REC 5
Applications for Recognition
(UK recognised bodies)
REC 5.1
Introduction and legal background
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REC 5.1.1
See Notes
A body
corporate or an unincorporated association may apply to the
FSA
for
recognition as a UK recognised body under
sections 287 (Application by an investment exchange) or 288 (Application by
a clearing house) of the Act.
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REC 5.1.2
See Notes
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REC 5.1.3
See Notes
The Director General of Fair Trading, the Competition
Commission and the Treasury also have specific roles in relation to competition
issues raised by applications to become a recognised body.
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REC 5.1.4
See Notes
- (1) Under section 303 of the Act (Initial report by the Director), the Director General of Fair Trading must issue a report on whether any of the applicant's regulatory provisions have a significantly adverse effect on competition. He must send copies of his report to the Treasury, the Competition Commission and the FSA.
- (2) If the Director General of Fair Trading concludes that any of the applicant's regulatory provisions have a significantly adverse effect on competition, or if the Director General of Fair Trading concludes that none of the applicant's regulatory provisions has a significantly adverse effect on competition, but he nonetheless asks the Competition Commission to consider his report, the Competition Commission must normally make its own report under section 306 of the Act (Consideration by Competition Commission) on whether any of the applicant's regulatory provisions would have a significantly adverse effect on competition, whether any such effect is justified and, if it is not justified, what action, if any, the Treasury should direct the FSA to take.
- (3) The Treasury's approval is required under section 307 of the Act (Recognition orders: role of the Treasury) before a recognition order can be made. (See also REC 5.2.11 G.)
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REC 5.1.5
See Notes
The FSA must
therefore send the Director General of Fair Trading copies of any regulatory provisions provided
with the application. The FSA must
also send to the Director General of Fair Trading such information in its
possession as a result of the application, including supplementary information
received after the application is made, but before it is determined by the FSA, as the FSA considers will assist
the Director General of Fair Trading in discharging his functions in connection
with the application.
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REC 5.1.6
See Notes
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REC 5.1.7
See Notes
Potential applicants may wish to consult the Office of
Fair Trading separately if they have any queries about the competition assessment
or there are any aspects of their rules, guidance or clearing arrangements
which they consider they may need to discuss with them.
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REC 5.2
Application process
- 01/12/2004
REC 5.2.1
See Notes
An applicant for recognised
body status needs to demonstrate to the
FSA
that it is able to meet the
recognition requirements
before a recognition
order can be made. Once it has been recognised, a recognised body has to comply with the
recognition requirements
at all times. (Guidance on
the
recognition requirements
applicable to UK
recognised bodies (and applicants) is given in REC 2).
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REC 5.2.2
See Notes
- (1) There is no standard application form. A prospective applicant should contact the Markets Division at the FSA at an early stage for advice on the preparation, scheduling and practical aspects of its application.
- (2) It is very important, if an application is to be processed smoothly and in a reasonable time, that it is comprehensively prepared and based on a well-developed and clear proposal.
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REC 5.2.3
See Notes
An application should:
- (1) be made in accordance with any directions the FSA may make under section 287 (Application by an investment exchange) or section 288 (Application by a clearing house) of the Act;
- (2) be accompanied by the applicant's regulatory provisions (the material specifically prescribed in section 287 or section 288);
- (3) be accompanied by the information, evidence and explanatory material (including supporting documentation) necessary to demonstrate to the FSA that the recognition requirements will be met; and
- (4) be accompanied by the appropriate fee (see REC 7).
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REC 5.2.4
See Notes
Other information and documentation
which should normally accompany an application is listed in more detail in REC 5.2.14 G.
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REC 5.2.5
See Notes
A prospective applicant who is
an authorised person may wish
to consult the
FSA
about
the extent to which information which it has already supplied in connection
with its status as an authorised person can
be used to support an application to become a UK
recognised body.
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REC 5.2.6
See Notes
Under section 289 of the Act (Applications: supplementary), the
FSA
may
require the applicant to provide additional information, and may require the
applicant to verify any information in any manner. In view of their likely
importance for any application, the
FSA
will normally wish to arrange for its own inspection of an applicant's
information technology systems.
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REC 5.2.7
See Notes
At any time after making a formal application, the applicant may make amendments to its rules, guidance or any other part of its application submitted to the FSA. Any amendments or additional information are likely to be forwarded by the FSA to the Director General of Fair Trading and the Treasury under section 303 of the Act (Initial report by Director) (see REC 5.1.5 G).
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REC 5.2.8
See Notes
- (1) The FSA will keep the applicant informed of the progress of the application.
- (2) It may be necessary to ask the applicant to clarify or amplify some aspects of its proposals. The FSA may wish to discuss various aspects of the application and may invite the applicant to attend one or more meetings for that purpose. When requested to do so, the FSA will explain the nature of the information which it has asked an applicant to supply in connection with its application.
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REC 5.2.9
See Notes
- (1) While the FSA is considering the application, the Office of Fair Trading will be reviewing the regulatory provisions so that the Director General of Fair Trading is able to make the report required by section 303 of the Act.
- (2) When the Director General of Fair Trading has issued his report, if the circumstances described in REC 5.1.4 G apply, the Competition Commission must normally make its own report under section 306 of the Act.
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REC 5.2.10
See Notes
Where the FSA considers that an applicant satisfies
the recognition requirements, and that the
Treasury has had an opportunity to consider any reports from the Director
General of Fair Trading and the Competition Commission, the FSA will then seek the Treasury's approval,
under section 307 of the Act (Recognition
orders: role of the Treasury), to the making of a recognition order.
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REC 5.2.11
See Notes
Under section 307 of the Act, the Treasury will
have to follow the advice of the Director General of Fair Trading or the Competition
Commission as appropriate unless it considers that there are exceptional circumstances
for not doing so. The Treasury will therefore ordinarily give its approval
to the making of a recognition
order if the applicant's regulatory
provisions are not considered to have a significantly adverse
effect on competition or, if they are considered to have that effect, the
effect is justified. It will ordinarily refuse its approval if the applicant's regulatory provisions are
considered to have any significantly adverse effect on competition and that
effect is not considered to be justified.
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REC 5.2.12
See Notes
Where the
FSA
considers that it is unlikely to make a recognition
order, or to seek the
Treasury's approval, it will discuss its concerns with
the applicant as early as possible with a view to enabling the applicant to
make changes to its rules or guidance, or other parts of the application (see REC 5.2.7 G).
If the
FSA
decides
that it will not make a recognition order,
it will follow the procedure set out in section 298 of the Act (Directions
and revocation: procedure) and described in more detail in REC 4.8.
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REC 5.2.13
See Notes
The
FSA will notify the applicant
if the Treasury does not give its approval under section 307 of the Act (Recognition orders:
role of the Treasury). Under section 290 (Recognition orders), the FSA does not have to follow
the section 298 procedure (see REC 4.8) in this case and
will not normally do so. The Treasury is required in those circumstances to
follow a similar procedure under section 310 of the Act (Procedure on the exercise of certain
powers by the Treasury).
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REC 5.2.14
See Notes
Information and supporting documentation (see REC 5.2.4 G).
| (1) | Details of the applicant's constitution, structure and ownership, including its memorandum and articles of association (or similar or analogous documents) and any agreements between the applicant, its owners or other persons relating to its constitution or governance. |
| (2) | Details of all business to be conducted by the applicant, whether or not a regulated activity. |
| (3) | Details of the facilities which the applicant plans to operate, including details of the trading platform, settlement arrangements, clearing services and custody services which it plans to supply. |
| (4) | Copies of the last three annual reports and accounts and, for the current financial year, quarterly management accounts. |
| (5) | Details of its business plan for the first three years of operation as a UK recognised body. |
| (6) | A full organisation chart and a list of the posts to be held by key individuals (with details of the duties and responsibilities) and the names of the persons proposed for these appointments when these names are available. |
| (7) | Details of its auditors, bankers, solicitors and any persons providing corporate finance advice or similar services (such as reporting accountants) to the applicant. |
| (8) | Details of any relevant functions to be outsourced or delegated, with copies of relevant agreements. |
| (9) | Details of information technology systems and of arrangements for their supply, management, maintenance and upgrading, and security. |
| (10) | Details of all plans to minimise disruption to operation of its facilities in the event of the failure of its information technology systems. |
| (11) | Details of internal systems for financial control, arrangements for risk management and insurance arrangements to cover operational and other risks. |
| (12) | Details of its arrangements for managing any counterparty risks, including details of margining systems, guarantee funds and insurance arrangements. |
| (13) | Details of internal arrangements to safeguard confidential or privileged information and for handling conflicts of interest. |
| (14) | Details of arrangements for complying with the notification rules and other requirements to supply information to the FSA. |
| (15) | Details of the arrangements to be made for monitoring and enforcing compliance with its rules and with its clearing, settlement and default arrangements. |
| (16) | A summary of the legal due diligence carried out in relation to ascertaining the enforceability of its rules (including default rules) and arrangements for margin against any of its members based outside the United Kingdom, and the results and conclusions reached. |
| (17) | Details of the procedures to be followed for declaring a member in default, and for taking action after that event to close out positions, protect the interests of other members and enforce its default rules. |
| (18) | Details of membership selection criteria, rules and procedures. |
| (19) | Details of arrangements for recording transactions effected by, or cleared through, its facilities. |
| (20) | Details of arrangements for detecting financial crime and market abuse, including arrangements for complying with money laundering law. |
| (21) | Details of criteria, rules and arrangements for selecting specified investments to be admitted to trading on (or cleared by) an RIE, or to be cleared by an RCH and, where relevant, details of how information regarding specified investments will be disseminated to users of its facilities. |
| (22) | Details of arrangements for cooperating with the FSA and other appropriate authorities, including draft memoranda of understanding or letters. |
| (23) | Details of the procedures and arrangements for making and amending rules, including arrangements for consulting on rule changes. |
| (24) | Details of disciplinary and appeal procedures, and of the arrangements for investigating complaints. |
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