The Financial Institutions (Prudential Supervision) Regulations 1996

PART IGENERAL

Citation, commencement and interpretation

1.—(1) These Regulations may be cited as the Financial Institutions (Prudential Supervision) Regulations 1996.

(2) These Regulations shall come into force on 18th July 1996.

(3) In these Regulations—

“the Banking Act” means the Banking Act 1987(1);

“the Building Societies Act” means the Building Societies Act 1986(2);

“the Financial Services Act” means the Financial Services Act 1986(3);

“the Friendly Societies Act” means the Friendly Societies Act 1992(4);

“the Insurance Companies Act” means the Insurance Companies Act 1982(5);

“the Bank” means the Bank of England;

“the Board” means The Securities and Investments Board;

“EEA State” means a State which is a contracting party to the agreement on the European Economic Area signed at Oporto on 2nd May 1992(6) as adjusted by the Protocol signed at Brussels on 17th March 1993(7);

“the Prudential Supervision Directive” means the European Parliament and Council Directive of 29th June 1995 amending—

with a view to reinforcing prudential supervision (No. 95/26/EC)(8);

“undertaking” has the same meaning as in Part VII of the Companies Act 1985(9).

(4) Any reference in these Regulations—

(a)to an undertaking being closely linked with any person, or being closely linked with any person by control; or

(b)to an undertaking’s close links with any person, shall be construed in accordance with regulation 2 below.

Meaning of “closely linked” etc.

2.—(1) This regulation has effect for the purposes of these Regulations and the following Acts, namely—

(a)the Banking Act;

(b)the Building Societies Act;

(c)the Friendly Societies Act; and

(d)the Insurance Companies Act;

and subject to the modifications referred to in paragraph (3) below, expressions used in paragraph (2) below which are also used in Part VII of the Companies Act 1985 have the same meanings as in that Part.

(2) An undertaking is closely linked with—

(a)any person who is or, if he were an undertaking, would be its parent undertaking;

(b)any undertaking which is its subsidiary undertaking;

(c)any undertaking which is or, if any person falling within sub-paragraph (a) above were an undertaking, would be a fellow subsidiary undertaking; and

(d)any person in accordance with whose directions or instructions its directors are accustomed to act;

and any reference to an undertaking’s close links with any person shall be construed accordingly.

(3) For the purpose of determining any question arising under paragraph (2) above, sections 258 to 260 of and Schedule 10A to the Companies Act 1985 shall have effect with the modifications specified in Schedule 1 to these Regulations.

(4) An undertaking which is closely linked with any person is closely linked with that person by control if, and only if, it would still be closely linked with that person if subsection (4) of section 258 of the Companies Act 1985, and paragraph 3 of Schedule 1 to these Regulations, were omitted.

PART IIBANKING INSTITUTIONS

Refusal and revocation of authorisation by Bank

3.—(1) After subsection (3) of section 9 of the Banking Act (grant and refusal of authorisation) there shall be inserted the following subsection—

“(3A) The Bank shall refuse an application made by a credit institution if it appears to the Bank that—

(a)the institution is an undertaking which is closely linked with any person; and

(b)the institution’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Bank of its supervisory functions in relation to the institution;

and in this subsection and subsection (1B) of section 11 below `non-EEA laws' means laws of a country or territory which is not a contracting party to the agreement on the European Economic Area signed at Oporto on 2nd May 1992 as adjusted by the Protocol signed at Brussels on 17th March 1993, and “non-EEA administrative provisions” shall be construed accordingly.”

(2) After subsection (1A) of section 11 of that Act (revocation of authorisation) there shall be inserted the following subsection—

“(1B) The Bank may revoke the authorisation of a credit institution if it appears to the Bank that—

(a)the institution is an undertaking which is closely linked with any person; and

(b)the institution’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as to prevent the effective exercise by the Bank of its supervisory functions in relation to the institution.”

Communication by auditor etc. with Bank

4.—(1) In subsection (1) of section 47 of the Banking Act (communication by auditor etc. with Bank), after paragraph (b) there shall be inserted the words

“or

(c)an auditor of a body with which an authorised institution which is a credit institution is closely linked by control who is also either—

(i)an auditor of the institution; or

(ii)a person appointed to make a report under section 8(5) or 39(1)(b) above in respect of the institution,”

(2) After subsection (3) of that section there shall be inserted the following subsection—

“(3A) In relation to an auditor of a body with which an authorised institution which is a credit institution is closely linked by control, this section applies to any matter of which he becomes aware in his capacity as auditor of the body and which relates to the business or affairs of the institution.”

Disclosure of information by Bank

5.—(1) In subsection (1) of section 83 of the Banking Act (disclosure for facilitating discharge of functions of Bank)—

(a)the word “or” immediately following paragraph (b) shall be omitted; and

(b)after paragraph (c) there shall be inserted the words

“or

(d)its functions as a supervisor of systems for the transfer of funds between credit institutions and their customers.”

(2) In the Table in subsection (1) of section 84 of that Act (disclosure for facilitating discharge of functions by other supervisory authorities)—

(a)in entry 11, in the first column, the words “recognised clearing house” shall be omitted and, in the second column, for the words “exchange or clearing house” there shall be substituted the words “or exchange”;

(b)after entry 11 there shall be inserted the following entries—

(c)in entry 12, at the end of the second column there shall be inserted the words “or functions in relation to disciplinary proceedings against insolvency practitioners (within the meaning of that Act)”;

(d)in entry 19, at the end of the second column there shall be inserted the words “or functions in relation to disciplinary proceedings against insolvency practitioners (within the meaning of that Order)”; and

(e)after that entry there shall be inserted the following entry—

(3) In subsection (6) of that section, the word “or” immediately following paragraph (b) shall be omitted and after paragraph (c) there shall be inserted the words

“or

(d)in the case of a supervisory authority in another EEA State, its functions as a supervisor of systems for the transfer of funds between credit institutions and their customers.”

(4) At the beginning of subsection (10) of that section there shall be inserted the words “Subject to subsection (11) below,” and after that subsection there shall be inserted the following subsections—

“(11) Subsection (10) above shall not apply in relation to references to enabling or assisting the discharge or exercise of the following functions, namely—

(a)functions of the Secretary of State under Part XIV of the Companies Act 1985, Part XIII of the Insolvency Act 1986 or Part II of the Companies Act 1989 or, so far as relating to the breach of any law relating to companies, under section 83 of the Companies Act 1989;

(b)functions of an inspector under Part XIV of the Companies Act 1985 or, so far as relating to offences involving securities of a company, under section 177 of the Financial Services Act 1986;

(b)functions of a person authorised to exercise powers under section 84 of the Companies Act 1989, so far as relating to the breach of any law relating to companies;

(d)functions of a recognised clearing house (within the meaning of the Financial Services Act 1986);

(e)functions of a person approved under the Uncertificated Securities Regulations 1995 as an operator of a relevant system (within the meaning of those Regulations);

(f)functions of a recognised supervisory body (within the meaning of Part II of the Companies Act 1989);

(g)functions of a recognised professional body (within the meaning of section 391 of the Insolvency Act 1986);

(h)functions of the Department of Economic Development in Northern Ireland under Part XV of the Companies (Northern Ireland) Order 1986, Part XII of the Insolvency (Northern Ireland) Order 1989 or Part III of the Companies (Northern Ireland) Order 1990;

(i)functions of an inspector under Part XV of the Companies (Northern Ireland) Order 1986;

(j)functions of a recognised professional body (within the meaning of Article 350 of the Insolvency (Northern Ireland) Order 1989);

(k)functions of a recognised supervisory body (within the meaning of Part III of the Companies (Northern Ireland) Order 1990);

(l)functions of a supervisory authority in another EEA State in its capacity as a supervisor of systems for the transfer of funds between credit institutions and their customers.

(12) In this section `another EEA State' means a State other than the United Kingdom which is a contracting party to the agreement on the European Economic Area signed at Oporto on 2nd May 1992 as adjusted by the Protocol signed at Brussels on 17th March 1993.”

(5) After subsection (4) of section 86 of the Banking Act (information supplied to Bank by relevant overseas authority etc.) there shall be inserted the following subsection—

“(4A) Before the Bank discloses information to any person under subsection (3) above, it shall notify the relevant supervisory authority which supplied the information of the name and responsibilities of that person.”

(6) In relation to information relating to the business or other affairs of institutions which—

(a)are authorised institutions within the meaning of the Banking Act; but

(b)are not credit institutions within the meaning of that Act,

sections 83, 84 and 86 of that Act shall have effect without the amendments made by this regulation.

PART IIIBUILDING SOCIETIES

Refusal and revocation of authorisation by Commission

6.—(1) After subsection (3) of section 9 of the Building Societies Act (initial authorisation to raise funds and borrow money) there shall be inserted the following subsection—

“(3A) The Commission shall not grant authorisation to a society if it appears to the Commission that—

(a)the society is closely linked with any person; and

(b)the society’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Commission of its supervisory functions in relation to the society;

and in this Act `non-EEA laws' means laws of a country or territory outside the European Economic Area and “non-EEA administrative provisions” shall be construed accordingly.”

and at the beginning of each of subsections (4) and (5) of that section there shall be inserted the words “Subject to subsection (3A) above,”.

(2) After subsection (5) of section 41 of that Act (power to direct application to renew authorisation), there shall be inserted the following subsection—

“(5A) The Commission shall not grant renewed authorisation to a society if it appears to the Commission that—

(a)the society is closely linked with any person; and

(b)the society’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Commission of its supervisory functions in relation to the society.”

and in each of subsections (6) and (7) of that section, after the words “to subsection” there shall be inserted the words “(5A) above and subsection”.

(3) After paragraph (c) of subsection (3) of section 43 of that Act (revocation of authorisation), there shall be inserted the following paragraph—

“(cc)it appears to the Commission that—

(i)the society is closely linked with any person; and

(ii)the society’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Commission of its supervisory functions in relation to the society;”

(4) After subsection (3) of section 44 of that Act (reauthorisation) there shall be inserted the following subsection—

“(3A) The Commission shall not grant reauthorisation to a society if it appears to the Commission that—

(a)the society is closely linked with any person; and

(b)the society’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Commission of its supervisory functions in relation to the society.”

and at the beginning of each of subsections (4) and (5) of that section, there shall be inserted the words “Subject to subsection (3A) above,”.

(5) In subsection (1) of section 119 of that Act (interpretation), after the definition of “mortgage debt” there shall be inserted the following definitions—

““non-EEA laws” has the meaning given by section 9(3A) and “non-EEA administrative provisions” shall be construed accordingly;”.

Disclosure of information by Commission

7.—(1) In subsection (5) of section 53 of the Building Societies Act (confidentiality of certain information obtained by Commission), for paragraph (b) there shall be substituted the following paragraph—

“(b)by the Bank, of any of the following functions, namely—

(i)its functions under the Banking Act 1987;

(ii)its functions as a monetary authority;

(iii)its functions as a supervisor of money market and gilt market institutions; and

(iv)its functions as a supervisor of systems for the transfer of funds between credit institutions and their customers.”

(2) In subsection (7) of that section—

(a)for paragraph (b) there shall be substituted the following paragraph—

“(b)by the Secretary of State, of any functions of his under the Insurance Companies Act 1982, Part XIV of the Companies Act 1985, Part XIII of the Insolvency Act 1986, the Financial Services Act 1986 or Part II, III or VII of the Companies Act 1989;”and

(b)in paragraph (c), after the word “documents)” there shall be inserted the words “Part XII of the Insolvency (Northern Ireland) Order 1989,”.

(3) After subsection (12) of that section there shall be inserted the following subsection—

“(12A) Nothing in subsection (1) above prohibits the disclosure of information to the persons specified in the first column of the following Table if, in the opinion of the Commission, it is desirable or expedient that the information should be disclosed with a view to facilitating the discharge—

(a)by the Commission, of any of its functions under this Act; or

(b)by that person of the functions specified in relation to him in the second column of that Table.

(4) In subsection (14) of that section, after the definition of “authority” there shall be inserted the following definition—

“‘EEA State’ means a State other than the United Kingdom which is a contracting party to the agreement on the European Economic Area signed at Oporto on 2nd May 1992 as adjusted by the Protocol signed at Brussels on 17th March 1993;”

(5) At the beginning of subsection (15) of that section, there shall be inserted the words “Subject to subsection (15A) below,”.

(6) After that subsection there shall be inserted the following subsection—

“(15A) Subsection (15) above shall not apply to disclosures made by virtue of subsection (12A) above, or to disclosures made with a view to facilitating the discharge of any of the following functions, namely—

(a)functions of the Secretary of State under Part XIV of the Companies Act 1985, Part XIII of the Insolvency Act 1986 or Part II of the Companies Act 1989 or, so far as relating to the breach of any law relating to companies, under section 83 of the Companies Act 1989; or

(b)functions of the Department of Economic Development in Northern Ireland under Part XV of the Companies (Northern Ireland) Order 1986, Part XII of the Insolvency (Northern Ireland) Order 1989 or Part III of the Companies (Northern Ireland) Order 1990.”.

(7) After subsection (3B) of section 54 of the Building Societies Act (information disclosed to Commission from other sources) there shall be inserted the following subsection—

“(3C) Before the Commission discloses information to any person under subsection (3B)(b)(i) above, it shall notify the relevant supervisory authority which disclosed the information to the Commission of the name and responsibilities of that person.”

Communication by auditor etc. with Commission

8.—(1) In subsection (8) of section 82 of the Building Societies Act (auditor’s duties to Commission), for the words “The auditors of a building society” there shall be substituted the words

“The following, namely—

(a)the auditors of a building society;

(b)an accountant appointed by a building society to make a report under section 52(5)(d) above; and

(c)(i)they are also the auditors of the society; or

(ii)one of them is an accountant appointed by the society to make a report under section 52(5)(d) above,”.

(2) In subsection (9) of that section—

(a)for the words “the auditors of building societies” there shall be substituted the words “such persons” as are mentioned in paragraph (a), (b) or (c) of subsection (8) above; and

(b)for the words “any auditor” there shall be substituted the words “any such person”.

PART IVFINANCIAL SERVICES

Grant and refusal of authorisation

9.—(1) Section 27 of the Financial Services Act (grant and refusal of authorisation) shall have effect as if it included provision that the Board shall refuse an application made by a UK investment firm which is not a UK authorised institution if it appears to the Board that—

(a)the firm is an undertaking which is closely linked with any person; and

(b)the firm’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Board of its supervisory functions in relation to the firm.

(2) Section 28 of that Act (withdrawal and suspension of authorisation) shall have effect as if it included provision that the Board may withdraw or suspend any authorisation held by a UK investment firm which is not a UK authorised institution if it appears to the Board that—

(a)the firm is an undertaking which is closely linked with any person; and

(b)the firm’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as to prevent the effective exercise by the Board of its supervisory functions in relation to the firm.

(3) Section 43 of that Act (listed money market institutions) shall have effect as if it included provision that the conditions and arrangements mentioned in subsection (2) shall be such that no UK investment firm which is not a UK authorised institution shall be admitted to the list, and any such firm may be removed from the list, if it appears to the Bank that—

(a)the firm is an undertaking which is closely linked with any person; and

(b)the firm’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as to prevent the effective exercise by the Bank of its supervisory functions in relation to the firm.

(4) Paragraph 2 of Schedule 2 to that Act (requirements for recognition of self-regulating organisation) shall have effect as if it included provision that the rules and practices there mentioned shall be such that no UK investment firm which is not a UK authorised institution shall be admitted to membership of the organisation, and any such firm may be expelled from such membership, if it appears to the organisation that—

(a)the firm is an undertaking which is closely linked with any person; and

(b)the firm’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as to prevent the effective exercise by the organisation of its supervisory functions in relation to the firm.

(5) In this regulation—

“non-EEA laws” means laws of a country or territory outside the European Economic Area, and “non-EEA administrative provision” shall be construed accordingly;

“UK authorised institution” and “UK investment firm” have the same meanings as in the Investment Services Regulations 1995(10).

Communication by auditor with supervisory bodies

10.—(1) Section 109 of the Financial Services Act (communication by auditor with supervisory bodies) shall have effect as if—

(a)the reference in subsection (1) to an auditor of an authorised person included—

(i)a reference to an auditor of a body with which a qualifying person is closely linked by control who is also an auditor of that person; and

(ii)a reference to an auditor of a qualifying undertaking;

(b)the second reference in that subsection to the authorised person, and the reference in subsection (3) to that person, included a reference to such a body or undertaking.

(2) In this regulation—

“qualifying person” means a UK investment firm, or a trustee or manager of a qualifying undertaking;

“qualifying undertaking” means an undertaking to which the UCITS Directive applies and which is, within the meaning of that Directive, situated in the United Kingdom;

“trustee&” mdash;

“the UCITS Directive” means the Council Directive of 20th December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (No. 85/611/EEC);

“UK investment firm” has the same meaning as in the Investment Services Regulations 1995;

and other expressions which are also used in the Financial Services Act have the same meanings as in that Act.

Disclosure of information: investment services

11.—(1) In paragraph (3) of regulation 48 of the Investment Services Regulations 1995, for the words “the Investment Services Directive, the text of which” there shall be substituted the words “the Investment Services Directive (as amended by the Prudential Supervision Directive), the text of which (as so amended)”.

(2) After paragraph (9) of that regulation there shall be inserted the following paragraph—

“(10) In this regulation “the Prudential Supervision Directive” has the same meaning as in the Financial Institutions (Prudential Supervision) Regulations 1996.”

(3) In Schedule 8 to those Regulations (text of article 25 of the Investment Services Directive), for paragraph 6 there shall be substituted the paragraphs set out in Schedule 2 to these Regulations.

Disclosure of information: UCITS

12.—(1) This paragraph applies to any confidential information which—

(a)any person who works or has worked for any person designated by the United Kingdom as a competent authority for the purposes of Article 49 of the UCITS Directive; or

(b)any auditor or expert instructed by such an authority,

has received in the course of discharging his duties as such a person, auditor or expert in relation to an undertaking to which the UCITS Directive applies and which is, within the meaning of that Directive, situated in an EEA State.

(2) Section 179 of the Financial Services Act shall not apply to information to which paragraph (1) above applies.

(3) Information to which paragraph (1) above applies shall not be disclosed by any person referred to in sub-paragraph (a) or (b) of that paragraph, or by any person receiving it directly or indirectly from such a person, except in any of the circumstances specified in paragraphs 2 to 11 of Article 50 of the UCITS Directive (as inserted by the Prudential Supervision Directive), the text of which (as so inserted) is set out in Schedule 3 to these Regulations.

(4) For the purposes of paragraph (3) above information to which paragraph (1) above applies may, subject to the provisions of paragraph (6) below, be disclosed in the circumstances described in Article 50.11 of the UCITS Directive.

(5) Information received under Article 50.3 of the UCITS Directive may not be communicated in the circumstances referred to in Article 50.10 of that Directive without the express consent of the supervisory authority from whom it was obtained.

(6) Information of the kind described in the third paragraph of Article 50.11 of the UCITS Directive may not be disclosed in the cases referred to in Article 50.11 except with the express consent of whichever is relevant of the authorities mentioned in the third paragraph of Article 50.11.

(7) Any person who contravenes any provision of this regulation shall be guilty of an offence and liable—

(a)on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both;

(b)on summary conviction, to imprisonment for a term not exceeding three months or to a fine not exceeding the statutory maximum or to both.

(8) Proceedings in respect of an offence under this Regulation shall not be instituted—

(a)in England and Wales, except by or with the consent of the Secretary of State or the Director of Public Prosecutions; or

(b)in Northern Ireland, except by or with the consent of the Secretary of State or the Director of Public Prosecutions for Northern Ireland.

(9) In proceedings brought against any person for an offence under this regulation, it shall be a defence for him to prove that he took all reasonable precautions and exercised all due diligence to avoid the commission of the offence.

(10) In this regulation “the UCITS Directive” has the same meaning as in regulation 10 above.

The Board’s functions under the Regulations

13.  The functions of the Board under these Regulations shall be treated for the purposes of the Financial Services Act and the Transfer of Functions (Financial Services) Order 1992(11) as if they were functions under Chapter VI of Part I of that Act which—

(a)had been functions of the Secretary of State; and

(b)had been transferred to the Board by the Financial Services Act 1986 (Delegation) Order 1987(12).

PART VFRIENDLY SOCIETIES

Registration and cancellation of registration

14.—(1) In subsection (2) of section 26 of the Friendly Societies Act (cancellation of registration), after paragraph (b) there shall be inserted

“or

(c)in the case of a society to which section 37(2) or (3) below applies, that the principal place of business of the society is outside the United Kingdom,”

(2) After sub-paragraph (4) of paragraph 1 of Schedule 3 to that Act (establishment, incorporation and constitution of incorporated friendly societies) there shall be inserted the following sub-paragraph—

“(5) The central office shall not register a society which, if it were registered and authorised, would be a society to which section 37(2) or (3) above applies if the central office is satisfied that the principal place of business of the society is to be situated outside the United Kingdom; and in this sub-paragraph “authorised” has the same meaning as in Part IV of this Act.”

(3) In sub-paragraph (2) of paragraph 2 of that Schedule—

(a)the word “and” at the end of paragraph (b) shall be omitted; and

(b)after paragraph (c) there shall be inserted

“and

(d)in the case of a society to which section 37(2) or (3) above applies, the principal place of business of the society is situated in the United Kingdom,.”

(4) After paragraph (c) of section 91(1) of the Friendly Societies Act 1974(13) (cancellation and suspension of registration) there shall be inserted the following paragraph—

“(d)in the case of a society to which section 37(2) or (3) of the 1992 Act applies, if he is satisfied that the principal place of business of the society is outside the British Islands.”

Refusal of authorisation by Commission

15.—(1) After subsection (1) of section 34 of the Friendly Societies Act (grant of unconditional or conditional authorisation) there shall be inserted the following subsections—

“(1A) The Commission shall refuse to grant authorisation to a society which is or, if authorisation were granted, would be a society to which section 37(2) or (3) below applies if it appears to the Commission that the principal place of business of the society is outside the United Kingdom.

(1B) The Commission shall also refuse to grant authorisation to a society which is or, if authorisation were granted, would be a society to which section 37(2) or (3) below applies if it appears to the Commission that—

(a)the society is an undertaking which is closely linked with any person; and

(b)the society’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Commission of its functions under this Act in relation to the society;

and in this subsection “non-EEA laws” means laws of a country or territory outside the European Economic Area and “non-EEA administrative provisions” shall be construed accordingly.”and at the beginning of each of subsections (2) and (4) of that section there shall be inserted the words “Subject to subsections (1A) and (1B) above,”.

(2) In each of subsections (8) and (9) of that section, for the words “Subsections (2) to (7) above” there shall be substituted the words “Subsections (1A) to (7) above”.

Disclosure of information by Commission

16.—(1) For the purpose of facilitating references to them, the entries in the Table in subsection (5) of section 64 of the Friendly Societies Act (exceptions from restrictions on disclosure) shall be numbered 1 to 16.

(2) In that Table—

(a)for entry 10 there shall be substituted the following entry—

(b)for entry 14 there shall be substituted the following entry—

and

(c)after entry 16 there shall be inserted the following entries—

(3) In relation to information relating to the business or other affairs of friendly societies to which neither subsection (2) nor (3) of section 37 of the Friendly Societies Act applies, section 64 of that Act shall have effect without the amendments made by paragraph (2) above.

Communication by auditor etc. with Commission

17.—(1) In subsection (8) of section 79 of the Friendly Societies Act (auditors' duties to Commission and related rights), for the words “The auditors of a friendly society” there shall be substituted the words

“The following, namely—

(a)the auditors of a friendly society;

(b)an accountant appointed to make a report under section 62(3)(d) above by a friendly society to which section 37(2) or (3) above applies; and

(c)(i)they are also the auditors of the society; or

(ii)one of them is an accountant appointed by the society to make a report under section 62(3)(d) above,”.

(2) In subsection (9) of that section—

(a)for the words “the auditors of friendly societies” there shall be substituted the words “such persons as are mentioned in paragraph (a), (b) or (c) of subsection (8) above”; and

(b)for the words “any auditor” there shall be substituted the words “any such person”.

PART VIINSURANCE COMPANIES

Restrictions on issue of authorisation by Secretary of State

18.—(1) After subsection (1A) of section 5 of the Insurance Companies Act (submission of proposals etc.) there shall be inserted the following subsections—

“(1B) The Secretary of State shall not issue an authorisation under section 3 above to an applicant which is a UK or non-EC company if it appears to him that—

(a)the applicant is an undertaking which is closely linked with any person; and

(b)the applicant’s close links with that person, or any matters relating to any non-EEA laws or administrative provisions to which that person is subject, are such as would prevent the effective exercise by the Secretary of State of his functions under this Act in relation to the applicant;

and in this subsection “non-EEA laws” means laws of a country or territory outside the European Economic Area and “non-EEA administrative provisions” shall be construed accordingly.

(1C) The Secretary of State shall not issue an authorisation under section 3 above to an applicant—

(a)which is incorporated in the United Kingdom;

(b)whose head office is outside the United Kingdom;

(b)whose business is not restricted to business to which subsection (5) below applies; and

(d)which is not excluded from each Directive mentioned in that subsection by Article 3 of that Directive.”

(2) In the following provisions, namely—

(a)subsection (2)(b) of section 11 of that Act (withdrawal of authorisation in respect of new business); and

(b)subsection (2)(e) of section 37 of that Act (grounds on which powers are exercisable),

for the words “section 7, 8 or 9” there shall be substituted the words “section 5(1B) or (1C), 7, 8 or 9”.

Communication by auditor with Secretary of State

19.  For subsection (1) of section 21A of the Insurance Companies Act (communication by auditor with Secretary of State) there shall be substituted the following subsection—

“(1) No duty to which—

(a)an auditor of an insurance company to which this Part of this Act applies; or

(b)an auditor of any body with which a UK or non-EC company is closely linked by control who is also an auditor of the insurance company,

may be subject shall be regarded as contravened by reason of his communicating in good faith to the Secretary of State, whether or not in response to a request from him, any information or opinion on a matter of which the auditor has become aware in his capacity as auditor of that company or body and which is relevant to any functions of the Secretary of State under this Act”.

Disclosure of information by Secretary of State

20.—(1) In the Table in sub-paragraph (1) of paragraph 3 of Schedule 2B to the Insurance Companies Act (disclosure for facilitating discharge of functions by other regulatory authorities), for entry 25 there shall be substituted the following entries—

(2) At the beginning of sub-paragraph (9) of that paragraph there shall be inserted the words “Subject to sub-paragraph (10) below,” and after that sub-paragraph there shall be inserted the following sub-paragraph—

“(10) Sub-paragraph (9) above shall not apply in relation to references to enabling or assisting the discharge or exercise of the following functions, namely—

(a)functions of the Secretary of State under Part XIV of the Companies Act 1985, Part XIII of the Insolvency Act 1986 or Part II of the Companies Act 1989 or, so far as relating to the breach of any law relating to companies, under section 83 of the Companies Act 1989;

(b)functions of an inspector under Part XIV of the Companies Act 1985 or, so far as relating to offences involving securities of a company, under section 177 of the Financial Services Act 1986;

(b)functions of a person authorised to exercise powers under section 84 of the Companies Act 1989, so far as relating to the breach of any law relating to companies;

(d)functions of the Department of Economic Development in Northern Ireland under Part XV of the Companies (Northern Ireland) Order 1986, Part XII of the Insolvency (Northern Ireland) Order 1989 or Part III of the Companies (Northern Ireland) Order 1990;

(e)functions of an inspector under Part XV of the Companies (Northern Ireland) Order 1986;

(f)functions of a recognised professional body (within the meaning of section 391 of the Insolvency Act 1986 or Article 350 of the Insolvency (Northern Ireland) Order 1989);

(g)functions of a recognised supervisory body (within the meaning of Part II of the Companies Act 1989 or Part III of the Companies (Northern Ireland) Order 1990).”

(3) After sub-paragraph (4) of paragraph 5 of that Schedule (information supplied by a supervisory authority) there shall be inserted the following sub-paragraph—

“(4A) Before the Secretary of State discloses information to any person under sub-paragraph (3) above, he shall notify the supervisory authority which supplied the information of the name and responsibilities of that person.”

(4) In relation to information relating to the business or other affairs of companies which are neither UK nor non-EC companies within the meaning of the Insurance Companies Act, paragraph 3 of Schedule 2B to that Act shall have effect without the amendments made by paragraphs (1) and (2) above.

Duty to notify close links to Secretary of State

21.—(1) This regulation applies where on any day—

(a)a UK or non-EC company becomes closely linked with any person; and

(b)that person does not also become its controller (within the meaning of the Insurance Companies Act).

(2) Within 30 days of that day, the company shall give written notice to the Secretary of State stating that it has become so linked.

(3) A notice under paragraph (2) above shall also state—

(a)the name of the person with whom it is closely linked;

(b)the nature of its close links with that person; and

(c)the requisite particulars of that person.

(4) The requisite particulars of any person are as follows—

(a)where that person is a body corporate, the country or territory in which it is incorporated and, if it is registered, its registered number;

(b)where that person is an individual, the date and place of his birth; and

(c)where that person is a partnership, the particulars mentioned in paragraph (a) or (b) above in respect of each partner.

(5) Any person who makes default in complying with this regulation shall be liable—

(a)on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or to both;

(b)on summary conviction, to a fine not exceeding the statutory maximum.

(6) Where a UK or non-EC company has become closely linked with any person before the day on which these Regulations come into force, these Regulations shall have effect as if the company had become closely linked with that person on that day.

(7) In this regulation “UK company” and “non-EC company” have the same meanings as in the Insurance Companies Act.

PART VIIMISCELLANEOUS AND SUPPLEMENTAL

Subordinate legislation relating to auditors and accountants

22.  Schedule 4 to these Regulations (which makes transitory amendments of certain subordinate legislation relating to auditors and accountants) shall have effect.

Minor and consequential amendments

23.  The enactments specified in Schedule 5 to these Regulations shall have effect subject to the amendments there specified (being minor amendments or amendments consequential on the foregoing provisions of these Regulations).

Transitory provisions

24.—(1) This regulation applies if in any EEA State which is not a member State (“the defaulting State”) the Prudential Supervision Directive is not fully or substantially implemented before 18th July 1996.

(2) Until such date as that Directive is fully or substantially implemented in the defaulting State—

(a)the amendments made by regulations 3, 6, 9, 15 and 18 above shall have effect as if that State were a country or territory outside the European Economic Area; and

(b)the amendments made by regulations 5(3) and (4) and 7(3) above, and the provisions made by regulation 12 above, shall have effect as if that State were not an EEA State.