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REC 5.2 Application process

REC 5.2.1 G RP

An applicant for recognised body status needs to demonstrate to the FSA that it is able to meet the recognition requirements and in the case of a UK RIE, the MiFID implementing requirements1before a recognition order can be made. Once it has been recognised, a recognised body has to comply with the recognition requirements and in the case of a UK RIE, the MiFID implementing requirements1at all times. (Guidance on the recognition requirements applicable to UK recognised bodies (and applicants) is given in REC 2).

REC 5.2.1A G RP

In addition, under section 290A of the Act (Refusal of recognition on ground of excessive regulatory provision), the FSA must refuse to make a recognition order in relation to a body applying for recognition as a UK RIE or UK RCH if it appears to the FSA that an existing or proposed regulatory provision of the applicant in connection with the applicant's business as an investment exchange or the provision by the applicant of clearing services imposes, or will impose, an excessive requirement (as defined in section 300A of the Act) on persons directly or indirectly affected by it.2

REC 5.2.2 G RP
  1. (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. (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.

REC 5.2.3 G RP

An application should:

  1. (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. (2)

    be accompanied by the applicant's regulatory provisions and in the case of an application under section 287 of the Act information required pursuant to sub-sections 287(3)(c), (d) and (e) of the Act (see REC 5.2.3A G) 1(the material specifically prescribed in section 287 or section 288);

  3. (3)

    be accompanied by the information, evidence and explanatory material (including supporting documentation) necessary to demonstrate to the FSA that the recognition requirements and in the case of a UK RIE, the MiFID implementing requirements1will be met; and

  4. (4)

    be accompanied by the appropriate fee (see REC 7).

REC 5.2.3A G RP

1The information required pursuant to sub-sections 287(c), (d) and (e) of the Act is:

  1. (1)

    a programme of operations which includes the types of business the applicant proposes to undertake and the applicant's proposed organisational structure;

  2. (2)

    particulars of the persons who effectively direct the business and operations of the exchange; and

  3. (3)

    particulars of the ownership of the exchange, and in particular the identity and scale of interests of the persons who are in a position to exercise significant influence over the management of the exchange, whether directly or indirectly.

REC 5.2.4 G RP

Other information and documentation which should normally accompany an application is listed in more detail in REC 5.2.14 G.

REC 5.2.5 G RP

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.

REC 5.2.6 G RP

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.

REC 5.2.6A G RP

1In the case of an application to become a UK RIE, under subsection 290(1B) of the Act, the application must be determined by the FSA before the end of the period of six months beginning with the date on which it receives the completed application.

REC 5.2.7 G RP

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).

REC 5.2.8 G RP
  1. (1)

    The FSA will keep the applicant informed of the progress of the application.

  2. (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.

REC 5.2.9 G
  1. (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. (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.

REC 5.2.10 G

Where the FSA considers that an applicant satisfies the recognition requirements and in the case of an application to become a UK RIE, the MiFID implementing requirements1, 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.

REC 5.2.11 G

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.

REC 5.2.12 G RP

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.

REC 5.2.13 G

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).

REC 5.2.14 G RP

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 (if not contained in the information listed in REC 5.2.3A G)1.

(2)

Details of all business to be conducted by the applicant, whether or not a regulated activity (if not contained in the information listed in REC 5.2.3A G)1.

(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 (if not contained in the information listed in REC 5.2.3A G)1.

(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 (if not contained in the information listed in REC 5.2.3A G)1.

(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.