Commentary Ring-fencing
21.Section 1: Objectives of the Prudential Regulation Authority
22.Section 1 amends FSMA to require the PRA, when acting in relation to ring-fencing matters (that is, the matters specified in the new subsection (4A) inserted in section 2B of FSMA) to further its general objective (promoting the safety and soundness of PRA-authorised persons) by exercising its functions so as to protect the continuity of core services.
23.Subsection (2)(b) amends section 2B of FSMA, inserting paragraph (c) into subsection (3) so as to provide that when the PRA is discharging its general functions in relation to ring-fencing matters (see below), it must advance its general objective in a way that ensures that the business of ring-fenced bodies is carried on in a way that avoids any adverse effect on the continuity of core services; ensures that the business of ring-fenced bodies is protected from risks arising elsewhere in the financial system (whether in the United Kingdom or otherwise); and that minimises the risk that the failure of a ring-fenced body or of a member of its group would harm the continued provision of core services in the United Kingdom. The PRA is not required to ensure that a particular ring-fenced body does not fail, provided that its failure can be so managed that the continued provision of core services elsewhere in the UK is not adversely affected. Subsection (4) inserts in section 2B of FSMA a new subsection (4A), which lists the ring-fencing matters to which subsection (3)(b) of that section applies. They comprise: Part 9B (which relates to ring-fencing), ring-fenced bodies, bodies which are members of the same corporate group as a ring-fenced body, and applications for permission under Part 4A of FSMA which would lead to the applicant becoming a ring-fenced body. Subsection (5) amends section 2J of FSMA to state what “failure” means in the case of a person who is not an “authorised person”, as not all members of the same group as a ring-fenced person will necessarily be authorised persons.