Schedule 3 Process for Secretary of State approval
Regulations 12 and 33
1 (1) Where the approval of the Secretary of State is required under these Regulations, the person making an approval request (“the requester”) must submit—
(a) a written request to the Secretary of State, setting out the matter requiring approval,
(b) where applicable, a draft of a document requiring approval,
(c) evidence in support of the request, and
(d) any other information required under these Regulations relating to the particular request.
(2) Where approval is required by a particular date, the approval request must specify—
(a) the date,
(b) the reason why the person considers the date to be relevant, and
(c) the consequences of delay in obtaining the approval.
2 (1) Upon receipt of an approval request, the Secretary of State may seek further information from the requester, or may indicate that modifications to a document are needed before approval can be granted.
(2) The Secretary of State must reach a final decision on an approval request under the applicable provision of these Regulations, which may be to—
(a) approve the request unconditionally, or with conditions,
(b) approve a modified version of the request or document, or
(c) reject the request, giving the reasons for the rejection.
(3) Before making a final decision in respect of an approval request, the Secretary of State must consult the relevant regulators.
3 (1) The Secretary of State must notify the requester in writing and offer an opportunity for that person to make written representations, before the Secretary of State makes a final decision to—
(a) attach conditions to an approval,
(b) modify a request or document, or
(c) reject a request.
(2) The Secretary of State’s notification under sub-paragraph (1) may specify a date, which must be at least 14 days after the date of the Secretary of State’s notification, by which the requester may make representations.
(3) The Secretary of State must consider the representations received under sub-paragraph (2), before making a final decision on an approval request.
4 The Secretary of State’s final decision on whether or not to approve a request must be made within a reasonable period of time, following the date on which the Secretary of State has been provided with the necessary information to reach a decision.
5 A reasonable period of time for the purposes of paragraph 4 depends upon—
(a) the nature and complexity of the request;
(b) the sufficiency of the information submitted by the requester, whether it was submitted in accordance with the timescale required under these Regulations and whether the sequencing of different submissions reflects any inter-dependency between different matters requiring Secretary of State approval;
(c) whether the requester has been invited to provide more information or propose modifications under paragraph 2(1);
(d) whether the requester, when submitting one document or matter for approval, has already submitted a different document or matter for approval.
6 A relevant person must provide a copy of the Secretary of State’s final decision on an approval request to the relevant regulators.
7 Where a relevant person is required by these Regulations to submit a matter for approval and the Secretary of State rejects an approval request—
(a) the relevant person must submit a further approval request, remedying the matters leading to the rejection of the previous request, and
(b) the process in this Schedule must be repeated.
8 In deciding whether to grant an approval under these Regulations, the Secretary of State is entitled to—
(a) rely on information provided unless the Secretary of State has reason to doubt its accuracy;
(b) consider other evidence, including that provided by other relevant regulators.
9 Where the Secretary of State has already approved a document submitted by the requester and a revised document is later submitted and approved, the later approval and later document are to be treated as replacing the previous approval and document, with effect from the date on which the Secretary of State notifies the requester of the approval.
10 The requester may withdraw an approval request submitted pursuant to these Regulations, but—
(a) if the Secretary of State has approved the request, the approval remains effective unless and until—
(i) a revised approval request is approved by the Secretary of State, or
(ii) the Secretary of State withdraws the approval under paragraph 11;
(b) a withdrawn request does not satisfy any requirement under these Regulations.
11 The Secretary of State may withdraw an approval given under these Regulations where—
(a) the requester has provided false information or has deliberately omitted to provide relevant information, or
(b) the requester makes a request under paragraph 10 to withdraw the approval request and the Secretary of State considers the approval should not remain in effect.
Propose a changeSchedule 4 Funding and Investment Strategy
Regulation 13
Part 1 Interpretation of Schedule 4
1 In this Schedule—
“Financial Conduct Authority” is to be interpreted in accordance with section 1A of the Financial Services and Markets Act 2000;
“fund accrual period” means the period that starts on the first day of the fund operational period and ends on the last day of the post operations period;
“fund accrual profile” means a document or part of a document that shows how fund sufficiency targets will be met through a combination of contributions, net investment returns and any other lawful payments into the offshore decommissioning fund, in accordance with paragraph 4;
“investment” includes the deposit of fund assets in an interest-bearing bank account;
“net investment return” means—
the change in value of fund assets in nominal terms, resulting from the management of those assets and after deduction of the offshore decommissioning fund administration costs, and
includes interest earned from depositing fund assets with a deposit taker.
Part 2 Objectives and content
2 A funding and investment strategy is a written document that must—
(a) be designed to meet the objectives in paragraph 3, and
(b) contain the information required by paragraph 8.
3 The objectives of a funding and investment strategy are to explain how an offshore decommissioning fund will—
(a) accumulate sufficient fund assets to meet fund sufficiency targets,
(b) ensure there is sufficient liquidity of fund assets at the time decommissioning costs are required to be paid,
(c) achieve fund sufficiency targets through a combination of—
(i) contributions that are—
(aa) made only during the fund operational period, and
(bb) as far as reasonably practicable, of equal value in real terms,
(ii) net investment returns that—
(aa) at least maintain the value of fund assets in real terms, and
(bb) are earned on investments made in accordance with the investment requirements of paragraph 7, and
(iii) where relevant, any other lawful payments into the offshore decommissioning fund.
4 The objectives in paragraph 3 must be met by including in the funding and investment strategy a fund accrual profile that—
(a) illustrates how fund assets will accrue and be drawn down over the fund accrual period, and
(b) contains sufficient detail to show, over the fund accrual period—
(i) the expected amount of fund assets on the last day of each financial year,
(ii) the fund sufficiency targets and dates these need to be achieved,
(iii) what the expected combination of contributions and investment returns will be,
(iv) how contributions, investment returns and any other lawful payments into the offshore decommissioning fund will be notionally allocated to meet the fund sufficiency targets for each accounting code, where applicable.
5 The Secretary of State may, when considering whether to approve a funding and investment strategy, require separate accrual profiles for each infrastructure estimate.
6 The fund accrual profile and any separate accrual profile required under paragraph 5 must be consistent with—
(a) either—
(i) the approved fund estimate, including applicable infrastructure estimates, or
(ii) where a first fund estimate has been submitted under regulation 5(1), but not yet approved, the submitted estimate, and
(b) the accounting principle in regulation 26(2)(a).
7 The investment requirements are as follows—
(a) investments must be made in a manner calculated to ensure the sufficiency and security of the offshore decommissioning fund and therefore in the interests of enabling accountable persons to perform their obligations or duties;
(b) investment choices must be made in the interests of meeting or exceeding the objective in paragraph 3(c)(ii)(aa), provided those choices do not create undue risk to the sufficiency and security of the offshore decommissioning fund;
(c) investments must be designed to take into account the timing and amounts of payments that will need to be made to meet decommissioning costs in line with fund sufficiency targets;
(d) fund assets held with a deposit taker—
(i) must be held in a deposit taker of the type mentioned in regulation 8(7), and
(ii) must be held in an interest-bearing account, so far as reasonably practicable and provided this does not prevent the fund holder from making a payment, at the time that payment is anticipated to be required, to meet the costs of a decommissioning action;
(e) no investments may be made—
(i) in a person or entity that the fund must operate independently from, in accordance with regulation 8(6)(c),
(ii) in the fund holder or fund administrator or a person connected with those persons (and a person is to be treated as connected with a fund holder or fund administrator, based on the test applied to a relevant person in regulation 8(8)), or
(iii) that would otherwise give rise to a conflict of interest for the person making an investment decision;
(f) the allocation of fund assets—
(i) in the five year period immediately before the end of the fund operational period and during the post operations period, must be in low risk investments, meaning that the value of the investment is highly resilient to short-term adverse changes in market conditions,
(ii) at other times during the fund operational period, must consist of investments that—
(aa) are suitable types of investment, having regard to sub-paragraphs (a) to (c), and
(bb) for which transparent, comprehensive, accurate and regularly updated information is available, including as to valuation, and
(iii) must be diversified so as to ensure a prudent spread of risk and concentration limits for particular categories of investment or issuer;
(g) the funding and investment strategy must include a strategy to hedge against risks and the allocation of assets must enable steps under that hedging strategy to be implemented;
(h) investments must be selected with due diligence for social, environmental and corporate governance considerations;
(i) where the funding and investment strategy permits a person to carry out “regulated activities”, within the meaning given by section 22 of the Financial Services and Markets Act 2000, that person must be authorised by the Financial Conduct Authority to do so.
8 A funding and investment strategy must include—
(a) relevant accrual information, including the fund accrual profile and information listed in paragraph 9,
(b) relevant investment information, including the information listed in paragraph 10, and
(c) an explanation of how that information—
(i) meets the objectives of paragraph 3,
(ii) has been used in the fund accrual profile mentioned in paragraph 4, and
(iii) satisfies the investment requirements of paragraph 7.
9 Relevant accrual information is the information underpinning the fund accrual profile and includes the following—
(a) the dates of the fund accrual period;
(b) the fund sufficiency targets and dates based on the approved fund estimate, or (if approval has not yet been granted) the submitted fund estimate;
(c) a summary (consistent with a submitted or approved fund estimate and work breakdown) of decommissioning actions under each accounting code that are likely to be required—
(i) before the end of the fund operational period, and
(ii) during the post operations period;
(d) inflation assumptions, to be based on—
(i) the Consumer Prices Index forecast published by the Office of Budget Responsibility, or
(ii) where justified by evidence of an alternative reliable forecasting model for a particular cost category, the alternative inflation assumption for that category;
(e) the assumed gross investment return and the estimated sums to be deducted to reach the assumed net investment return;
(f) payments that may need to be made to the fund holder under regulation 25 in respect of the post operations period;
(g) anticipated taxes payable, or anticipated reliefs to be received, in respect of the offshore decommissioning fund, based on tax legislation at the date the funding and investment strategy is submitted for approval;
(h) the proposed annual contribution estimated to be required during the fund operational period, as set out in the fund accrual profile;
(i) an explanation and justification for how contributions and net investment returns in the fund accrual profile are allocated against each accounting code;
(j) details of any other lawful payments made, or anticipated to be made, into the offshore decommissioning fund, including the estimated dates and amounts of such payments.
10 Relevant investment information must include at least the following—
(a) details of a person or entity who will select and allocate investments, including—
(i) whether this will be a person employed by the fund holder (which may include the fund administrator) or will be a third party investment manager,
(ii) how the appointment of such a person will be made and the terms of appointment, or contract, and
(iii) in the case of a third party investment manager, the fees that will be deducted from the investment return;
(b) the proposed categories of permitted investment, the reasons why these are considered suitable, the proportion of fund assets intended to be allocated to each category, and any flexibility sought in relation to adjustment of such allocation;
(c) an approach to risk, including the ways in which risks are to be assessed and managed;
(d) a policy on how social, environmental and corporate governance considerations are taken into account in the selection, non-selection, retention and realisation of investments;
(e) a policy on the exercise of the rights (including voting rights) attaching to investments;
(f) the basis for the net investment return figures used in the fund accrual profile, including expected realisation of and returns on investment;
(g) any other information necessary to explain how the investment requirements in paragraph 7 are to be met.
Part 3 Revision of funding and investment strategy
11 A person may not effect changes to an approved funding and investment strategy other than in accordance with—
(a) this Part, or
(b) a different approval granted by the Secretary of State under these Regulations.
12 Where a change occurs in relation to information contained in an approved funding and investment strategy, a relevant person or fund holder must promptly notify the change to the Secretary of State and inform the Secretary of State whether the change means it is likely there will be a material deficit at the end of the applicable financial year.
13 A section 7 licensee must submit a revised funding and investment strategy to the Secretary of State for approval in any of the following circumstances—
(a) before the last day of the periods specified in paragraphs 13(a), 13(b) and 21(a) of Schedule 2, and on the dates specified in paragraph 21(b) of Schedule 2, unless the Secretary of State agrees in writing that a revised funding and investment strategy does not need to be submitted during one or more of these periods;
(b) by the date specified in a notice served on the section 7 licensee by the Secretary of State, where any of the following apply—
(i) the Secretary of State has determined that a revised fund estimate should be submitted, under Part 4 of Schedule 2;
(ii) the Secretary of State has received an approval request for a revised fund estimate under paragraph 14(1)(a) of Schedule 2;
(iii) the Secretary of State considers that a revised funding and investment strategy should be submitted as a result of information communicated under paragraph 12 of this Schedule;
(c) by such date specified in a notice served under regulation 20(3)(a) (“recovery measures”).
14 A relevant person or fund holder may submit a revised funding and investment strategy to the Secretary of State for approval, other than when required to do so by paragraph 13, where—
(a) that person has given prior written notice of the intended application to all relevant persons and to the fund holder;
(b) the submission to the Secretary of State includes any responses from the persons consulted and an explanation for the proposed revision.
Part 4 Approval of funding and investment strategy
15 The Secretary of State must reach a final decision on whether to approve a funding and investment strategy, or a revised funding and investment strategy submitted under paragraphs 13 or 14 and may not do so unless satisfied that—
(a) the proposals meet the objectives in paragraph 3,
(b) the annual contribution in the fund accrual profile should be adopted to calculate the monthly contribution amount, and
(c) investments will be managed in a prudent and competent manner.
16 Where the Secretary of State approves a revised funding and investment strategy, that approved strategy replaces the previous strategy, with effect from the date on which the Secretary of State notifies the relevant person of the approval.
Propose a change