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REC 4.1 Application and purpose

Application

REC 4.1.1 G

REC 4.2 to REC 4.2E3, REC 4.3, 3REC 4.5 and REC 4.6A3 apply to UK recognised bodies. REC 4.2F to REC 4.2G3REC 4.4 and REC 4.6 to REC 4.8 apply to all recognised bodies. REC 4.8 applies to applicants for recognition as a recognised body.

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Purpose

REC 4.1.2 G

This chapter sets out the FCA's3 approach to the supervision of recognised bodies and contains guidance on:

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  1. (1)

    the arrangements for investigating complaints about recognised bodies made under section 299 of the Act (Complaints about recognised bodies) (REC 4.4);

  2. (2)

    the FCA's3approach to the exercise of its powers under:

    3
    1. (a)

      (for RIEs)2section 296 of the Act (Appropriate regulator's3 power to give directions) or (for RAPs) regulation 3 of the RAP regulations2 to give directions to recognised bodies (REC 4.6);

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    2. (b)

      (for RIEs)2section 297 of the Act (Revoking recognition) or (for RAPs) regulation 4 of the RAP regulations2 to revoke recognition orders (REC 4.7);

      3

    and the procedure to be followed in those cases and where the FCA3 decides to refuse an application for recognition as a recognised body (REC 4.8); and

    3
  3. (3)

    the FCA's3approach to, and procedures for, the exercise of its powers under sections 166 and 167 of the Companies Act 1989 to give directions to UK RIEs3in relation to action under their default rules (REC 4.5).

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REC 4.1.3 G

The FCA's3 general approach to supervision is intended to ensure that:

3
  1. (1)

    the FCA3 has sufficient assurance that recognised bodies continue at all times to satisfy the recognised body requirements; and21

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  2. (2)

    the FCA's3 supervisory resources are allocated, and supervisory effort is applied, in ways which reflect the actual risks to the regulatory objectives.

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REC 4.1.4 G

In applying these principles of risk based supervision to the supervision of recognised bodies, the FCA3 has had particular regard to the special position of recognised bodies under the Act as well as to its general duties set out in section 2 of the Act (The FCA's 3general duties).

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REC 4.1.5 G

More information on the supervision of UK recognised bodies is given in REC 4.2 and REC 4.3. More information on the supervision of overseas recognised bodies is given in REC 6.

REC 4.2 The supervisory relationship with UK recognised bodies

REC 4.2.1 G

The FCA3 expects to have an open, cooperative and constructive relationship with UK recognised bodies to enable it to have a broad picture of the UK recognised body's activities and its ability to meet the recognised body requirements.2 This broad picture is intended to complement the information which the FCA3 will obtain under section 293 of the Act (Notification requirements) or under notification rules made under that section (see REC 3). The FCA3 will usually arrange meetings between the Markets Division and key individuals of the UK recognised body for this purpose. The frequency and nature of these meetings may vary in accordance with the risk profile of the UK recognised body.

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REC 4.2.2 G

UK recognised bodies are likely to develop and adapt their businesses in response to customer demand and new market opportunities. Where such developments involve changes to the way the UK recognised body operates, they are likely to involve changes to the way it satisfies the1 recognised body requirements.2

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REC 4.2.3 G

The FCA3 expects a UK recognised body to take its own steps to assure itself that it will continue to satisfy the1 recognised body requirements2 when considering any changes to its business or operations.

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REC 4.2.4 G

However, the FCA3 also expects that UK recognised bodies will keep it informed of all significant developments and of progress with their 2plans and operational initiatives, and will provide it with appropriate assurance that the recognised body requirements21 will continue to be satisfied.

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REC 4.2A Publication of information by UK RIEs and RAPs2

REC 4.2A.1 G

1Under subsections 292A(1) and (2) of the Act, a UK RIE must as soon as practicable after a recognition order is made in respect of it publish such particulars of the ownership of the UK RIE, including the identity and scale of interests of the persons who are in a position to exercise significant influence over the management of the UK RIE2or (where the UK RIE is also an RAP) the RAP, whether directly or indirectly, as the FCA3 may reasonably require.

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REC 4.2A.2 G

Under subsections 292A(3) and (4) of the Act, a UK RIE must as soon as practicable after becoming aware of a transfer of ownership of the UK RIE which gives rise to a change of persons who are in a position to exercise significant influence over the management of the UK RIE or (where the UK RIE is also an RAP) the RAP,2 whether directly or indirectly, publish such particulars of any such transfer as the FCA3 may reasonably require.

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REC 4.2A.3 G

Under subsection 292A(5) of the Act, a UK RIE must publish such particulars of any decision it makes to suspend or remove a financial instrument from trading on a regulated market operated by it as the FCA3 may reasonably require.

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REC 4.2B Exercise of passport rights by a UK RIE

REC 4.2B.1 G

1Under section 312C of the Act, if a UK RIE wishes to make arrangements in an EEA State other than the UK to facilitate access to or use of a regulated market,2multilateral trading facility or auction platform2 operated by it, it must give the FCA3written notice of its intention to do so. The notice must:

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  1. (1)

    describe the arrangements; and

  2. (2)

    identify the EEA State in which the UK RIE intends to make them.

REC 4.2B.2 G

The FCA3 must, within one month of receiving the UK RIE's notice, send a copy of it to the Host State regulator.

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REC 4.2B.3 G

The UK RIE may not make the arrangements until the FCA3 has sent a copy of the notice to the Host State regulator.

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REC 4.2B.4 G

The requirements that a UK RIE must give the FCA3 written notice and the UK RIE may not make the arrangements until the FCA3 has sent a copy of it to the Host State regulator do not apply to arrangements made by a UK RIE on or before 31 October 2007.

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REC 4.2C Control over a UK RIE

REC 4.2C.1 G

1Section 301A(1) of chapter3 1A of Part XVIII of the Act places an obligation on a person who decides to acquire or increase control (see sections 301D and 301E of the Act) over a UK RIE3to notify the FCA5, before making the acquisition3. Furthermore, those persons are required to obtain the FCA's5 approval before acquiring control 3or increasing the level of control held.

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REC 4.2C.2 G

The FCA5 will approve an acquisition or an increase in 3control if it is satisfied that the acquisition by the person seeking approval does not pose a threat to the sound and prudent management of any financial market operated by the UK RIE (see section 301F(4) of the Act). 4The reference to any financial market is to be read as including a reference to any auction platform as a result of the RAP regulations.3

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REC 4.2C.3 G

If a proposed acquirer 3has complied with the obligation to notify, the procedure the FCA5 will follow if it approves or does not approve of that person acquiring or increasing control 3is set out in sections3 301F and 301G 3of the Act.

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REC 4.2C.4 G

[deleted]3

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REC 4.2C.5 G

[deleted]3

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REC 4.2C.6 G

The FCA's5 internal arrangements provide for any decisions to refuse to approve an acquisition or3 object to an existing control to be taken at an appropriately senior level.

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REC 4.2C.7 G

If the FCA5 refuses to approve an acquisition3 or objects to an existing control, the person concerned may refer the matter to the Tribunal (see EG 2.39).2

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REC 4.2C.8 G

The powers the FCA5 can exercise in the event that a person acquires or continues to exercise control notwithstanding the FCA's5 refusal to approve the acquisition of control or the FCA's5 objection to the exercise of control are set out in sections 301J and 301K 3of the Act.

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REC 4.2C.9 G

The offences for which a person who fails to comply with the obligations set out in Chapter 1A of Part XVIII of the Act is liable are set out in section 301L 3of the Act.

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REC 4.2D Suspension and removal of financial instruments from trading

REC 4.2D.1 G
  1. (1)

    1Under section 313A of the Act, the FCA5 may for the purpose of protecting:

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    1. (a)

      the interests of investors; or

    2. (b)

      the orderly functioning of the financial markets;

    require a UK RIE to suspend or remove a financial instrument from trading.

  2. (2)

    If the FCA5 exercises this power, the UK RIE concerned may refer the matter to the Tribunal.

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REC 4.2D.2 G

The procedure the FCA5 will follow if it exercises its power to require a UK RIE to suspend or remove a financial instrument3 from trading is set out in sections 313B to 313BE of the Act.3 The FCA's internal arrangements provide for decisions to exercise this power to be taken at an appropriately senior level. If the FCA5 exercises this power, the UK RIE concerned and the issuer (if any) of the relevant financial instrument may refer the matter to the Tribunal(see EG 2.39)2.2

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REC 4.2D.3 G

Under section 313C(1) of the Act, if the FCA5 exercises its power to require a UK RIE to suspend or remove a financial instrument from trading, it must as soon as reasonably practicable:

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  1. (1)

    publish its decision in such manner as it considers appropriate, unless the decision has already been published under section 313B(2)(b) of the Act; and3

  2. (2)

    inform ESMA and4 the competent authorities of all other EEA States of its decision.

REC 4.2D.4 G

Under section 313C(2) of the Act, if the FCA5 receives notice from a UK RIE that the UK RIE has suspended or removed a financial instrument from trading on a regulated market operated by it, the FCA5 must inform the competent authorities of all other EEA States of the action taken by the UK RIE.

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REC 4.2D.5 G

Under sections 313C(3) and (4) of the Act, if the FCA5 receives notice from the competent authority of another EEA State that that authority, pursuant to Article 41.2 of MiFID has required the suspension of a financial instrument from trading, the FCA5 must require each UK RIE to suspend the instrument from trading on any regulated market or multilateral trading facility operated by the UK RIE.

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REC 4.2D.6 G

Under sections 313C(3) and (5) of the Act, if the FCA5 receives notice from the competent authority of another EEA State that that authority, pursuant to Article 41.2 of MiFID has required the removal of a financial instrument from trading, the FCA5 must require each UK RIE to remove the instrument from trading on any regulated market or multilateral trading facility operated by the UK RIE.

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REC 4.2E Information: compliance of UK recognised bodies with EU requirements3

REC 4.2E.1 G

1Under section 293A of the Act, the FCA3may require a UK recognised body to give such information as it reasonably requires in order to satisfy itself that the UK recognised body is complying with any qualifying EU provision that is specified, or of a description specified, for the purposes of section 293A of the Act by the Treasury.3

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REC 4.2F Information gathering power on FCA’s own initiative

REC 4.2F.1 G
  1. (1)

    1While the FCA will seek to obtain information from an RIE in the context of an open, cooperative and constructive relationship with the RIE, where it appears to the FCA that obtaining information in that context will not achieve the necessary results, the FCA or (as the case may be) its officers may, under section 165(7) of the Act, by notice in writing, require any of the following persons to provide or produce specified information or information of a specified description, at a specified place and before the end of a reasonable period, in such form and with such verifications or authentications as it may reasonably require:

    1. (a)

      the RIE; or

    2. (b)

      a person who is connected with the RIE.

  2. (2)

    Under section 165(11) of the Act, a person is connected with a recognised body if he is or has at any relevant time been:

    1. (a)

      a member of the RIE's group; or

    2. (b)

      a controller of the RIE; or

    3. (c)

      any other member of a partnership of which the RIE is a member; or

    4. (d)

      a person mentioned in Part I of Schedule 15 of the Act (reading references in that Part to the ‘authorised person’ as references to the RIE).

REC 4.3 Risk assessments for UK recognised bodies

REC 4.3.1 G

Information is needed to support the FCA's1 risk based approach to the supervision of all regulated entities. Risk based supervision is intended to ensure that the allocation of supervisory resources and the supervisory process are compatible with the regulatory objectives and the FCA's1 general duties under the Act. The central element of the process of risk based supervision is a systematic assessment by the FCA1 (a risk assessment) of the main supervisory risks and concerns for each regulated entity.

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REC 4.3.2 G

For each UK recognised body, the FCA1 will conduct a periodic risk assessment. This assessment will take into account relevant considerations including the special position of recognised bodies under the Act, the nature of the UK recognised body's members, the position of other users of its facilities and the business environment more generally.

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REC 4.3.3 G

The risk assessment will guide the FCA's1 supervisory focus. It is important, therefore, that there is good dialogue between the FCA1 and the recognised body. The FCA1 expects to review its risk assessment with the staff of the UK recognised body to ensure factual accuracy and a shared understanding of the key issues, and may discuss the results of the risk assessment with key individuals of the UK recognised body. If appropriate, the FCA1 may send a detailed letter to the body's chief executive, chairman or both with proposals for further action or work to address particular concerns or issues and seek their comments on the risk assessment.

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REC 4.4 Complaints

Recognised body's arrangements

REC 4.4.1 G

Recognised bodies may receive complaints from time to time from their members and other people, both about the conduct of members and about the recognised body itself. A UK recognised body will need to have satisfactory arrangements to investigate these complaints in order to satisfy the relevant recognition requirements (see REC 2.15 and REC 2.16) or RAP recognition requirements (see REC 2A.3.2 G).1

The FCA's arrangements2

REC 4.4.2 G

The Act does not provide a mechanism for appeals to the FCA2 from decisions by recognised bodies in relation to complaints. However, the FCA2 is required by section 299 of the Act (Complaints about recognised bodies) to have arrangements to investigate complaints (called relevant complaints in the Act) which it considers relevant to the question of whether a recognised body should remain recognised as such. This section describes aspects of the FCA's2 arrangements for investigating relevant complaints.

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REC 4.4.3 G

Where the FCA2 receives a complaint about a recognised body, it will, in the first instance, seek to establish whether the complainant has approached the recognised body. Where this is not the case, the FCA2 will ask the complainant to complain to the recognised body. Where the complainant is dissatisfied with the handling of the complaint, but has not exhausted the recognised body's own internal complaints procedures (in the case of a complaint against a UK recognised body, including by applying to that body's complaints investigator), the FCA2will encourage the complainant to do so.

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REC 4.4.4 G

The FCA2 will not usually consider a complaint which has not, in the first instance, been made to the recognised body concerned, unless there is good reason for believing that it is a relevant complaint which merits early consideration by the FCA2.

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REC 4.4.5 G

When it is considering a relevant complaint, the FCA2 will make its own enquiries as appropriate with the recognised body, the complainant and other persons. It will usually ask the recognised body and the complainant to comment upon any preliminary or draft conclusions of its review and to confirm any matters of fact at that stage.

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REC 4.4.6 G

The FCA2 will communicate the outcome of its review of a relevant complaint to the complainant and the recognised body, but will normally only discuss any action which it considers the recognised body should take with the recognised body itself.

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REC 4.5 FCA supervision of action by UK RIEs under their default rules1

REC 4.5.1 G

UK RIEs 1which, under their rules, have market contracts are required to have default rules enabling them (among other things) to take action in relation to a member who appears to be unable to meet his obligations in respect of one or more unsettled market contracts. The detailed recognition requirements relating to the default rules are set out in REC 2.17.

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REC 4.5.2 G

The default rules are designed to ensure that rights and liabilities between the defaulter and any counterparty to an unsettled market contract are discharged, and for there to be paid between the defaulter and each counterparty one net sum. The Companies Act 1989 contains provisions which protect action taken under default rules from the normal operation of insolvency law which might otherwise leave this action open to challenge by a relevant office-holder.

REC 4.5.3 G

The Companies Act 1989 also gives the FCA1 powers to supervise the taking of action under default rules. Under section 166 of the Companies Act 1989 (Powers of the appropriate regulator1 to give directions) (see REC 4.5.4 G), the FCA1 may direct a UK RIE1to take, or not to take, action under its default rules. Before exercising these powers the FCA1 must consult the UK RIE.1 The FCA1 may also exercise these powers if a relevant office-holder applies to it under section 167 of the Companies Act 1989 (Application to determine whether default proceedings to be taken) (see REC 4.5.9 G).

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REC 4.5.4 G

The Companies Act 1989: section 166

The FCA1 may issue a "positive" direction (to take action) under section 166(2)(a) of the Companies Act 1989:

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Where in any case a [ UK RIE ] has not taken action under its default rules - if it appears to [the FCA ] that it could take action, [the FCA may direct it to do so, 1

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but under section 166(3)(a) of the Companies Act 1989:

Before giving such a direction the [ FCA ] shall consult the [ UK RIE ] in question; and [the FCA ] shall not give a direction unless [the FCA ] is satisfied, in the light of that consultation that failure to take action would involve undue risk to investors or other participants in the market, or that the direction is necessary having regard to the public interest in the financial stability of the United Kingdom, or that the direction is necessary to facilitate a proposed or possible use of a power under Part 1 of the Banking Act 2009 or in connection with a particular exercise of a power under that Part. 1

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The FCA1 may issue a "negative" direction (not to take action) under section 166(2)(b) of the Companies Act 1989:

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Where in any case a [ UK RIE ] has not taken action under its default rules - if it appears to the [ FCA ] that it is proposing to take or may take action, [the FCA ] may direct it not to do so. 1

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but under section 166(3)(b) of the Companies Act 1989:

Before giving such a direction the [ FCA ] shall consult the [ UK RIE ] in question; and the [ FCA ] shall not give a direction unless [the FCA ] is satisfied, in the light of that consultation that the taking of action would be premature or otherwise undesirable in the interests of investors or other participants in the market, or that the direction is necessary having regard to the public interest in the financial stability of the United Kingdom, or that the direction is necessary to facilitate a proposed or possible use of a power under Part 1 of the Banking Act 2009 or in connection with a particular exercise of a power under that Part. 1

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REC 4.5.5 G

Other than in exceptional circumstances, the FCA will consult with the Bank of England before exercising these powers.1

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REC 4.5.6 G

Under section 166(6) of the Companies Act 1989, a negative direction cannot be given if, in relation to the defaulter, either:

  1. (1)

    a bankruptcy order or an award of sequestration of the defaulter's estate has been made, or an interim receiver or interim trustee has been appointed; or

  2. (2)

    a winding-up order has been made, a resolution for voluntary winding-up has been passed or an administrator, administrative receiver or provisional liquidator has been appointed;

and any previous negative direction will cease to have effect on the making or passing of any such order, award or appointment.

REC 4.5.7 G

Under section 166(5) of the Companies Act 1989, a negative direction may be expressed to have effect until a further direction is given, which may either be a positive direction or a revocation of the earlier negative direction.

REC 4.5.8 G

Under section 166(7) of the Companies Act 1989, where a UK RIE has taken action either of its own accord or in response to a direction, the FCA may direct it to do or not to do specific things subject to these being within the powers of the UK RIE under its default rules. However,1

1
  1. (1)

    1where the UK RIE is acting in accordance with a direction given by the FCA to take action under section 166(2)(a) of the Act on the basis that failure to take action would involve undue risk to investors or other participants in the market, the FCA will not direct it to do or not to do specific things which the UK RIE has power to do under its default rules, unless the FCA is satisfied that this will not impede or frustrate the proper and efficient conduct of the default proceedings; and

  2. (2)

    where the UK RIE has taken action under its default rules without being directed to do so, the FCA will not direct it to do or not to do specific things which the UK RIE has power to do under its default rules, unless the FCA is satisfied that:

    1. (a)

      the direction will not impede or frustrate the proper and efficient conduct of the default proceedings; or

    2. (b)

      the direction is necessary:

      1. (i)

        having regard to the public interest in the stability of the UK financial system;

      2. (ii)

        to facilitate a proposed or possible use of a power under Part 1 of the Banking Act 2009 (special resolution regime); or

      3. (iii)

        in connection with a particular exercise of a power under Part 1 of the Banking Act 2009.

Section 167 of the Companies Act 1989

REC 4.5.9 G

Where, in relation to a member (or designated non-member) of a UK RIE :

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  1. (1)

    a bankruptcy order; or

  2. (2)

    an award of sequestration of his estate; or

  3. (3)

    an order appointing an interim receiver of his property; or

  4. (4)

    an administration or winding-up order; or

  5. (5)

    a resolution for a voluntary winding-up; or

  6. (6)

    an order appointing a provisional liquidator;

has been made or passed and the UK RIE1 has not taken action under its default rules as a result of this event or of the matters giving rise to it, a relevant office-holder appointed in connection with the order, award or resolution may make an application to the FCA1 under section 167 of the Companies Act 1989 (Application to determine whether default proceedings to be taken).

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REC 4.5.10 G

The effect of an application under section 167 of the Companies Act 1989 is to require the UK recognised body concerned to take action under its default rules or to require the FCA1 to take action under section 166 of the Companies Act 1989 (see REC 4.5.4G).

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REC 4.5.11 G

The procedure is that the FCA1 must notify the UK recognised body of the application and, unless within three business days after receipt of that notice, the UK recognised body:

1
  1. (1)

    takes action under its default rules; or

  2. (2)

    notifies the FCA1 that it proposes to take action forthwith; or

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  3. (3)

    is directed to take action by the FCA1 under section 166(2)(a) of the Companies Act 1989;

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the provisions of sections 158 to 165 of the Companies Act 1989 do not apply in relation to market contracts to which the member or designated non-member is a party or to anything done by the UK recognised body for the purpose of, or in connection with, the settlement of any market contracts.

REC 4.6 The section 296 power to give directions

REC 4.6.1 G

Under section 296 of the Act (FCA's4 power to give directions) and (for RAPs) under regulation 3 of the RAP regulations3, the FCA4 has the power to give directions to a recognised body to take specified steps 1in order to secure its compliance with the recognised body requirements. In the case of a UK RIE (including one which operates an RAP) 3those steps may include granting the FCA4 access to the UK RIE's premises for the purposes of inspecting those premises or any documents on the premises and the suspension of the carrying on of any regulated activity by the UK RIE for the period specified in the direction1.

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REC 4.6.2 G

[deleted]4

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REC 4.6.3 G

The FCA4 is likely to exercise its power under section 296 of the Act or regulation 3 of the RAP regulations3 if it considers that:

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  1. (1)

    there has been, or was likely to be, a failure to satisfy one or more of the recognised body requirements31which has serious consequences;

  2. (2)

    compliance with the direction would ensure that 1one or more of the recognised body requirements is3 satisfied; and

  3. (3)

    the recognised body is capable of complying with the direction.

REC 4.6.4 G

Under section 298(7) of the Act (Directions and revocation: procedure), and (for RAPs) regulation 5(7) of the RAP regulations,3 the FCA4 need not follow the consultation procedure set out in the rest of section 298 (see REC 4.8) or may cut short that procedure, if it considers it reasonably necessary to do so. For RAPs, the FCA need not follow the procedure set out in regulation 5 of the RAP regulations or may cut short the procedure, if it considers it essential to do so.4

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REC 4.6A The section 192C power to direct qualifying parent undertakings

REC 4.6A.1 G
  1. (1)

    1Under section 192C of the Act (Power to direct qualifying parent undertaking), the FCA has the power to give a direction to the qualifying parent undertaking of a UK RIE if the general condition is satisfied.

  2. (2)

    For the purposes of section 192C of the Act, a parent undertaking of a UK RIE is a ‘qualifying parent undertaking’ if:

    1. (a)

      the parent undertaking is a body corporate which is incorporated in the United Kingdom, or has a place of business in the United Kingdom;

    2. (b)

      the parent undertaking is not itself an authorised person, a RIE or a RCH; and

    3. (c)

      the parent undertaking is a financial institution of a kind prescribed by the Treasury by order.

  3. (3)

    For the purposes of section 192C of the Act, the general condition is that the FCA considers that it is desirable to give the direction in order to advance one of more of its operational objectives.

  4. (4)

    In exercising or deciding whether to exercise its power under section 192(c) of the Act, the FCA will have regard to any statement of policy published under this section and for the time being in force.

    [Note:1. Treasury has issued a draft order for consultation prescribing the types of financial institutions which are qualifying parent undertakings. See the draft Financial Services and Markets Act 2000 (Prescribed Financial Institutions) Order 201*, as published in the Treasury consultation paper titled ‘A new approach to financial regulation: draft secondary legislation’: http://www.hm-treasury.gov.uk/d/condoc_fin_regulation_draft_secondary_leg.pdf.

    2. The FCA has issued a statement of policy with respect to the giving of directions under section 192C. http://www.fca.org.uk/news/firms/fca-statement-of-policy-on-the-use-of-the-power-to-direct-qualifying-parent-undertakings]

REC 4.7 The section 297 power to revoke recognition

REC 4.7.1 G

Under section 297 of the Act (Revoking recognition) 2and (for RAPs) under regulation 4 of the RAP regulations, the FCA3 has the power to revoke a recognition order relating to a recognised body.

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REC 4.7.2 G

The FCA3 will revoke a recognition order if:

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  1. (1)

    [deleted]3

    3
  2. (2)

    the recognised body has asked the FCA3 to revoke the order.

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REC 4.7.2A G

2Where the FCA3 makes a revocation order under section 297 of the Act in relation to a UK RIE which is also an RAP, the FCA3 will also revoke the recognition order relating to its status as an RAP.

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REC 4.7.3 G

The FCA3 will usually consider revoking a recognition order if:

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  1. (1)

    the recognised body is failing or has failed to satisfy 2one or more of the recognised body requirements1and that failure has or will have serious consequences; or

    2
  2. (2)

    it would not be possible for the recognised body to comply with a direction under section 296 of the Act (FCA's3 power to give directions) or (for RAPs) regulation 3 of the RAP regulations;2 or

    3
  3. (3)

    for some other reason, it would not be appropriate for the FCA3 to give a direction under section 296 or (for RAPs) regulation 3 of the RAP regulations; or21

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  4. (4)

    in the case of a UK RIE, it has not carried on the business of an investment exchange during the 12 months beginning with the day on which the recognition order took effect in relation to it, or it has not carried on the business of an investment exchange at any time during the period of six months ending with the day the recognition order is revoked; or21

  5. (5)

    2in the case of an RAP in relation to its RAPrecognition order, it has not carried on the business of an auction platform during the 12 months beginning with the day on which the RAPrecognition order took effect in relation to it, or it has not carried on the business of an auction platform at any time during the period of six months ending with the day the RAP recognition order is revoked.

REC 4.7.4 G

The FCA3 would be likely to consider the conditions in REC 4.7.3 G (2) or REC 4.7.3 G (3) to be triggered1in the following circumstances:

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  1. (1)

    the recognised body appears not to have the resources or management to be able to organise its affairs so as to satisfy one or more of the recognised body requirements; or21

    2
  2. (2)

    the recognised body does not appear to be willing to satisfy one or more of the recognised body requirements; or21

    2
  3. (3)

    the recognised body is failing or has failed to comply with a direction made under section 296 of the Act or (for RAPs) regulation 3 of the RAP regulations; or2

  4. (4)

    the recognised body has ceased to carry out regulated activities in the United Kingdom, or has so changed the nature of its business that it no longer satisfies one or more of the recognised body requirements21 in respect of the regulated activities for which recognised body status is relevant.

    2
REC 4.7.5 G

In addition to the relevant 1factors set out in REC 4.7.4 G, the FCA3 will usually consider that it would not be able to secure an ROIE's3 compliance with the recognition requirements or other obligations in or under the Act by means of a direction under section 296 of the Act, if it appears to the FCA3 that the ROIE3 is prevented by any change in the legal framework or supervisory arrangements to which it is subject in its home territory from complying with the recognition requirements or other obligations in or under the Act.

3 3 3 3

REC 4.8 The section 298 procedure

REC 4.8.1 G

A decision to:

  1. (1)

    revoke a recognition order under section 297 of the Act (Revoking recognition) or (for RAPs) regulation 4 of the RAP regulations; or3

  2. (2)

    make a direction under section 296 (FCA's4powers to give directions) or (for RAPs) regulation 3 of the RAP regulations; or3

    4
  3. (3)

    refuse to make a recognition order under section 290 (Recognition orders) or 290A (Refusal of recognition on ground of excessive regulatory provision) or (for RAPs) regulation 2 of the RAP regulations32;

is a serious one and section 298 of the Act (Directions and revocation: procedure) and (for RAPs) regulation 5 of the RAP regulations set 3out procedures 4(see REC 4.8.9 G) which the FCA will follow unless, in the case of a revocation of a recognition order, the recognised body concerned has given its consent (see section 297(1) or regulation 4(1) of the RAP regulations3) or:4

3 4 3 4
    1. (G

      (a) in case where the FCA proposes to make a direction under section 296 it considers it is reasonably necessary not to follow, or to cut short, the procedure (see REC 4.8.7 G); or

    2. (G

      (b) (for RAPs) in a case where the FCA proposes to make a direction under regulation 3 of the Rap regulations, it considers it is essential not to follow, or to cut, short, the procedure.

REC 4.8.2 G

The FCA's4 internal arrangements provide for any of these decisions to be taken at an appropriately senior level.

4
REC 4.8.3 G

In considering whether it would be appropriate to exercise the powers under section 296 or section 297 of the Act or (for RAPs) regulation 3 or 4 of the RAP regulations,3 the FCA4 will have regard to all relevant information and factors including:

4
  1. (1)

    its guidance to recognised bodies;

  2. (2)

    the results of its routine supervision of the body concerned;

  3. (3)

    the extent to which the failure or likely failure to satisfy one or more of the recognised body requirements31may affect the statutory objectives.

REC 4.8.4 G

In considering whether or not to make a recognition order, the FCA4 will have regard to all relevant information and factors, including its guidance to recognised bodies and applicants and the information provided by applicants. Details of the application processes and other guidance for applicants are set out in REC 5 and (for overseas applications) REC 6.

4
REC 4.8.5 G

The procedures laid down in section 298 of the Act and (for RAPs) regulation 5 of the RAP regulations3are summarised, with the FCA's4 guidance about the actions it proposes to take in following these procedures, in the tables4 at REC 4.8.9 G and REC 4.8.10 G respectively4.

4 4
REC 4.8.6 G

Before exercising its powers under section 296 or section 297 of the Act or (for RAPs) regulation 3 or 4 of the RAP regulations3, the FCA4 will usually discuss its intention, and the basis for this, with the key individuals or other appropriate representatives of the recognised body. It will usually discuss its intention not to make a recognition order with appropriate representatives of the applicant.

4
REC 4.8.7 G

[deleted]4

3 3 4
REC 4.8.8 G

[deleted]4

4
REC 4.8.9 G

3Key steps in the section 298 procedure4

The FCA4 will:

4

Guidance

(1)

give written notice to theRIE4 (or applicant);

4

The notice will state why the FCA4 intends to take the action it proposes to take, and include an invitation to make representations, and the period within which representations should be made (unless subsequently extended by the FCA)4.

4

(2)4

4

receive representations from the RIE or applicant concerned;4

4

The FCA4 will not usually consider oral representations without first receiving written representations from theRIE (or applicant)4. It will normally only hear oral representations from the RIE4 on request.

4 4 4

(3)4

4

write promptly to RIE (or applicant)4 who requests the opportunity to make oral representations if it decides not to hear that person's representations;

4

The FCA4 will indicate why it will not hear oral representations and the FCA4 will allow the RIE (or applicant)4 further time to respond.

4 4 4

(4)4

4

have regard to representations made;

(5)4

4

(when it has reached its decision) notify the RIE4 (or applicant) concerned in writing.

4
4
REC 4.8.10 G

4For RAPs, key steps in the regulation 5 procedure

The FCA will:

Guidance

(1)

give written notice to the RAP (or applicant);

The notice will state why the FCA intends to take the action it proposes to take, and include an invitation to make representations, and the date by which representations should be made.

(2)

take such steps as it considers reasonably practicable to bring the notice to the attention of the members of the RAP or of the applicant, as the case may be;

The FCA will also notify persons individually (as far as it considers it reasonably practicable to do so) if it considers that the action it proposes to take would affect them adversely in a way which would be different from its effect on other persons of the same class.

(3)

publish the notice so as to bring it to the attention of other persons likely to be affected;

(4)

receive representations from the RAP or applicant concerned, any member of the RAP or applicant, and any other person who is likely to be affected by the action the FCA proposes to take;

The FCA will not usually consider oral representations without first receiving written representations from the person concerned. It will normally only hear oral representations from the RAP (or applicant) itself or of a person whom it has notified individually, on request.

(5)

write promptly to any person who requests the opportunity to make oral representations if it decides not to hear that person's representations;

The FCA will indicate why it will not hear oral representations and the FCA will allow the person concerned further time to respond.

(6)

have regard to representations made;

(7)

(when it has reached its decision) notify the RAP (or applicant) concerned in writing;

(8)

(if it has decided to give a direction, or revoke or refuse to make a recognition order) take such steps as it considers reasonably practicable to bring its decision to the attention of members of the RAP or applicant and to other persons likely to be affected.

The FCA will usually give notice of its decision to the same persons and in the same manner as it gave notice of its intention to act.

REC 4.9 Disciplinary measures

REC 4.9.1 G
  1. (1)

    1Under sections 312E and 312F of the Act, if the FCA considers that a recognised body has contravened a requirement imposed by the FCA under any provision of the Act that relates to a RIE, or under any provision of the Act whose contravention constitutes an offence the FCA has power to prosecute, or by a qualifying EU provision specified by the Treasury, it may:

    1. (a)

      publish a statement to that effect; or

    2. (b)

      impose on the body a financial penalty of such amount as it considers appropriate.

  2. (2)

    The procedures and policies which the FCA will follow if it proposes to publish a statement under section 312E or to impose a penalty under section 312F, and if it decides to publish such statement or impose such penalty, are set out in DEPP.

  3. (3)

    In exercising or deciding whether to exercise its power to impose a penalty under section 312F of the Act, the FCA will also have regard to any statement of policy published under this section and in force at a time when the contravention in question occurred.

[Note:The FCA has issued a statement of policy for consultation with respect to the exercise of its powers under section 312F of the Act.]

REC 4.9.2 G
  1. (1)

    Under section 192K of the Act, if the FCA considers that a qualifying parent undertaking of a UK RIE has contravened a requirement of a direction given by the FCA under section 192C of the Act, or a provision of rules made by the FCA under section 192J of the Act, it may:

    1. (a)

      impose a penalty of such amount as it considers appropriate on the qualifying parent undertaking of the UK RIE, or any person who was knowingly concerned in the contravention; or

    2. (b)

      publish a statement censuring the person.

  2. (2)

    The procedures which the FCA will follow if it proposes to take action, and if it decides to take action against a person, under section 192K are set out in DEPP.

  3. (3)

    In exercising or deciding whether to exercise its power under section 192K of the Act, the FCA will also have regard to any statement of policy published under this section and in force at a time when the contravention in question occurred.

[Note: The FCA has issued a statement of policy for consultation with respect to the exercise of its powers under section 192K of the Act.]