Title and commencement

1. This Order may be cited as the Building Societies (Designation of Qualifying Bodies) (No.2) Order 1991 and shall come into force on 16th December 1991.

Interpretation

2. In this Order, except where the context otherwise requires-

"the Act" means the Building Societies Act 1986;

"appropriate vehicle" means a body corporate of a description specified in column I of Part I of the Schedule to this Order;

"the relevant power", in relation to an appropriate vehicle, means the power for the exercise of which, is specified in column 3 of Part I of the Schedule to this Order, that appropriate vehicle is designated as suitable; and

"society" means a building society.

Designation of bodies corporate

3.-(1) Each appropriate vehicle of a description specified in the item in column 1 of Part I of the Schedule hereto is designated for the purposes of section 18 of the Act (power to invest in subsidiaries and other associated bodies) and within that Part of that Schedule-

(a)the corresponding item in column 2 specifics, where that appropriate vehicle comes within a description so specified, the meaning of that description for the purposes of this Order,

(b)the corresponding item in column 3 specifies that the appropriate vehicle is designated as suitable for investment and support or support,

(c)the corresponding item in column 4 specifies the purposes for which (in addition to the purposes permitted by section 18(4) of the Act) the exercise of the relevant power by a society is permitted in relation to that appropriate vehicle, and

(d)the corresponding item in column 5 specifies the condition subject to which the exercise of the relevant power by a society is permitted in relation to that appropriate vehicle.

(2) Part II of the Schedule to this Order shall have effect-

(a)so as to supplement Part I thereof, and

(b)in respect of the interpretation of that Schedule.

Amendment of previous Order

4. The Building Societies (Designation of Qualifying Bodies) Order 1991(2) shall be amended in paragraph 3(1) of Part II of the Schedule thereto as follows-

(i)in paragraph (a) by inserting the words "payments services" after the word "appropriate" in each place that word appears; and

(ii)in paragraph (b) by inserting after the words "where a society" the words "holds 2% or more of shares or corresponding membership rights in an appropriate payment services vehicle and by virtue of an investment in that vehicle".

Articles 2 and 3

SCHEDULE

PART IDESCRIPTIONS OF BODIES CORPORATE DESIGNATE

PART IIINTERPRETATION

Meaning of type A body corporate

1. In this Schedule "type A body corporate" means a body corporate which is-

(a)a company or an industrial and provident society, or

(b)a body corporate formed in a member State other than the United Kingdom.

Meaning of group interest provision

2.-(1) In this Schedule "the group interest provision" means a condition to the effect that-

(a)where a society has a relevant holding in an appropriate vehicle and becomes aware that a subordinate organisation of that appropriate vehicle is within the prohibited range, the society shall dispose of sufficient shares or corresponding membership rights as the case may be that it ceases to have a relevant holding, and shall do so as soon as it is conveniently practicable to do so without undue loss, and

(b)where a society holds 2% or more of shares or corresponding membership rights in an appropriate vehicle and by virtue of that investment in that appropriate vehicle has a relevant holding amounting to a relevant interest in a relevant body corporate, the society shall, within four months of the end of each financial year of that relevant body corporate at which year end the society has such an interest, seek to obtain a group income certificate in relation to that relevant body corporate, and, if no such certificate as is required by this paragraph is so obtained by the society for two successive financial years of the relevant body corporate, the society shall-

(i)notify the Commission in writing, within 14 days of the end of the four months following the end of the second such financial year, that subparagraph (ii) below applies to it,

(ii)as soon as it is conveniently practicable to do so without undue loss, dispose of sufficient shares or corresponding membership rights that it ceases to have a relevant interest ill that body corporate, and

(iii)within 14 days following that cessation, notify the Commission in writing thereof.

(2) For the purposes of subparagraph (1)(a) above, a subordinate organisation comes within the prohibited range where it comes within a description in paragraph 3(2)(a), (b), (c) or (d) below (or would do if it were an appropriate vehicle subject to the provisions of subparagraph (2) of paragraph 3 below).

(3) For the purposes of subparagraph (1)(b) above, "relevant interest" means-

(a)shares or corresponding membership rights in a body corporate which is not a company limited by shares, or

(b)sufficient shares in a body corporate which is a company limited by shares to give the society direct ownership or direct and indirect ownership (determined as specified in the definition of "subordinate organisation" in paragraph 6 below) of 15% or more of the ordinary share capital (as defined within that definition) of that company.

(4) For the purposes of subparagraph (1)(b) above, "relevant body corporate" means a particular body designated under section 18 of the Act or any body corporate designated by description under this or another Order under section 18 of the Act, which has any subordinate organisation which is not an associated body of the society.

(5) For the purposes of this paragraph-

(a)"group income certificate", in relation to a relevant body corporate, means a certificate signed by a director of the relevant body corporate (and adequately supported by a report of its auditors) stating that at least 60% of the consolidated gross income of the relevant body corporate and its subordinate organisationsforthefinancial yeartowhich thecertificate relates was derived, subject to subparagraph (6) below, from carrying on qualifying activities, and

(b)"qualifying activities" means activities for which purpose a society has power to invest in or support a qualifying body.

(6) For the purposes of subparagraph (5)(a) above-

(a)in calculating the consolidated gross income of the relevant body corporate and its subordinate orgainisations derived from carrying on qualifying activities, any income derived by such a subordinate organisation, or by any particular body designated under section 18 of the Act, or any body corporate designated by description under this Order or another Order under section 18 of the Act, other than an appropriate estate agency vehicle, from activities which are qualifying activities only if they are undertaken together with estate agency work, shall be deemed to be derived from carrying on activities which are not qualifying activities, and

(b)a certificate is adequately supported by a report of the auditors of a relevant body corporate where the auditors have reported at least to the effect that-

(i)they have examined the certificate,

(ii)they have inquired into the affairs of the relevant body corporate, and obtained information from the society, to an extent necessary to consider whether there is any significant likelihood that the certificate is untrue in any material particular, and

(iii)they consider that there is no significant likelihood that the certificate is untrue in any material particular.

Specification of particular restrictions for appropriate services vehicles

3.-(1) In this Schedule "the particular restrictions for appropriate services vehicles" means, subject to subparagraph (3) below, the provisions set out in subparagraph (2) below.

(2) A body corporate is not an appropriate vehicle for a society where-

(a)it is a market maker,

(b)its business includes lending money, secured or unsecured, on its own account, save insofar as the subscription for or the purchase or sale of investments on behalf of any other person, in advance of being put in funds by or on behalf of that other person to complete that transaction, comprises or gives rise to such lending,

(c)it is in authorised institution, or its business requires it to be authorised, for the purposes of the Banking Act 1987 (3),

(d)its business includes activities in the range from which the society is restricted, or

(e)it has a subordinate organisation which is not within the prescribed range.

(3) For the purposes of subparagraph (2)(e) above, a subordinate organisation comes within the prescribed range where it is-

(a)a particular body designated by Order under section 18 of the Act,

(b)a body corporate of a description designated by this Order or another Order under section 18 of the Act, which is a one tier organisation, or

(c)a body corporate, being a one tier organisation, whose objects do not include the carrying on of activities which, by virtue of section 18(4), the society could not invest in or support it so as to enable it to carry them on.

(4) The restriction in subparagraph (2) will not apply where there is no relevant holding of the society in the appropriate vehicle.

(5) For the purposes of subparagraph (3) above, "a one tier organisition" means a body corporate which does not have the capacity to have subordinate organisations.

Meaning of relevant holding

4. A "relevant holding" for the purposes of paragraphs 2 and 3 means:

(a)in the case of a company limited by shares sufficient shares to result in the society having direct ownership or direct and indirect ownership (determined as specified in the definition of "subordinate organisation" in paragraph 6 below) of 2% or more of the issued ordinary share capital (as defined within the definition of "subordinate organisation" in paragraph 6 below) of the company; or

(b)in the case of any other body corporate, 2% or more of the issued shares or corresponding membership rights in the body corporate.

Meaning of activities in the range from which a society is restricted

5.-(1) For the purposes of paragraph 3 above an activity of a body corporate is an activity in the range front which a society is restricted where it is an activity which the society could not undertake by reason of the fact that-

(a)it has not adopted a particular adoptable power, whether because the power is not available to it or for any other reason, or

(b)the activity would be in contravention of a restriction upon the extent of a power the society has adopted, being either a restriction derived from the Act or any instrument under the Act or a restriction assumed by the society.

(2) Notwithstanding subparagraph (1) above, an activity of a body corporate is not an activity within the range from which a society is restricted where it is an activity which comprises the continuation, during the first fifteen months following the date on which the body corporate first became associated with the society, of any activity carried on as part of the business of that body corporate immediately before that date.

Other definitions

6. In this Schedule, except where the context otherwise requires-

• "company limited by shares" has the meaning which it bears for the purposes of the Companies Act 1985 (4) or the Companies (Northern Ireland) Order 1986 (5);

• "estate agency work" has the meaning which it bears in the Estate Agents Act 1979 (6);

• "investment", in respect of the expressions "the subscription for or the purchase or sale of investments" and in the definition of "market maker", has the meaning which it bears in section 1 (investment business) of the Financial Services Act 1986 (7);

• "market maker" means-

  (a)

  in relation to the United Kingdom, a market maker in securities of a particular kind,

  (b)

  in relation to any country or territory outside the United Kingdom, a person who holds himself out at all normal times as willing to buy and sell at a price specified by him investments of a particular kind which are traded on any exchange in that country or territory;

• "market maker in securities of a particular kind" means a person who, for the purposes of subsection (4) of section 67 (depositary receipts) of the Finance Act 1986 (8), is so described in section 69(7) (depositary receipts: supplementary) of that Act;

• "subordinate organisation" means, in relation to a body corporate, another body corporate of which the first owns directly or indirectly 5% or more of the ordinary share capital, and for this purpose-

  (a)

  "ordinary share capital" shall have the meaning which it has in section 832 (interpretation) of the Income and Corporation Taxes Act 1988(9), and

  (b)

  direct and indirect ownership shall be determined in accordance with methods the same as those set out in section 838 (subsidiaries) of that Act for determining whether a body corporate is a class of subsidiary of another.

Explanatory Note

(This note is not part of the Order)

1. This Order designates a description of bodies corporate as suitable for investment or support by building societies under section 18 of the Building Societies Act 1986, so as to add "appropriate services vehicles" as a further type of designated body.

2. An appropriate services vehicle is a body corporate (not being one designated under any other Order made under section 18 of the Act or excluded by the particular restrictions for appropriate services vehicles) formed for the purpose of, or the objects of which include any activity which is ancillary, promotes or is conducive to any activity which is within the powers of a society to carry on.

3. The particular restrictions for appropriate services vehicles, except where societies hold less than 2% of the issued shares or corresponding membership rights, are that a body corporate is not an appropriate services vehicle for a society where: it is a market maker; its business includes lending money, secured or unsecured on its own account, save in narrow circumstances provided for in the Order; its business includes activities the society itself has no power to undertake either because the society has not adopted the necessary adoptable power or because the activities would contravene a restriction on the extent of a power which the society has adopted; or it has a subordinate organisation which is not within the prescribed range, that is bodies which a society may invest in or support under section 18, but as regards bodies designated by description providing that they are one tier organisations.

4. Investment is defined by section 18 of the Act as acquiring and holding shares in and forming and taking part in forming bodies corporate. Support is defined by that section as provision of loans, grants, guarantees, services or property to bodies corporate.

5. The Building Societies (Designation of Qualifying Bodies) Order 1991 has been amended to bring the group interest provision in line with this Order. The group interest provision in each Order is confined to qualifying bodies within the appropriate payments services vehicle or appropriate services vehicle group of companies respectively.