rather, the section requires the FSA to carry out its general functions insofar as possible in a way which is compatible with the objectives and which, taking into account any need to balance the objectives as a whole, it considers most appropriate to their fulfilment.
Sec2(2) lists the FSA's objectives, which are: market confidence, public awareness, the protection of consumers and the reduction of financial crime. These are further described in secs 3 to 6.

Sec5. The protection of consumers
Sec5(2) sets out factors to which the FSA must have regard when considering the appropriate degree of protection. These are, briefly, the degree of risk involved, the sophistication and experience of the parties to the transaction, the need of customers for advice and information and the general principle that consumers should take responsibility for their decisions. There is no obligation on the FSA to place particular weight on any one of these factors.

Sec6. The reduction of financial crime
This provision does not by itself impose any duties on firms. The FSA is expected to pursue this objective in co-operation with various law enforcement agencies.

Sec7. Duty of FSA to follow principles of good governance
41. Part I and Schedule 1 set out, amongst other things, certain requirements of the FSA's constitution. The FSA is to have regard generally accepted principles of good corporate governance such as those contained in the Combined Code of the Committee on Corporate Governance, so far as relevant.

Sec8. The FSA's general duty to consult
The FSA is required to make and maintain effective arrangements for consulting practitioners and consumers, including the establishment of Practitioner and Consumer Panels (previously maintained on a voluntary basis).

Sec14 - sec18. Independent inquiries
These sections authorise the Treasury to appoint a person to hold an independent inquiry into the circumstances of regulatory events which raise serious questions or public concern about the regulatory framework or the practical effectiveness of regulation. They provide a statutory basis for the type of inquiry conducted in the past into the failures of the Bank of Credit & Commerce International ('BCCI') in 1991 and Barings in 1995. The Bingham Inquiry into BCCI was conducted on a non-statutory basis and so had no powers to require witnesses to attend or give evidence. The Barings Inquiry was conducted by the Board of Banking Supervision, an advisory body within the Bank of England, using powers under the Banking Act.

The Treasury can order an inquiry if it is in the public interest to do so in two types of cases:

(1) Where events concerning persons carrying on regulated activities or collective investment schemes posed a grave risk to the financial system or to the interests of consumers; and a serious failure in the regulatory system might have caused or exacerbated the risk or damage; or

(2) The Treasury is concerned about damage, or potential damage, that might have been caused by a serious failure in the listing regime.
In either case the Treasury may initiate an inquiry only where they consider that it is in the public interest to do so.

PART II, REGULATED AND PROHIBITED ACTIVITIES
Prohibits persons who are not authorised (or exempt) from carrying on a regulated activity in the UK and from holding themselves out as being authorised or exempt. It also sets out arrangements for the regulation of financial promotion similar to the regulation of advertisements and cold calling under the 1986 Act and provides for criminal offences relating to these areas.

Sec19. The general prohibition
Contains the basic prohibition on unauthorised persons carrying on regulated activities in the UK. It is referred to in the Act as 'the general prohibition' and prohibits persons who are not authorised or exempt under Part III from carrying on any regulated activity in the UK. Section 418 defines when regulated activities are being carried on in the UK. Contravention of the general prohibition is a criminal offence (sec23). Agreements made in the course of carrying on an activity in contravention of the general prohibition may be unenforceable (secs 26, 27 and 29).

Sec20. Authorised persons acting without permission
Authorised persons may only carry on in the UK those regulated activities for which they have been given permission by the FSA under Part IV or by or under some other provision of the Act, e.g. under Schedules 3, 4 or 5.
If an authorised person carries on regulated activities without permission the consequences may include any of the sanctions available under Parts IV (Permission to Carry on Regulated Activities), XIII (Incoming Firms: Intervention by FSA) or XIV (Disciplinary Measures).
If an authorised person acts outside the scope of his permission, he will not commit a criminal offence, and contracts so made are not thereby made unenforceable. Sec20(3) permits the Treasury to prescribe cases which may give rise to a right of action for damages.

Sec21: Restrictions on financial promotion
Prohibits unauthorised persons from issuing financial promotions, unless the content is approved by an authorised person (who will be subject to FSA rules), or an exemption applies. The regulation of financial promotions under this Act is similar to the regulation of investment advertisements and cold calling under the Financial Services Act 1986. However, sec21 reflects changing technologies and the fact that the borderline between advertisements and unsolicited calls has become blurred. Secs 238 to 241 contain additional provisions relating to the promotion of collective investment schemes.
The prohibition applies to 'invitations' or 'inducements' to engage in investment activity, which are made in the course of business. The Treasury are given power to determine the meaning of 'in the course of business'.
The prohibition will potentially catch communications whether they are made in the UK, into the UK from elsewhere, or from the UK to another country. Subsection (5) gives the Treasury powers to make exemptions from the prohibition, similar to those in the Financial Services Act 1986. (It is expected that exemption orders will limit the territorial application so that communications issuing from overseas will generally only be caught if they are directed at the UK. This will be of particular significance to internet communications).
Subsections (8) to (12) govern what constitutes 'engaging in investment activity'.
Subsections (9) and (10) give the Treasury power to determine the scope of the prohibition on financial promotion. It is expected that 'controlled activities' will be the activities which are regulated under the Act, together with activities which would be regulated, but for an exclusion order made under sec22(1). This broad approach reflects the position under the Financial Services Act 1986.

Sec22: The classes of activity and categories of investment
Makes provision as to the classes of regulated activity and types of investment which are to be regulated under the Act. These are to be prescribed by the Treasury by order. An activity will only be regulated if it is carried on by way of business. The Treasury will have the power under sec 419 to specify when an activity is regarded as carried on by way of business.
Schedule 2 indicates the general range of activities and investments that the Treasury may include within the order, but does not exhaustively list them. It is therefore possible that other activities or investments may be brought within the scope of the regulation. However, the general nature of the activities set out in Schedule 2 serves as a limitation on the Treasury's power to bring further activities within the scope of the Act.

Sec23: Contravention of the general prohibition
Makes carrying on a regulated activity in breach of the general prohibition a criminal offence. It is a defence to prove that he exercised due diligence and took all reasonable precautions to avoid committing the offence.

Sec24. False claims to be authorised or exempt
Creates an offence of falsely describing oneself, or holding oneself out, as authorised or exempt. It is a defence to prove that he exercised due diligence and took all reasonable precautions to avoid committing the offence.

Sec25. Contravention of sec21
Makes it an offence to breach the financial promotion prohibition. It is a defence to prove either that he believed on reasonable grounds that the content of the communication was prepared or approved by an authorised person, or that he exercised due diligence and took reasonable precautions to avoid committing the offence.

Sec26 - sec30. Agreements, etc made in contravention of the above
These sections contain detailed rules as to the enforceability of agreements made in breach of the various regulations. In many cases such agreements are generally unenforceable against the customer but the customer can still recover any money paid or property transferred and obtain compensation for any loss, subject to the court's discretion if it would be just and equitable to allow enforcement.

PART III, AUTHORISATION AND EXEMPTION.
Sets out the framework for becoming an authorised person and gives the Treasury power to exempt certain persons from the requirement to be authorised. Authorised persons will include those given permission under Part IV and certain persons from other member States of the EU. This Act provides for a single route to authorisation to operate in the financial services industry, replacing the several sector-based regimes.

The main route to authorisation is through an application for permission under Part IV, but authorisation may also be obtained by virtue of:

· 'EEA firms' from other member states by notification from the competent authority in that state under one of the single market. The relevant directives are the Second Banking Co-ordination Directive, the Investment Services Directive and the Third Life and Non-life Insurance Directives. See schedule 3.

· 'Treaty Firms' from other EU member states in accordance with other EU Treaty rights (see Schedule 4)

· the exercise of rights under the EC collective investment undertakings directive to market in the UK collective investment schemes or open-ended investment companies ('oeics') under regulations to be made under Chapter IV of Part XVII;

· a person being 'grandfathered' under the transitional provisions (see sections 426 and 427). Broadly, the arrangements cover persons authorised under the Banking, Financial Services, Insurance, Building Societies, Friendly Societies, Credit Unions and Lloyd's Acts (including members of self-regulating organisations and certain members of recognised professional bodies).

· The Society of Lloyd's is an authorised purpose by virtue of section 315.

Sec32. Partnerships and unincorporated associations
This section provides that changes to partnerships and unincorporated associations do not interrupt authorisation in appropriate cases and for the authorisation to pass to a successor partnership or association in the event of dissolution where the members and the business of the successor are substantially the same.

Sec33. Withdrawal of authorisation by the FSA

Sec38. Exemption orders
Allows the Treasury to exempt specific natural or legal persons or classes of person from the general prohibition and therefore from the need to be authorised.

Sec39, Exemption of appointed representatives
This section exempts from the general prohibition the appointed representatives of authorised persons. An authorised person cannot be an appointed representative.
The exemption only applies if the authorised person, 'the principal', has contracted for the representative to carry on the investment business on their behalf; and accepted responsibility in writing for the conduct of those regulated activities.
Any regulated activities carried on by the representative are the responsibility of the principal, who must have permission for all the regulated activities carried out. The FSA may take regulatory action against the principal in respect of anything said or done (or not said or not done) by the representative as if they had expressly authorised it. However, nothing in this section would make the principal liable to prosecution for a criminal offence in place of the representative.
This section is similar to sec44 of the Financial Services Act 1986, which it replaces

The Treasury may prescribe further which the contract between the principal and his representative must meet. The intention is that this power will be used to reproduce the requirements of secs44(4) and (5) of the Financial Services Act 1986, to ensure that the principal has adequate control over the activities of the representative.

PART IV, PERMISSION TO CARRY ON REGULATED ACTIVITIES.
Lays down the procedure for obtaining permission to carry on regulated activities, the powers of the FSA to grant such permissions, the factors to be taken into account when doing so, and powers to impose prohibitions and restrictions, etc. The decisions of the FSA, e.g. to refuse permission, impose conditions or to vary or cancel a permission, can be referred to the Financial Services Tribunal.

Sec40. Application for permission
Permission can be granted to individuals, bodies corporate, partnerships and unincorporated associations. For some regulated activities there are specific constraints on the type of person which may be given permission under the threshold conditions in Schedule 6.
Permission may cover a number of regulated activities. Permission is only given once, after that it is simply changed.

Sec41. The threshold conditions
The FSA must ensure that the applicant will satisfy the threshold conditions in Schedule 6.

Sec42. Granting permission
The FSA must consider an application for permission in the light of its duty under sec41. It has discretion to grant permission for all the activities applied for, or just some of them.
The FSA can frame the permission so as to cover activities which are wider or narrower than the activities described in the application, and so may impose its own limitations on the way an activity may be carried on. This allows the FSA to design the permission so that the threshold conditions are met. The ability to grant a wider permission than was applied for will enable the FSA to have standard types of permission. If the applicant is exempt for certain regulated activities by being a recognised investment exchange or clearing house, or by membership of a professional body, permission does not cover those exempt activities.

Sec43. Imposition of requirements
When granting permission, the FSA may impose requirements to act, or refrain from acting, in a certain ways. E.g. the FSA might impose a limit on the amount of a certain type of business the person may conduct during the first five years. This would enable the FSA to continue the practice adopted by the insurance supervisors of restricting the premium income that can be received by an insurer in the period following its authorisation to undertake a new form of insurance business.
Such requirements may also be imposed in respect of unregulated activities. For instance, the FSA might have misgivings about the way in which a regulated activity could be carried on in conjunction with an unregulated activity.

Sec44 - sec46. Variation, etc.

Sec47. Exercise of power in support of overseas regulator

Sec48. Prohibitions and restrictions
The FSA can impose restrictions on the use or disposal of assets; or requirements to transfer assets to an approved trustee. The power is intended to enable the authority to prevent an authorised person disposing of assets or making certain types of investment, or where the FSA is concerned about the authorised person's solvency, or where it wishes to investigate suspected fraudulent behaviour.

Sec49. Persons connected with an applicant
In deciding whether to approve an application for permission, the FSA may have regard to other relevant persons who are related to the applicant in some way. What constitutes a relevant relationship is not defined, but is left to the FSA to interpret in the particular circumstances of the case.

Sec50. FSA's duty to consider other permissions etc.
An EEA firm, Treaty firm or recognised collective investment scheme may have a Part IV permission in addition to a permission as such a firm or scheme. In considering the exercise of its own initiative power in relation to such an additional permission, the FSA must take account of the relevant EC law and of the home state authorisation of the person concerned

Sec52. Determination of applications
The FSA is required to determine an application within 6 months of receiving the application. Once the FSA has determined an application it must give written notice of its decision and, if granted, the date upon which the authorisation takes effect. If the FSA proposes to refuse all or part of the application, or impose an additional requirement, it must proceed by way of a warning and decision notice.

Sec55. Right to refer matters to the Tribunal
This section confers a right to refer to the Tribunal a decision of the FSA in relation to applications under Part IV, such as a decision to refuse an application, to impose conditions or to vary to vary or cancel a permission.

PART V, PERFORMANCE OF REGULATED ACTIVITIES.
Confers on the FSA powers to enable it to ensure that people who work for authorised persons are 'fit and proper'. While the focus of regulation is on authorised firms, this Part gives the regulator powers to prevent harm that might otherwise be caused by persons attached to firms.
Under the preceding regulatory framework, there is considerable variation between the arrangements applying to employees working in different sectors. The SROs have introduced a contractual system requiring employees to sign up to regulatory and disciplinary arrangements. Lloyd's has applied similar regulation to employees of underwriting agents, using its bye-law making powers. Banking and insurance legislation provides for the pre-vetting of senior management positions. That legislation does not allow the regulator to take disciplinary action against managers, although senior managers can be liable for criminal offences where their firm has committed such an offence. There is also a power in sec59 of the Financial Services Act 1986 for the Authority to prohibit a person's employment in investment business.

The more general provisions in this Part of the Act will replace the above arrangements, which seek to harmonise these arrangements. It empowers the FSA to ban unfit individuals from carrying out specified functions within the financial services sector. It also provides for:
· the Authority to require its approval to be obtained before a person may perform specified functions;
· the Authority to issue statements of principle with which approved persons must comply, and codes of conduct elaborating on the statements; and
· a disciplinary regime for those who fail to comply with the statements of principle.
It also provides for firms and individuals concerned to refer matters to the Tribunal if the Authority proposes to:
· issue a prohibition order;
· refuse an application to vary or revoke a prohibition order;
· refuse an application for approval;
· take disciplinary action; or
· withdraw approval.
The legislation is primarily directed at the employees of authorised firms. However, it extends beyond employees to include, for example, directors, representatives and contractors of an authorised person, and extends to bodies corporate where relevant. If, for example, a life insurance company entered into a marketing agreement with a firm of estate agents to sell life insurance, the agency and relevant sales staff giving investment advice might need prior approval. Part V would also cover "matrix managers" who carry out certain functions, often on a fairly informal basis, for a group of companies even though technically they are "employees" of a sister company rather than of the authorised person for whom they carry out relevant functions. Such arrangements are increasingly common in multi-national groups.

Sec56. Prohibition orders
Enables the Authority to make an order prohibiting any individual whom it considers is not fit and proper to perform functions in connection with regulated activities. A prohibition may relate to all such functions or it can specify those to which it relates. A prohibition order may be varied or revoked. Sec56(4) makes it an offence not to comply with a prohibition order. There is a defence to show that he took all reasonable precautions and exercised all due diligence to avoid committing the offence.

Sec56(6) requires an authorised person to take reasonable care not to engage individuals who have been disqualified relevant functions. Failure to comply could trigger the use of the Authority's powers to amend the authorised person's permission or discipline the firm. It also potentially gives rise to a cause of action under sec71 from a private person who suffers a loss as a consequence of the breach.

Sec59. Approval for particular arrangements
· This section requires authorised persons to take reasonable care not to allow persons (natural or corporate) to perform certain functions without the approval of the Authority. The functions requiring approval will be specified in rules, and subject to the normal consultation requirements under Part X. In the case of EEA or Treaty firms the Authority only has powers to act in relation to functions over which it, rather than the home State regulator, has jurisdiction.

Sec61. Determination of applications
The FSA must be satisfied that a candidate is fit and proper to perform the functions in question before it is able to give its approval. Where it proposes to refuse an application, sec62 requires it to give a warning and decision notice.

Sec63. Withdrawal of approval
The FSA may withdraw approval where it no longer considers that the person is fit and proper, e.g. because it has obtained new information which casts doubt over its initial assessment.

Sec64: Conduct: statements and code
The FSA may issue statements of principle, setting out the kinds of behaviour it requires from approved persons in respect of any particular function. Any statements of principle must be elaborated by a code of practice. Such a code would not need to be exhaustive but it would have to illustrate the circumstances in which it would regard a principle as having been complied with, or not complied with. Different statements of principle and codes could be made to apply to employees of different categories.

Failure to comply with a principle does not give a third party grounds for action against the approved person. E.g., if a financial adviser employed by an insurance company failed to comply with a statement of principle when arranging a personal pension, that would not give the customer a right of action against the employee, with whom they had no contractual relationship. This provision would not remove or lessen any rights the customer may have against the authorised person who contracted to provide the pension.

Sec66: Disciplinary powers
This section gives the Authority a power to take disciplinary action against an approved person who is guilty of misconduct. The FSA may impose a penalty on an approved person or to make a public statement about their misconduct, but only within two years after the Authority became aware of the misconduct. This period reflects the time available to the Secretary of State to bring disqualification proceedings against a company director under the Company Directors Disqualification Act 1986.

Sec69. Statement of policy
The FSA must issue a statement of its policy on when it will impose penalties under sec66 and the basis on which the level of penalties will be determined.

Sec71: Actions for damages
If a private person suffers loss because an authorised person acted in breach of sec56(6) or sec59 he may sue the authorised or exempt person for damages. The Treasury may make regulations defining a 'private person' and specifying circumstances in which this section applies to a person other than a private person.

PART VI, OFFICIAL LISTING
EC law requires each member State to nominate or create a competent authority to maintain an official list of securities, to regulate the admission of securities to the Official List, and to monitor issuers' adherence to the listing rules (as explained below). In the UK these functions are now exercised by the FSA following the coming into force of the Official Listing of Securities (Change of Competent Authority) Regulations 2000 (SI 2000/968). Previously, the competent authority was the London Stock Exchange. These provisions implement the requirements of EC directives and replace those in Part IV of the Financial Services Act 1986.
There is no requirement for issuers of securities (e.g. companies issuing new shares) to apply for admission to the official list. However, admission to the official list indicates that certain standards as to the financial status and history of the company have been met. It also shows that adequate information about the securities being issued is available to investors; and that information about the performance and plans of the company will continue to be available so long as the securities are listed.
The competent authority makes rules as to the admission of securities to listing, the continuing obligations of issuers, the enforcement of those obligations and the suspension and cancellation of listing. These rules are collectively known as 'listing rules', which have been published in the 'yellow book'. The competent authority also has a role in scrutinising prospectuses and circulars where there is no application for admission to the official list.

Sec72: The competent authority
This section confers the functions of competent authority on the FSA.

Sec73: General duty of the competent authority
Sets out the principles to which the competent authority must have regard in discharging its general functions.

Sec74: The official list
Places a duty on the competent authority to maintain the official list. Sec99 allows fees to be charged. Sec74(3) gives the Treasury power to provide that certain categories of financial instrument cannot be admitted to the Official List. This is a reserve power to ensure that the Treasury could stop the admission of financial instruments that they consider, for example, pose undue risks to investors. Sec74(4) confers powers on the FSA to make listing rules.

Sec75: Applications for listing
The application procedure.

Sec77: Discontinuance and suspension of listing
Occasionally circumstances arise which mean that normal dealings in listed securities cannot take place. For example, a company may fail to comply with the reporting requirements in the listing rules, so that investors and potential investors do not have sufficient information on which to make informed decisions about the company's securities. Alternatively, a company may be in financial difficulties that it has not clarified or quantified. This section gives the competent authority power to suspend or discontinue the listing. During a suspension, trading in the securities cannot take place on a recognised investment exchange. An issuer may refer a decision to discontinue or suspend listing to the Tribunal.

Sec78: Discontinuance and suspension: procedure
Sets out the procedures to be followed by the competent authority when it suspends or discontinues the listing of any securities under sec77

Sec79: Listing particulars and other documents
Under EC law, where there is an application for the listing of securities which are to be offered to the public in the UK for the first time, a prospectus must be approved by the competent authority and published (sec84). Where a prospectus is not required, e.g. because the securities have already been offered to the public, or because there is an exemption (see Schedule 11), the competent authority can provide that securities can only be admitted to the official list after the publication of listing particulars and other documents. Listing particulars are documents containing information about the applicant and the securities to be listed. The content is determined by listing rules. The purpose is to allow investors to make informed decisions about that security.
Sec79(3) allows the Treasury to prescribe the persons responsible for listing particulars. The Treasury will exercise this power to prescribe those persons presently covered by Financial Services Act 1986, sec152. However, the power will allow some flexibility to reflect the admission of any possible types of financial instrument to the official list in view of the comprehensive nature of the statutory regime under sec74.

Sec80: General duty of disclosure in listing particulars
Places a duty on those producing listing particulars to ensure that they contain at least such information as will enable investors and their professional advisers to make informed decisions about the issuer and securities.

Sec81: Supplementary listing particulars
Where there is any significant change after the submission of listing particulars, but before dealings in the securities have started, supplementary listing particulars must be approved and published.

Sec82: Exemptions from disclosure
Allows the competent authority to authorise the omission of information required by listing rules. This is permissible if the disclosure would be contrary to the public interest, would be seriously detrimental to the issuer (e.g. the disclosure of commercial secrets), or would be unnecessary, given the kind of people who could be expected to buy or sell those securities (for example, if the securities were only dealt in by professionals).
Information cannot be omitted even where it would be seriously detrimental to the issuer if that information is 'essential information', i.e. essential for a person to make an informed assessment.

Sec83: Registration of listing particulars
Listing particulars must be lodged with Companies House on or before the date on which they are published. The same requirement applies to prospectuses under sec86.

Section 84: Prospectuses
A prospectus must be published before securities are offered to the public in the UK for the first time before admission to the official list. Sec103(6) and Schedule 11 define the circumstances in which a person is to be treated as having offered securities to the public in the UK. For example, an offer is not regarded as being made, and the requirement to publish a prospectus therefore does not arise, where the offer is made to no more than 50 persons.

Sec85: Publication of prospectuses
Makes it a criminal offence for a person to offer new securities to the public in the UK before a prospectus has been published. This only applies where listing rules require the publication of a prospectus.

Sec87: Approval of prospectus where no application for listing
Where securities are to be offered to the public in the UK for the first time and there has been no application for listing, listing rules may allow issuers to submit prospectuses ('non-listing prospectuses') to the competent authority for approval. Where such a prospectus has been approved, under EC law it must be recognised by competent authorities in other member States as complying with their own rules on prospectuses. There is then no need to obtain further approval from another competent authority if the securities are issued in another Member State.

Sec88: Sponsors
Enables the competent authority to make listing rules requiring issuers of listed securities, or those seeking admission to the list, to appoint a sponsor. The competent authority may approve persons who may act as sponsors, and maintain a list of such persons. The listing rules may specify particular services which must be performed by a sponsor (e.g. a sponsor might be required to certify that certain requirements for listing are met).

Sec89: Public censure of sponsor
Permits the competent authority to make listing rules which allow it to make public statements that a sponsor has contravened the rules, subject to the warning and decision notice procedure and a right to refer the matter to the Tribunal. The power to impose financial penalties does not, however, apply to sponsors.

Sec90: Compensation for false or misleading particulars
A person responsible for listing particulars is liable to pay compensation to anyone who suffers loss as a result of untrue or misleading statements or the omission of any information which must be contained in those documents. By secs 86, 87(5) and Schedule 9, such liability also applies to prospectuses and non-listing prospectuses. The defences to such claims for compensation are set out in Schedule 10.

Sec91: Penalties for breach of listing rules
The competent authority may impose financial penalties on issuers who are in breach of the listing rules. Under the Financial Services Act 1986, the competent authority can issue private or public censures and/or suspend or cancel the listing. Under these new powers, the competent authority may also impose financial penalties on directors (including past and shadow directors) who were knowingly involved in the breach. The FSA may not impose a penalty later than two years after it first became aware of the breach.
Sec92 sets out the procedures when imposing a penalty. The competent authority must publish a statement of its policy on penalties (see secs 93 and 94) after consultation.

Sec96: Obligations of issuers of listed securities
Listing rules may place obligations on issuers and may make provision for non-compliance.

Sec97: Appointment of persons to carry out investigations
Allows the competent authority to appoint investigators if it suspects a breach of the listing rules; that a director or former director of an issuer was knowingly concerned in a breach; or that criminal offences have been committed under secs 83, 85, or 98.

Sec98: Advertisements etc in connection with listing applications
It is an offence to issue an advertisement or other specified information (e.g. an invitation to purchase securities) unless the contents have been approved or authorised by the competent authority. There is a defence where someone reasonably believed that the advertisement had been approved or authorised.

Sec100: Penalties
The competent authority may not seek to recover its costs when imposing financial penalties. It must operate a scheme to redistribute monies received from financial penalties to issuers. It must consult on the scheme and have regard to representations before making the scheme. The provisions of this section are analogous to those applying to the FSA more generally under Schedule 1, para 16.

Sec102: Exemption from liability in damages
Gives the competent authority and its staff immunity against legal action for damages, except where the act or omission was in bad faith or where it was unlawful under sec6(1) of the Human Rights Act 1998 (which makes it unlawful for a public authority to act in a way which is incompatible with a right conferred by the European Convention on Human Rights and Fundamental Freedoms).

PART VII, CONTROL OF BUSINESS TRANSFERS
This Part creates a mechanism for the transfer of banking and insurance business, subject to a court procedure and regulatory scrutiny.
For insurance business, these rules replace the arrangements under secs 49 to 52B and Schedule 2C to the Insurance Companies Act 1982, which implement requirements of the EC insurance directives. Banking business transfers have usually required a private Act of Parliament, which can involve a lengthy procedure and substantial cost.

PART VIII, PENALTIES FOR MARKET ABUSE
Confers powers on the FSA to impose penalties for market abuse or to publish a public statement that someone has engaged in market abuse. The Act sets out the kinds of behaviour which constitute market abuse and places a duty on the FSA to produce a code to help determine whether particular behaviour amounts to market abuse. This code will carry evidential weight, and in some circumstances will provide a defence, or 'safe harbour', against allegations of abuse. It sets out the procedures the FSA must follow when proposing to impose a penalty. It also confers a right to refer a decision to impose a penalty to the Tribunal.
The Treasury can specify both the markets and the investments traded on those markets to which the regime applies.

Sec118: Market abuse
In order to be market abuse the behaviour must:
· take place in relation to qualifying investments traded on a market to which the section applies;
· be behaviour of a particular kind, as set out in subsection (2); and
· be behaviour which is likely to be regarded by a regular user of the market as a failure to observe the standards which would reasonably be expected.

There are three kinds of behaviour set out in subsection (2). Broadly speaking, these are that the behaviour is based on information not generally available to the rest of the market; that it is likely to give the regular market user a false or misleading impression; or that the regular user would be likely to regard it as behaviour which would distort the market.

Behaviour relating to the subject matter of investments can be caught by these provisions. E.g., these provisions can potentially catch behaviour in relation to a precious metal, which affects the price of a futures contract in the metal, if it falls within the tests set out above. Investments which are not themselves qualifying investments, but which are derivatives of a qualifying investment (for example options on options); or whose price or value is expressed by reference to the price or value of qualifying investments, for example spread bets, can fall within these provisions. The FSA may provide that behaviour conforming to a particular rule or rules does not amount to market abuse.

Sec119: The code
The FSA must issue a code setting out the kinds of behaviour which amount or do not amount to market abuse, so as to give guidance as to whether or not behaviour is abusive. Sec122 provides that a statement in the code that a particular type of behaviour is not an abuse is conclusive evidence of this fact. It may also set out factors to be taken into account when determining whether an abuse has occurred. An example of such factors might be an individual's expertise or that he holds a position of particular responsibility. The FSA must consult on its proposed code, and any proposed alterations or replacements of it.

Sec120: Provisions included by reference to the City Code
Enables the FSA to include in the code 'safe-harbours' from proceedings for market abuse for behaviour conforming with the City Code on Takeovers and Mergers. If the FSA includes any such provisions, then behaviour complying with those provisions will not amount to market abuse. The approval of the Treasury is required.

Sec122: Effect of the code
Sec122(1) provides a safe harbour for any behaviour which the code states does not amount to market abuse.

Sec123: Power to impose penalties for market abuse
The FSA may impose a monetary penalty on any person, whether an authorised person or not, who has engaged in market abuse, or has required or encouraged another to do so. Instead of imposing a penalty, the FSA may publish a public statement that the person has engaged in market abuse, or has required or encouraged another to do so. The FSA cannot impose a penalty or make a statement where the person had reasonable grounds for believing his behaviour did not constitute market abuse, or that he was not requiring or encouraging another to engage in market abuse, or where he took all reasonable precautions and exercised all due diligence to avoid doing such things. The procedures for taking action under this section are set out in secs 126 and 127.

Sec124: Statement of policy
Requires the FSA to publish a statement of its policy on penalties under sec123, describing the circumstances in which it might impose a penalty and the factors it will take into account in deciding the level of penalty.
The policy must take into account the effect and seriousness of the behaviour, whether or not it was deliberate or reckless, whether the person who engaged in the abuse was an individual, and such other matters it considers appropriate. It must consult before publishing this policy statement.

Sec128: Suspension of investigations
Permits the FSA to direct a recognised investment exchange or recognised clearing house not to conduct an inquiry or to stop an inquiry where the FSA is, or is considering, carrying out an investigation itself, or imposing a penalty on a person for market abuse.

Sec129: Power of court to impose penalty for market abuse
Allows the FSA to apply to the court to impose a penalty for market abuse where the court is considering whether to grant an injunction under sec381 or order restitution under sec383 in a case of market abuse.

Sec130: Guidance
Allows the Treasury, with the approval of the Attorney General and the Secretary of State, to issue guidance to the relevant prosecuting authorities. The purpose would be to help those authorities in deciding whether a criminal prosecution should be brought, or penalties imposed under the market abuse provisions, where there is overlap between these provisions and the criminal offences of insider dealing (in the Criminal Justice Act 1993) and misleading statements and practices (in sec397 of this Act). By subsection (5) the Lord Advocate may issue equivalent guidance in Scotland.

PART IX, HEARINGS AND APPEALS
This Part establishes the Financial Services and Markets Tribunal. Various sections in the Act provide a right to refer a matter to the Tribunal once the FSA has notified the person concerned of its decision. This Part sets out the procedural framework for referrals to the Tribunal and for appeals from the Tribunal to the Court of Appeal (in Scotland, the Court of Session) on a point of law. It gives the Lord Chancellor a general power to make rules for the Tribunal's operation. Schedule 13 sets out further details of the Tribunal's constitution and operation.
This Part also confers on the Lord Chancellor a power to establish a scheme to provide legal assistance in proceedings before the Tribunal for individuals in connection with a penalty for market abuse.

PART X, RULES AND GUIDANCE
Gives the FSA powers to set regulatory requirements for persons authorised under the Act and sets out the procedures the FSA must follow in exercising those powers.

Sec150. Actions for damages
This section sets out the circumstances in which those who suffer loss as a result of an authorised person being in breach of a rule have a right of action for damages. It does not remove any common law cause of action they might have. It allows losses to be recovered by proving a breach of a rule as a result of which they have suffered loss, rather then having to rely on that breach as evidence of negligence.
There is a presumption that private persons who suffer loss have a right of action for damages. This right does not extend to breaches of financial resources rules, listing rules or other rules that may be specified by the FSA. (Customers would only generally suffer loss as a result of a breach of financial resources rules if the authorised person concerned became insolvent. In those circumstances, the rights in the insolvency would not be altered by a separate right of action. Further, it might not be appropriate to attach a right of action to certain other rules, such as any which are very general in nature.)
There is a presumption that persons other than private persons do not have a right of action for damages, but the Treasury may by regulations specify that breaches of certain rules are actionable by non-private persons.

Sec151: Limits on effect of contravening rules
Breach of the FSA's rules does not make a person guilty of an offence, nor does it make a transaction unenforceable or void.

PART XI, INFORMATION GATHERING AND INVESTIGATIONS
Sets out the powers of the FSA to require the production of information and documents, to require reports to be compiled, to conduct investigations and to obtain access to premises. Many of these powers are also held concurrently by the Secretary of State in connection with company law.
The powers in this Part are in addition to the specific powers conferred on the FSA by other provisions of the Act to request information from unauthorised persons in particular circumstances, such as in connection with an application for authorisation or recognition. Under sec177, failure to comply with any requirement imposed under these powers can be certified to the court and dealt with as if contempt.

Sec165: FSA's power to require information
Gives the FSA a general power to require information or documents reasonably required to discharge its functions under the Act. The information or documents may be required from:
· an authorised person;
· a formerly authorised person;
· a person connected with an authorised person, as defined in subsection (11);
· an operator, trustee or depository of an open-ended investment company;
· a recognised investment exchange;
· a recognised clearing house.

Sec166: Reports by skilled persons
This gives the FSA the power to require an authorised person or a formerly authorised person to commission and provide the FSA with a report (e.g. accountant's report) into any matter about which the FSA could require information under sec165.
The FSA may also require such reports from other members of the same group of companies, or companies closely linked through a common shareholder, or any partnership of which the authorised or formerly authorised person is or was a member. The person making the report must be nominated by the FSA, or his appointment approved by it.

Sec167: Appointment of persons to carry out general investigations
The FSA or the Secretary of State (the 'investigating authority') may appoint competent persons to conduct an investigation. This may be into the business of an authorised person or appointed representative, or into the ownership or control of an authorised person. The people appointed may be employees of the investigating authority or others engaged specifically for the purpose. They may also inquire into the business of other connected companies or partnerships.

Sec168: Appointment of persons to carry out investigations in particular cases
In addition to the general power under sec167 to investigate where there is 'good reason' to do so, this section gives the investigating authority the power to order an investigation where it appears that some specific contravention or offence may have taken place. The more specific grounds for the exercise of the powers under this section are reflected in the wider powers of the investigators under secs 171 - 173.

Sec169: Investigations, etc in support of overseas regulators
This section gives the FSA new powers, comparable to those held concurrently by the Treasury and the Secretary of State under Companies Act 1989, sec82, to investigate matters on behalf of an overseas regulator.

Sec170: Investigations: general
Where an investigation has been ordered under sec167 or sec168, the investigating authority must notify that person of the appointment, the reason for the appointment, and the provisions of the Act under which the appointment is made.
In some cases no such notification is needed. This applies to investigations under sec168 into possible insider dealing, market abuse or misleading statements and practices, or into contraventions of the general prohibition under sec19, the financial promotion prohibition under sec21 or the prohibition on promoting collective investment schemes under sec238. In those cases the investigator may not know the identity of the perpetrator or may be looking into market circumstances rather than investigating a particular person. Nor is notification required if the investigating authority believes that it would be likely to result in the investigation being frustrated.

Sec171: Powers of persons appointed under sec167
Investigators may require people to attend and answer questions, and provide information or documents. They may only impose these requirements on the person under investigation or any other 'connected person' as defined in subsection (4).

Sec172: Additional power of persons appointed under section 168(1) or (4)
This section establishes wider powers for investigators appointed to investigate particular suspected contraventions or offences. It does not, therefore, apply to investigations into possible insider dealing, market abuse, misleading statements and practices or a breach of the general prohibition or the promotional prohibitions. Because the grounds required under sec168 are more specific, the powers available to the investigator are wider in terms of who may be required to give information. A person who is not the person under investigation or connected to that person may only be asked questions if the investigator is satisfied that it is necessary or expedient to do so. The term 'connected' attracts the same meaning as under sec171.

Sec173: Powers of persons appointed under sec168(2)
Gives wider powers to investigators appointed to investigate possible insider dealing, market abuse, misleading statements and practices or a breach of the general or the promotional prohibitions under secs 19, 21 or 238. Because these are liable to focus, at least initially, on market circumstances rather than the conduct or circumstances of any particular person, or the activities of persons unknown, there is no requirement to notify a particular person as being the subject of the investigation. So the concept of connectedness does not apply. The investigator can require any person to attend and answer questions, or to supply information or documents, so long as the investigator considers that they may be able to give information relevant to the investigation.

Sec174: Admissibility of statements made to investigators
A statement made by a person as required by an investigator is generally admissible in any proceedings. But it may not be adduced against the person who made the statement, or questions relating to it be asked, by the prosecution in criminal proceedings (except under sec174(3) - see below). This applies also to the FSA in proceedings before the Tribunal to determine whether a penalty should be imposed for, or a public statement made in respect of, market abuse. It may, however, be adduced, or a question relating to it may be asked, by the person himself, or by those acting on his behalf. Such a statement can be used by the prosecution or the FSA in cases against another person, or in cases against that person where the charge is one of those listed in sec174(3) relating to the provision of false information. This section is necessary to take into account the judgment by the European Court of Human Rights in the Saunders case ((1997) 23 E.H.H.R. 313).

Sec176: Entry of premises under warrant
An investigator may obtain a warrant for entry to any premises, which may then be executed by a police constable. To issue the warrant the justice of the peace (or in Scotland the sheriff) must be satisfied that there are appropriate grounds, and the safeguards under the Police and Criminal Evidence Act 1984 also apply. Documents seized under a warrant may be held for up to 3 months, or for longer if relevant proceedings are instituted.

PART XII, CONTROL OVER AUTHORISED PERSONS
This Part affects those persons who intend to acquire control over UK authorised persons by virtue of their shareholding or voting rights, and any increases and decreases in the extent of a person's control.
A person who proposes to acquire control or to increase the level of their control must notify the FSA and secure its approval. The FSA may object to a particular acquisition or increase in control or it may attach conditions to its approval. A person proposing to decrease their control must merely notify the FSA of their intention. Breach of the obligations imposed by this Part is a criminal offence. The requirements in this Part are necessary to meet EU single market directive obligations and carry forward similar requirements in the predecessor legislation. For consistency, the requirements have been extended to cover controllers of all authorised persons incorporated in or formed under the law of any part of the UK and not just those who are included in the scope of the single market directives. This Part does not place notification requirements on persons who exercise control over authorised persons by virtue of their position, for example, as a director or chief executive. Such people may, however, need to be approved by the FSA under Part V of the Act.

PART XIII, INCOMING FIRMS: INTERVENTION BY THE FSA
This Part confers power on the FSA and, in certain cases, the Director General of Fair Trading to intervene in the business of EEA and Treaty firms who are authorised under Schedules 3 and 4. These firms are referred to in the Part as 'incoming firms'. The Part sets out the grounds on which the power is exercisable and the procedures for exercising it.

PART XIV, DISCIPLINARY MEASURES
Gives the FSA powers to issue public statements about, or impose penalties on, authorised persons who fail to comply with requirements imposed by or under the Act.

Sec205: Public censure
Allows the FSA to make a public statement concerning a contravention by an authorised person of any requirement imposed by the Act or under it.

Sec206: Financial penalties
Empowers the FSA to impose a financial penalty where there has been a contravention by an authorised person of any requirement imposed by or under the Act.

Sec207: Warning notice of proposal to take disciplinary measures
Requires the FSA to issue a warning notice where it proposes to make a public statement about an alleged contravention or impose a penalty. The notice must include the statement the FSA proposes to make or the amount of the proposed penalty.

**Sec208: Decision notice
If, having issued a warning notice and heard any representations, the FSA decides to proceed with the public statement or penalty, it must issue a decision notice. This will also set out the proposed statement or the amount of the proposed fine (either of which may change in response to any representations made). The authorised person may have the matter referred to the Tribunal under Part IX of the Act. No further action can be taken by the FSA during the period in which the person has the right to have the matter referred to the Tribunal or, where the matter has been referred, until the Tribunal hearing and any subsequent appeal have run their course.

Section 209: Publication
If, having followed the appropriate procedures, the FSA decides to make a public statement under sec205, it must send a copy to the authorised person and to any third parties to whom it copied the decision notice.

Section 210: Statements of penalty policy
Requires the FSA to prepare and publish guidance on its policy concerning the imposition of penalties under sec206 and the level of those penalties

PART XV, THE FINANCIAL SERVICES COMPENSATION SCHEME
Provides for a single Financial Services Compensation Scheme to be set up by the FSA and managed by an independent scheme manager. It gives the FSA powers to specify the regulated activities covered by the scheme.
The purpose of the compensation scheme is to compensate customers who suffer loss due to the inability of an authorised person to meet its liabilities. It is not intended to provide compensation for a regulatory breach (e.g. the mis-selling of investments), where the liability would remain with the authorised firm.

PART XVI, THE OMBUDSMAN SCHEME
Requires the FSA to establish a single, compulsory ombudsman scheme for the speedy and informal resolution of disputes between members of the public and authorised persons and provides for the ombudsman to adjudicate on certain other types of dispute on a voluntary basis.

PART XVII, COLLECTIVE INVESTMENT SCHEMES
This Part comprises six chapters about collective investment schemes, including unit trusts, open-ended investment companies ('oeics') and overseas schemes. It includes for authorisation of schemes, their trustees, managers and operators and the rules applicable to them. There is also provision for overseas collective investment schemes promoted in the UK:

Chapter I gives definitions and allows the Treasury to specify that certain arrangements will not constitute a collective investment scheme.

Chapter II prohibits authorised persons from promoting participation in a collective investment scheme unless an exemption applies. The provisions broadly continue the prohibition on authorised persons promoting collective investment schemes under the Financial Services Act 1986, but changes have been made to reflect the new financial promotion regime set out in sec21.

Chapter III contains provisions relating to authorised unit trusts. Again, these broadly follow the provisions of the 1986 Act, although the FSA is given the power to approve changes to an authorised unit trust's investment and borrowing powers. There are also provisions to allow for rule waivers and modifications, and to grant operators and trustees of the right to refer matters to the Tribunal.

Chapter IV enables the Treasury to continue the regime for oeics, and to make regulations about the establishment and regulation of other forms of oeic in the UK. Under the Financial Services Act 1986, oeics incorporated and authorised in the UK must invest solely in transferable securities. The new Act allows the Treasury to make regulations for the creation and operation of a wider range of authorised oeics, so that they can invest in assets other than transferable securities. The Treasury may also make regulations about the incorporation of unauthorised oeics. This might, for example, be done in order to allow the formation of common investment funds for charitable purposes, or in the context of ethical investments.

Chapter V allows three kinds of overseas scheme to be 'recognised' and marketed in the UK (broadly in line with the 1986 provisions). These are: (1) schemes constituted in other member states which meet particular requirements; (2) schemes authorised in designated territories; and (3) individually recognised schemes constituted in other territories.

Chapter VI sets out the powers of investigation in relation to authorised unit trust and overseas schemes. The principal provisions concerning investigations of oeics will be set out in Treasury regulations.

PART XVIII, RECOGNISED INVESTMENT EXCHANGES AND CLEARING HOUSES
Sets out the regulatory regime for recognised investment exchanges and clearing houses. These recognised bodies are exempt from the need to be authorised. This regime is similar to that under the Financial Services Act 1986.

Chapter I:
· gives the Treasury the power to set the requirements that such bodies have to meet in order to be recognised;
· sets out the application procedures and supervisory arrangements for recognised bodies, including conferring powers to revoke recognition and to direct recognised bodies to take steps to meet the recognition requirements;
· allows the Treasury, jointly with the Secretary of State, to extend special protection from insolvency law to organisations clearing certain non-investment contracts.

Chapter II provides for competition scrutiny of recognised bodies. This places a duty on the Director General of Fair Trading to investigate and report to the Competition Commission on any significantly adverse effects on competition of these bodies' rules, guidance and practices, or any exploitation of a strong market position. It allows the Treasury, on receipt of a further report from the Commission, to direct, through the FSA, that appropriate changes are made to such rules, guidance or practices.

Chapter III disapplies the general domestic competition law as it affects the matters covered by the Act regime and chapter IV contains definitions of key terms.

PART XIX, LLOYD'S
Makes the Society of Lloyd's an authorised person and gives the FSA certain powers to direct the affairs of the Society, its members and Lloyd's managing and members' agents. It also provides for the regulation of former underwriting members of the Society.

PART XX, PROVISION OF FINANCIAL SERVICES BY MEMBERS OF THE PROFESSIONS
This Part of the Act provides that professionals (e.g. solicitors, actuaries and accountants), who are not carrying on mainstream regulated activities but are members of designated professional bodies, are exempt from the requirement to obtain permission from the FSA to carry out regulated activities. Additional tests are set out in sec327 that must be met in order for the professional to qualify for the exemption.
The arrangements include arms-length oversight by the FSA of the way in which the professional bodies supervise and regulate their members, and the way such professionals carry on regulated activities. This will involve, amongst other things, the FSA monitoring the effectiveness of the complaints and redress arrangements of designated professional bodies.
In addition, the FSA will be able to ban members of the professions who benefit from the exemption from carrying on regulated activities, where the circumstances justify this. The FSA can also direct that the exemption be cut back on a more general class basis (so that, for example, certain categories of professional, carrying on certain types of activities, will no longer benefit from the exemption).
The FSA is also empowered to make rules requiring exempt professionals to disclose to their clients the fact that they are not regulated by the FSA.

PART XXI, MUTUAL SOCIETIES
Gives the Treasury powers to transfer to the FSA and to the Treasury certain functions relating to the registration and regulation of building societies, friendly societies and industrial and provident societies and certain other mutual societies. It also confers powers to dissolve certain statutory bodies.

PART XXII, AUDITORS AND ACTUARIES
The appointment of auditors and actuaries by authorised persons, and their responsibilities.

PART XXIII, PUBLIC RECORD AND DISCLOSURE OF INFORMATION
Requires the FSA to maintain a public record of authorised (and certain other) persons, and makes provision as to the purposes for which confidential information may be disclosed by and to the FSA and other persons having functions under the Act.

PART XXIV, INSOLVENCY
Allows the FSA to petition the courts to wind up or initiate other insolvency procedures against authorised (and certain other) persons. It also enables the FSA to be heard by the court when such proceedings are commenced by third parties.

PART XXV, INJUNCTIONS AND RESTITUTION
Gives the FSA and the Secretary of State powers to seek injunctions in relation to regulatory contraventions and offences for which the FSA has powers to prosecute. It also provides for restitution to be paid to those who have incurred a loss as a result of such a contravention.

PART XXVI, NOTICES
Procedures for the FSA to follow when giving notice of proposed actions under of the Act, e.g. decisions not to give permissions or to refuse applications for approvals and decisions to take regulatory action, such as imposing penalties or making public statements.

PART XXVII, OFFENCES
This Part creates offences, such as making misleading statements and supplying false information to the FSA, together with general provisions about offences under the Act and the institution of proceedings, e.g. under Part V of the Criminal Justice Act 1993 (insider dealing) and in relation to money laundering.

PART XXVIII, MISCELLANEOUS
Gives the Treasury power to direct the FSA and other bodies to comply with the UK's international obligations, including EU decisions to take reciprocal trade action. It also contains provisions concerning gaming contracts, reviews of past business and other matters.

PART XXIX, INTERPRETATION

PART XXX, SUPPLEMENTAL
Commencement, territorial scope, consequential and transitional provisions and (with Schedules 18 and 20 to 22) amendments to other legislation.