REC Recognised Investment Exchanges and Recognised Clearing Houses

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Export part as

REC 1

Introduction

REC 1.1

Application

  • 01/12/2004

REC 1.1.1

handbook-guidance
The rules and guidance in this sourcebook apply to recognised bodies and to applicants for recognition as recognised bodies under Part XVIII of the Act (Recognised Investment Exchanges and Clearing Houses).

REC 1.1.1A

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The guidance in REC 6A applies to EEA market operators exercising passporting rights in the United Kingdom.
  • 01/11/2007

REC 1.1.2

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  1. (1) Recognised bodies are exempt persons under section 285 of the Act (Exemption for recognised investment exchanges and clearing houses).
  2. (2) UK recognised bodies must satisfy recognition requirements prescribed by the Treasury (in certain cases with the approval of the Secretary of State) in the Recognition Requirements Regulations. UK RIEs must also satisfy the MiFID implementing requirements in the MiFID Regulation. Overseas recognised bodies must satisfy recognition requirements laid down in section 292 of the Act (Overseas investment exchanges and overseas clearing houses).
  3. (3) Recognised bodies must also comply with notification requirements in, and with notification rules made under, sections 293 (Notification requirements) and 295 (Notification: overseas investment exchanges and clearing houses) of the Act.

REC 1.1.3

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  1. (1) The recognition requirements for UK recognised bodies and the MiFID implementing requirements are set out, with guidance, in REC 2.
  2. (2) The notification rules for UK recognised bodies are set out in REC 3 together with guidance on those rules.
  3. (3) Guidance on the FSA's approach to the supervision of recognised bodies is given in REC 4.
  4. (4) Guidance for applicants (and potential applicants) for UK recognised body status is given in REC 5.
  5. (5) The recognition requirements, notification rules, and guidance for overseas recognised bodies and guidance for applicants (and potential applicants) for overseas recognised body status are set out in REC 6.
  6. (5A) Guidance for EEA market operators exercising their passporting rights in the United Kingdom is set out in REC 6A.
  7. (6) The fees rules for recognised bodies and applicants are set out in FEES 1, 2, 3 and 4.

REC 1.2

Purpose, status and quotations

Purpose

REC 1.2.1

handbook-guidance
The purpose of the guidance (other than in REC 6A) in this sourcebook is to give information on the recognition requirements, other obligations on recognised bodies in or under the Act and the MiFID implementing requirements. The purpose of the guidance in REC 6A is to give EEA market operators information about their passporting rights in the United Kingdom. Explanations of the purposes of the rules in this sourcebook are given in the chapters concerned.

Status

REC 1.2.2

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  1. (1) Most of the provisions in this sourcebook are marked with a G (to indicate guidance) or an R (to indicate a rule). Quotations from UK statute or statutory instruments are marked with the letters "UK" unless they form part of a piece of guidance. Quotations from the directly applicable MiFID Regulation are marked with the letters "EU". For a discussion of the status of provisions marked with a letter, see Chapter 6 of the Reader's Guide.
  2. (2) Where the guidance states that the FSA may have regard to any factor in assessing or determining whether a recognition requirement is satisfied, or whether there is compliance with another obligation under the Act, or whether a MiFID implementing requirement is satisfied, it means that the FSA will take that factor into account so far as it is relevant.
  3. (3) In determining whether a recognised body satisfies the recognition requirements or complies with other obligations in or under the Act, or a UK RIE satisfies the MiFID implementing requirements, the FSA will have regard to any relevant factor, including, but not limited to, the factors specifically discussed in the guidance.

Quotations

REC 1.2.3

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  1. (1) This sourcebook contains quotations from the Act, the Recognition Requirements Regulations and the Companies Act 1989 and the MiFID Regulation and, where necessary, words have been added to, or substituted for, the text of these provisions to facilitate understanding.
  2. (2) The additions and substitutions are enclosed in square brackets ([ ]). The omission of words within a quotation is indicated by three dots (...).
  3. (3) Any words in these quotations which have the same meaning as Handbook defined terms are shown in italics and their definitions may be found in the Glossary.
  4. (4) As these quotations contain provisions which impose obligations, they are printed in bold type. The use of bold type is not intended to indicate that these quotations are rules made by the FSA.
  5. (5) None of the editorial changes made by the FSA in these quotations can supersede or alter the meaning of the provision concerned.

Export chapter as

REC 2

Recognition requirements

REC 2.1

Introduction

  • 01/12/2004

REC 2.1.1

handbook-guidance
This chapter contains the recognition requirements for UK recognised bodies and sets out guidance on those requirements. This chapter also contains the MiFID implementing requirements for UK RIEs. (The recognition requirements for overseas recognised bodies are set out in REC 6.)

REC 2.1.2

handbook-guidance
These recognition requirements must be satisfied by applicants for recognised body status before recognition is granted and by all UK recognised bodies at all times while they are recognised. In addition the MiFID implementing requirements must be satisfied by applicants for UK RIE status before recognition is granted and by all UK RIEs at all times while they are recognised. The same standards apply both on initial recognition and throughout the period recognised body status is held. The terms UK RIE or UK RCH in the guidance should be taken, therefore, to refer also to an applicant when appropriate.

REC 2.1.3

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  1. (1) The paragraphs in the Schedule to the Recognition Requirements Regulations are grouped in this sourcebook in sections which give guidance on the same subject for both UK RIEs and UK RCHs.
  2. (2) The table in REC 2.1.4 G indicates in which section each of those paragraphs (and the associated guidance) can be found.

REC 2.1.4

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Location of recognition requirements and guidance

REC 2.1.5

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Recitals and articles from the MiFID Regulation (and the associated guidance) relevant to market transparency are set out in REC 2.6. Articles from the MiFID Regulation relevant to admission to trading are set out in REC 2.12.
  • 01/11/2007

REC 2.2

Method of satisfying the recognition requirements

  • 01/12/2004

REC 2.2.1

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Recognition Requirements Regulations, Regulation 6

Relevant circumstances

REC 2.2.2

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The FSA will usually expect:

  1. (1) the constitution, regulatory provisions and practices of the UK recognised body or applicant;
  2. (2) the nature (including complexity, diversity and risk) and scale of the UK recognised body's or applicant's business;
  3. (3) the size and nature of the market which is supported by the UK recognised body's or applicant's facilities;
  4. (4) the nature and status of the types of investor who use the UK recognised body's or applicant's facilities or have an interest in the market supported by the UK recognised body's or applicant's facilities; and
  5. (5) the nature and scale of the risks to the regulatory objectives associated with the matters described in (1) to (4);
to be among the relevant circumstances which it will take into account in considering whether a UK recognised body or applicant satisfies the recognition requirements.
  • 21/06/2001

Outsourcing

REC 2.2.3

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It is the UK recognised body's responsibility to demonstrate to the FSA that a person who performs a function on behalf of the UK recognised body is fit and proper and able and willing to perform that function. The recognition requirement referred to in Regulation 6(3) applies to the UK recognised body and not to any person who performs any function on its behalf. In this context, for a person to be "fit and proper" does not necessarily imply that he is an authorised person, or qualified to be so, or that the required standard is the same as that required either for authorised persons or recognised bodies.
  • 21/06/2001

REC 2.2.4

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If a UK recognised body makes arrangements for functions to be performed on its behalf by persons who are authorised persons or recognised bodies, this does not alter its obligations under Regulation 6.
  • 21/06/2001

REC 2.2.5

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If a person who performs a function on behalf of a UK recognised body is himself carrying on a regulated activity in the United Kingdom, he will, unless he is a person to whom the general prohibition does not apply, need to be either an authorised person or an exempt person. The person to whom a function is delegated is not covered by the UK recognised body's exemption.
  • 21/06/2001

REC 2.2.6

handbook-guidance

In determining whether the UK recognised body meets the recognition requirement in Regulation 6(3), the FSA may have regard to whether that body has ensured that the person who performs that function on its behalf:

  1. (1) has sufficient resources to be able to perform the function (after allowing for any other activities);
  2. (2) has adequate systems and controls to manage that function and to report on its performance to the UK recognised body;
  3. (3) is managed by persons of sufficient skill, competence and integrity;
  4. (4) understands the nature of the function it performs on behalf of the UK recognised body and its significance for the UK recognised body's ability to satisfy the recognition requirements and other obligations in or under the Act; and
  5. (5) undertakes to perform that function in such a way as to enable the UK recognised body to continue to satisfy the recognition requirements and other obligations in or under the Act.
  • 21/06/2001

REC 2.2.7

handbook-guidance

In determining whether a UK recognised body continues to satisfy the recognition requirements where it has made arrangements for any function to be performed on its behalf by any person, the FSA may have regard, in addition to any of the matters described in the appropriate section of this chapter, to the arrangements made to exercise control over the performance of the function, including:

  1. (1) the contracts (and other relevant documents) between the UK recognised body and the person who performs the delegated function;
  2. (2) the arrangements made to monitor the performance of that function; and
  3. (3) the arrangements made to manage conflicts of interest and protect confidential regulatory information.
  • 21/06/2001

REC 2.3

Financial resources

  • 01/12/2004

REC 2.3.1

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Schedule to the Recognition Requirements Regulations, Paragraph 1

REC 2.3.2

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Schedule to the Recognition Requirements Regulations, Paragraph 16

REC 2.3.3

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In determining whether a UK recognised body has financial resources sufficient for the proper performance of its relevant functions, the FSA may have regard to:

  1. (1) the operational and other risks to which the UK recognised body is exposed;
  2. (2) if the UK recognised body acts as a central counterparty or otherwise guarantees the performance of transactions in specified investments, the counterparty and market risks to which it is exposed in that capacity;
  3. (3) the amount and composition of the UK recognised body's capital;
  4. (4) the amount and composition of the UK recognised body's liquid financial assets;
  5. (5) the amount and composition of the UK recognised body's other financial resources (such as insurance policies and guarantees, where appropriate);
  6. (6) the financial benefits, liabilities, risks and exposures arising from the UK recognised body's connection with any person, including but not limited to, its connection with:
    1. (a) any undertaking in the same group as the UK recognised body;
    2. (b) any other person with a significant shareholding or stake in the UK recognised body;
    3. (c) any other person with whom the UK recognised body has made a significant investment whether in the form of equity, debt, or by means of any guarantee or other form of commitment;
    4. (d) any person with whom it has a significant contractual relationship.
  7. (7) in relation to a UK RIE, the nature and extent of the transactions concluded on the UK RIE.

Accounting information and standards

REC 2.3.4

handbook-guidance
The FSA will usually rely on a UK recognised body's published and internal management accounts and financial projections, provided that those accounts and projections are prepared in accordance with UK, US or international accounting standards.
  • 21/06/2001

Counterparty and market risks: principles

REC 2.3.5

handbook-guidance

In assessing whether a UK recognised body has sufficient financial resources in relation to counterparty and market risks, the FSA may have regard to:

  1. (1) the amount and liquidity of its financial assets and the likely availability of liquid financial resources to the UK recognised body during periods of major market turbulence or other periods of major stress for the financial system; and
  2. (2) the nature and scale of the UK recognised body's exposures to counterparty and market risks and, where relevant, the counterparties to which it is exposed.

Operational and other risks: principles

REC 2.3.6

handbook-guidance

In assessing whether a UK recognised body has sufficient financial resources in relation to operational and other risks, the FSA may have regard to the extent to which, after allowing for the financial resources necessary to cover counterparty and market risks, the UK recognised body's financial resources are sufficient and sufficiently liquid:

  1. (1) to enable the UK recognised body to continue carrying on properly the regulated activities that it expects to carry on; and
  2. (2) to ensure that it would be able to complete an orderly closure or transfer of its exempt activities without being prevented from doing so by insolvency or lack of available funds.
  • 21/06/2001

Operational and other risks: standard approach

REC 2.3.7

handbook-guidance

The FSA considers that a UK recognised body which (after allowing for the financial resources necessary to cover counterparty and market risks) has at any time:

  1. (1) liquid financial assets amounting to at least six months' operating costs; and
  2. (2) net capital of at least this amount;

will, at that time, have sufficient financial resources to meet the recognition requirement unless there are special circumstances indicating otherwise.

REC 2.3.8

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  1. (1) In this standard approach, the FSA assumes liquid financial assets are needed to cover the costs that would be incurred during an orderly run down of the UK recognised body's business as such, while continuing to satisfy all the recognition requirements and complying with any other obligations under the Act (including the obligations to pay periodic fees to the FSA under REC 7).
  2. (2) The calculation of operating costs may exclude non-cash costs (costs that do not involve an outflow of funds) and variable costs of the UK recognised body's exempt activities that would not be incurred if no exempt activities were performed. Fixed costs should be included in the assessment of operating costs. The FSA would normally expect the capital equal to the amount of liquid financial assets to be in the form of equity.

Operational and other risks: alternative approaches

REC 2.3.9

handbook-guidance
The FSA recognises that UK recognised bodies may wish to satisfy the recognition requirements in different ways. The FSA does not prescribe any particular approach to calculating financial resources or to assessing their adequacy. It is willing to discuss with each UK recognised body the most appropriate way for it to meet the recognition requirement and each UK recognised body will need to be able to show the FSA that its financial resources are at all times sufficient to meet the recognition requirement.

REC 2.4

Suitability

  • 01/12/2004

REC 2.4.1

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Schedule to the Recognition Requirements Regulations, Paragraph 2

REC 2.4.2

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Schedule to the Recognition Requirements Regulations, Paragraph 17

REC 2.4.3

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In determining whether a UK recognised body is a fit and proper person, the FSA may have regard to any relevant factor including, but not limited to:

  1. (1) the commitment shown by the UK recognised body's governing body to satisfying the recognition requirements and to complying with other obligations in or under the Act;
  2. (2) its arrangements, policies and resources for fulfilling its obligations under the Act in relation to its activities as a UK recognised body;
  3. (3) the extent to which its constitution and organisation provide for effective governance;
  4. (4) the arrangements made to ensure that its governing body has effective oversight of the UK recognised body's relevant functions;
  5. (5) the access which its regulatory department has to the governing body;
  6. (6) the size and composition of its governing body, including:
    1. (a) the number of members of the governing body who represent members of the UK recognised body or other persons and the types of person whom they represent;
    2. (b) the number and responsibilities of any members of the governing body with executive roles within the UK recognised body; and
    3. (c) the number of independent members of the governing body;
  7. (7) the structure and organisation of its governing body, including any distribution of responsibilities among its members and committees;
  8. (8) the integrity and competence of its governing body and key individuals;
  9. (9) breaches of any relevant law, regulation or code of practice by the UK recognised body or its key individuals;
  10. (10) its arrangements for ensuring that it employs individuals who are honest and demonstrate high standards of integrity;
  11. (11) the effectiveness of its arrangements to control conflicts of interest (see also REC 2.5); and
  12. (12) the independence of its regulatory department from its commercial and marketing departments.
  • 21/06/2001

REC 2.4.4

handbook-guidance

In determining whether a UK recognised body is a fit and proper person, the FSA may have regard to its connections with:

  1. (1) any undertaking in the same group;
  2. (2) any owner or part-owner of the UK recognised body;
  3. (3) any person who has the right to appoint or remove members of the governing body or other key individuals;
  4. (4) any person who is able in practice to appoint or remove members of the governing body or other key individuals;
  5. (5) any person in accordance with whose instructions the governing body or any key individual is accustomed to act; and
  6. (6) any key individual in relation to the UK recognised body.
  • 21/06/2001

REC 2.4.5

handbook-guidance

In assessing whether its connection with any person could affect whether a UK recognised body is a fit and proper person, the FSA may have regard to:

  1. (1) the reputation and standing of that other person, including his standing with any relevant UK or overseas regulator;
  2. (2) breaches of any law or regulation by that other person;
  3. (3) the roles of any of the UK recognised body's key individuals who have a position within organisations under the control or influence of that other person, including their responsibilities in that organisation and the extent and type of their access to its senior management or governing body;
  4. (4) the extent to which the UK recognised body operates as a distinct entity notwithstanding its connection with that other person;
  5. (5) the extent to which the UK recognised body's governing body is responsible for its day-to-day management and operations;

but nothing in this paragraph should be taken to imply any restriction on the ability of a UK recognised body to outsource any function to any person in a manner consistent with Regulation 6 of the Recognition Requirements Regulations.

  • 21/06/2001

REC 2.4.6

handbook-guidance
In assessing whether the persons who effectively direct the business and operations of the UK RIE are of sufficiently good repute and sufficiently experienced to ensure the sound and prudent management and operation of the financial markets operated by it, the FSA may have regard to the repute and experience of the UK RIE's key individuals.
  • 01/11/2007

REC 2.5

Systems and controls and conflicts

REC 2.5.1

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Schedule to the Recognition Requirements Regulations, paragraph 3

REC 2.5.1A

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Schedule to the Recognition Requirements Regulations, paragraph 4(2)(ea)

  • 01/11/2007

REC 2.5.2

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Schedule to the Recognition Requirements Regulations, paragraph 18

REC 2.5.3

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In assessing whether the systems and controls used by a UK recognised body in the performance of its relevant functions are adequate and appropriate for the scale and nature of its business, the FSA may have regard to the UK recognised body's:

  1. (1) arrangements for managing, controlling and carrying out its relevant functions, including:
    1. (a) the distribution of duties and responsibilities among its key individuals and the departments of the UK recognised body responsible for performing its relevant functions;
    2. (b) the staffing and resources of the departments of the UK recognised body responsible for performing its relevant functions;
    3. (c) the arrangements made to enable key individuals to supervise the departments for which they are responsible;
    4. (d) the arrangements for appointing and supervising the performance of key individuals (and their departments); and
    5. (e) the arrangements by which the governing body is able to keep the allocation of responsibilities between, and the appointment, supervision and remuneration of, key individuals under review;
  2. (2) arrangements for the identification and management of conflicts of interest;
  3. (3) arrangements for internal and external audit; and
  4. (4) information technology systems.

REC 2.5.4

handbook-guidance
The following paragraphs set out other matters to which the FSA may have regard in assessing the systems and controls used for the transmission of information, risk management, the effecting and monitoring of transactions, the operation of settlement arrangements (the matters covered in paragraphs 4(2)(d) and 19(2)(b) of the Schedule to the Recognition Requirements Regulations) and the safeguarding and administration of assets.
  • 21/06/2001

Information transmission

REC 2.5.5

handbook-guidance

In assessing a UK recognised body's systems and controls for the transmission of information, the FSA may also have regard to the extent to which these systems and controls ensure that information is transmitted promptly and accurately:

  1. (1) within the UK recognised body itself;
  2. (2) to members; and
  3. (3) (where appropriate) to other market participants or other relevant persons.
  • 21/06/2001

Risk management

REC 2.5.6

handbook-guidance

In assessing a UK recognised body's systems and controls for assessing and managing risk, the FSA may also have regard to the extent to which these systems and controls enable the UK recognised body to:

  1. (1) identify all the general, operational, legal and market risks wherever they arise in its activities;
  2. (2) measure and control the different types of risk;
  3. (3) allocate responsibility for risk management to persons with appropriate knowledge and expertise; and
  4. (4) provide sufficient, reliable information to key individuals and, where relevant, the governing body of the UK recognised body.
  • 21/06/2001

REC 2.5.7

handbook-guidance

Where the UK recognised body assumes significant counterparty risk (for example, by acting as a central counterparty), the FSA may also have regard to:

  1. (1) the position of the risk management department within the UK recognised body, including its access to the governing body and its relationship with the commercial or marketing departments of the UK recognised body;
  2. (2) the frequency with which all exposures and risks incurred by the UK recognised body are monitored against risk or exposure limits or other appropriate control parameters;
  3. (3) the frequency with which risk or exposure limits (or other control parameters) are reviewed;
  4. (4) the reliability of the arrangements for monitoring and assessing intra-day movements in exposures and risks;
  5. (5) the robustness of the arrangements for calculating, collecting and holding margin payments and the allocation of losses; and
  6. (6) the arrangements for stress testing of the adequacy of the UK recognised body's financial resources to cover its exposures which may arise, for example, with substantial movements in market values or counterparty defaults.
  • 21/06/2001

Effecting and monitoring of transactions and operation of settlement arrangements

REC 2.5.8

handbook-guidance

In assessing a UK RIE's systems and controls for the effecting and monitoring of transactions, and the systems and controls used by a UK recognised body for the operation of settlement arrangements, the FSA may have regard to the totality of the arrangements and processes through which a transaction is effected, cleared and settled, including:

  1. (1) a UK RIE's arrangements under which orders are received and matched, and its arrangements for trade and transaction reporting, and (if relevant) for transmission to a settlement system or clearing house;
  2. (2) a UK recognised body's arrangements under which clearing and settlement instructions arising from a transaction are entered into its systems to the point at which any rights or liabilities arising from that transaction are discharged; and
  3. (3) the arrangements made by the UK recognised body for monitoring and reviewing the operation of these systems and controls.
  • 21/06/2001

Safeguarding and administration of assets

REC 2.5.9

handbook-guidance

In assessing a UK recognised body's systems and controls for the safeguarding and administration of assets belonging to users of its facilities, the FSA may have regard to the totality of the arrangements and processes by which the UK recognised body:

  1. (1) records the assets held and the identity of the owners of (and other persons with relevant rights over) those assets;
  2. (2) records any instructions given in relation to those assets;
  3. (3) records the carrying out of those instructions;
  4. (4) records any movements in those assets (or any corporate actions or other events in relation to those assets); and
  5. (5) reconciles its records of assets held with the records of any custodian or sub-custodian used to hold these assets, and with the records of beneficial or legal ownership of those assets.
  • 21/06/2001

Management of conflicts of interest

REC 2.5.10

handbook-guidance
A conflict of interest arises in a situation where a person with responsibility to act in the interests of one person may be influenced in his action by an interest or association of his own, whether personal or business or employment related. Conflicts of interest can arise both for the employees of UK recognised bodies and for the members (or other persons) who may be involved in the decision-making process, for example where they belong to committees or to the governing body. Conflicts of interest may also arise for the UK recognised body itself as a result of its connection with another person.
  • 21/06/2001

REC 2.5.11

handbook-guidance
The FSA recognises that a UK RCH has legitimate interests of its own and that its general business policy may properly be influenced by other persons (such as its owners). Such a connection does not necessarily imply the existence of a conflict of interest nor is it necessary to exclude individuals closely connected with other persons (for example, those responsible for the stewardship of the owner's interests) from all decision-making processes in a UK recognised body. However, there may be decisions, primarily regulatory decisions, from which it may be appropriate to exclude an individual in certain circumstances where an interest, position or connection of his conflicts with the interest of the recognised body.

REC 2.5.12

handbook-guidance
REC 2.5.13 G to REC 2.5.16 G set out the factors to which the FSA may have regard in assessing a UK recognised body's systems and controls for managing conflicts of interest.
  • 21/06/2001

REC 2.5.13

handbook-guidance

The FSA may have regard to the arrangements a UK recognised body makes to structure itself and to allocate responsibility for decisions so that it can continue to take proper regulatory decisions notwithstanding any conflicts of interest, including:

  1. (1) the size and composition of the governing body and relevant committees;
  2. (2) the roles and responsibilities of key individuals, especially where they also have responsibilities in other organisations;
  3. (3) the arrangements for transferring decisions or responsibilities to alternates in individual cases; and
  4. (4) the arrangements made to ensure that individuals who may have a permanent conflict of interest in certain circumstances are excluded from the process of taking decisions (or receiving information) about matters in which that conflict of interest would be relevant.
  • 21/06/2001

REC 2.5.14

handbook-guidance
The FSA may also have regard to the systems and controls intended to ensure that confidential information is only used for proper purposes. Where relevant, recognised bodies will have to comply with section 348 (Restrictions on disclosure of confidential information by the FSA etc.) and regulations made under section 349 (Exemptions from section 348) of the Act.
  • 21/06/2001

REC 2.5.15

handbook-guidance

The FSA may also have regard to the contracts of employment, staff rules, letters of appointment for members of the governing body, members of relevant committees and other key individuals and other guidance given to individuals on handling conflicts of interest. Guidance to individuals may need to cover:

  1. (1) the need for prompt disclosure of a conflict of interest to enable others, who are not affected by the conflict, to assist in deciding how it should be managed;
  2. (2) the circumstances in which a general disclosure of conflicts of interest in advance of any particular instance in which a conflict of interest arises may be sufficient;
  3. (3) the circumstances in which a general advance disclosure may not be adequate;
  4. (4) the circumstances in which it would be appropriate for a conflicted individual to withdraw from involvement in the matter concerned, without disclosing the interest; and
  5. (5) the circumstances in which safeguards in addition to disclosure would be required, such as the withdrawal of the individual from the decision-taking process, or from access to relevant information.
  • 21/06/2001

REC 2.5.16

handbook-guidance

The FSA may also have regard to the arrangements made:

  1. (1) for enforcing rules or other provisions applicable to staff and other persons involved in regulatory decisions; and
  2. (2) to keep records of disclosures of conflicts of interest and the steps taken to handle them.
  • 21/06/2001

Internal and external audit

REC 2.5.17

handbook-guidance

A UK recognised body's arrangements for internal and external audit will be an important part of its systems and controls. In assessing the adequacy of these arrangements, the FSA may have regard to:

  1. (1) the size, composition and terms of reference of any audit committee of the UK recognised body's governing body;
  2. (2) the frequency and scope of external audit;
  3. (3) the provision and scope of internal audit;
  4. (4) the staffing and resources of the UK recognised body's internal audit department;
  5. (5) the internal audit department's access to the UK recognised body's records and other relevant information; and
  6. (6) the position, responsibilities and reporting lines of the internal audit department and its relationship with other departments of the UK recognised body.
  • 21/06/2001

Information technology systems

REC 2.5.18

handbook-guidance

Information technology is likely to be a major component of the systems and controls used by any UK recognised body. In assessing the adequacy of the information technology used by a UK recognised body to perform or support its relevant functions, the FSA may have regard to:

  1. (1) the organisation, management and resources of the information technology department within the UK recognised body;
  2. (2) the arrangements for controlling and documenting the design, development, implementation and use of information technology systems; and
  3. (3) the performance, capacity and reliability of information technology systems.
  • 21/06/2001

REC 2.5.19

handbook-guidance

The FSA may also have regard to the arrangements for maintaining, recording and enforcing technical and operational standards and specifications for information technology systems, including:

  1. (1) the procedures for the evaluation and selection of information technology systems;
  2. (2) the arrangements for testing information technology systems before live operations;
  3. (3) the procedures for problem management and system change;
  4. (4) the arrangements to monitor and report system performance, availability and integrity;
  5. (5) the arrangements (including spare capacity and access to back-up facilities) made to ensure information technology systems are resilient and not prone to failure;
  6. (6) the arrangements made to ensure business continuity in the event that an information technology system does fail;
  7. (7) the arrangements made to protect information technology systems from damage, tampering, misuse or unauthorised access; and
  8. (8) the arrangements made to ensure the integrity of data forming part of, or being processed through, information technology systems.
  • 21/06/2001

REC 2.5.20

handbook-guidance
The FSA may have regard to the arrangements made to keep clear and complete audit trails of all uses of information technology systems and to reconcile (where appropriate) the audit trails with equivalent information held by system users and other interested parties.
  • 21/06/2001

REC 2.5A

Guidance on Public Interest Disclosure Act: Whistleblowing

  • 01/12/2004

Application and Purpose: Application

REC 2.5A.1

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This section is relevant to every UK recognised body to the extent that the Public Interest Disclosure Act 1998 ("PIDA") applies to it.
  • 01/04/2003

Purpose

REC 2.5A.2

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  1. (1) The purposes of this section are to:
    1. (a) provide UK recognised bodies with guidance regarding the provisions of PIDA; and
    2. (b) Encourage UK recognised bodies to consider adopting and communicating to workers appropriate internal procedures for handling workers' concerns as part of an effective risk management system.
  2. (2) In this section "worker" includes, but is not limited to, an individual who has entered into a contract of employment.
  • 01/04/2003

REC 2.5A.3

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The guidance in this section concerns the effect of PIDA in the context of the relationship between UK recognised bodies and the FSA. It is not comprehensive guidance on PIDA itself.
  • 01/04/2003

Practical Measures: Effect of PIDA

REC 2.5A.4

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Under PIDA, any clause or term in an agreement between a worker and his employer is void in so far as it purports to preclude the worker from making a protected disclosure (that is, "blow the whistle").
  • 01/04/2003

REC 2.5A.5

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In accordance with section 1 of PIDA:

  1. (1) a "protected disclosure" is a qualifying disclosure which meets the relevant requirements set out in that section;
  2. (2) a "qualifying disclosure" is a disclosure, made in good faith, of information which, in the reasonable belief of the worker making the disclosure, tends to show that one or more of the following (a "failure") has been, is being, or is likely to be, committed:
    1. (a) a criminal offence; or
    2. (b) a failure to comply with any legal obligation; or
    3. (c) a miscarriage of justice; or
    4. (d) the putting of the health and safety of any individual in danger; or
    5. (e) damage to the environment; or
    6. (f) deliberate concealment relating to any of (a) to (e);
it is immaterial whether the relevant failure occurred, occurs or would occur in the United Kingdom or elsewhere, and whether the law applying to it is that of the United Kingdom or of any other country or territory.
  • 01/04/2003

Internal Procedures

REC 2.5A.6

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  1. (1) UK recognised bodies are encouraged to consider adopting appropriate internal procedures which will encourage their workers with concerns to blow the whistle internally about matters which are relevant to the functions of the FSA.
  2. (2) In considering appropriate internal procedures, UK recognised bodies may find the guidance provided to firms in SYSC 18.2.2 G (2) and SYSC 18.2.2 G (3) helpful.

Link to fitness and propriety

REC 2.5A.7

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In determining whether a UK recognised body is a fit and proper person, the FSA may have regard to any relevant factor including, but not limited to, how the UK recognised body and key individuals have complied with any relevant law (see REC 2.4.3 G (9)).
  • 01/04/2003

REC 2.6

General safeguards for investors, provision of pre and post-trade information about share trading and suspension and removal of financial instruments from trading

REC 2.6.1

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Schedule to the Recognition Requirements Regulations, Paragraph 4(1)

REC 2.6.2

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Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(aa)

REC 2.6.3

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Schedule to the Recognition Requirements Regulations, Paragraph 4A

REC 2.6.4

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Schedule to the Recognition Requirements Regulations, Paragraph 4B

REC 2.6.5

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Articles 29.2 and 44.2 of MiFID provide that the pre-trade transparency requirement can be waived based on market model or the size and type of orders. In particular this obligation can be waived in respect of transactions that are large in scale compared with normal market size for the share or type of share in question. Articles 30.2 and 45.2 of MiFID provide that publication of the details of transactions can be deferred based on their type or size. In particular this obligation can be deferred in respect of transactions that are large in scale compared with the normal market size for that share or that class of shares.

REC 2.6.6

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Schedule to the Recognition Requirements Regulations, Paragraph 7E

REC 2.6.7

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Article 17 of the MiFID Regulation

REC 2.6.8

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Table 1 of Annex II to the MiFID Regulation: Information to be made public in accordance with Article 17 (see REC 2.6.9EU)

  • 01/11/2007

REC 2.6.9

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Recital 14 to the MiFID Regulation

  • 01/11/2007

REC 2.6.10

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Article 18 of the MiFID Regulation

  • 01/11/2007

REC 2.6.11

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Article 19 of the MiFID Regulation

  • 01/11/2007

REC 2.6.12

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Article 3 of the MiFID Regulation

  • 01/11/2007

REC 2.6.13

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Article 20 of the MiFID Regulation

  • 01/11/2007

REC 2.6.14

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Table 2 in Annex II to the MiFID Regulation: Orders large in scale compared with normal market size

  • 01/11/2007

REC 2.6.15

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Article 27(1) of the MiFID Regulation

  • 01/11/2007

REC 2.6.16

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Points 2, 3, 6, 16, 17, 18 and 21 of Table 1 of Annex I of the MiFID Regulation

  • 01/11/2007

REC 2.6.17

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Article 3 of the MiFID Regulation

  • 01/11/2007

REC 2.6.18

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Article 28 of the MiFID Regulation

  • 01/11/2007

REC 2.6.19

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Article 29(3), second sentence of the MiFID Regulation

  • 01/11/2007

REC 2.6.20

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Table 4 in Annex II to the MiFID Regulation: Deferred publication thresholds and delays

The table below shows, for each permitted delay for publication and each class of shares in terms of average daily turnover (ADT), the minimum qualifying size of transaction that will qualify for that delay in respect of a share of that type.

  • 01/11/2007

REC 2.6.21

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Article 29 of the MiFID Regulation

  • 01/11/2007

REC 2.6.22

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Recital 18 to the MiFID Regulation

  • 01/11/2007

REC 2.6.23

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Article 30 of the MiFID Regulation

  • 01/11/2007

REC 2.6.24

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Article 32 of the MiFID Regulation

  • 01/11/2007

REC 2.6.25

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Schedule to the Recognition Requirements Regulations, Paragraph 19(1)

  • 01/11/2007

REC 2.6.26

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In determining whether:

  1. (1) business conducted by means of a UK RIE's facilities is conducted so; or
  2. (2) a UK RCH's facilities are such;

as to afford proper protection to investors, the FSA may, in addition to the matters dealt with in REC 2.7 to REC 2.12, have regard to all the arrangements made by the UK recognised body concerning the operation of its facilities.

  • 01/11/2007

REC 2.6.27

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The FSA may also have regard to the extent to which the UK recognised body's rules, procedures and the arrangements for monitoring and overseeing the use of its facilities:

  1. (1) include appropriate measures to prevent the use of its facilities for abusive or improper purposes;
  2. (2) provide appropriate safeguards for investors against fraud or misconduct, recklessness, negligence or incompetence by users of its facilities;
  3. (3) provide appropriate information to enable users of its facilities to monitor their use of the facilities;
  4. (4) include appropriate arrangements to enable users of its facilities to raise queries about any use of those facilities which they are reported to have made;
  5. (5) include appropriate arrangements to enable users of its facilities to comply with any relevant regulatory or legal requirements; and
  6. (6) include appropriate arrangements to reduce the risk that those facilities will be used in ways which are incompatible with relevant regulatory or legal requirements;

and in this paragraph "appropriate" should be taken to mean appropriate having regard to the nature and scale of the UK recognised body's facilities, the types of persons who will use the facilities and the use which they will make of those facilities.

  • 01/11/2007

Orderly markets

REC 2.6.28

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In determining whether a UK RIE is ensuring that business conducted by means of its facilities is conducted in an orderly manner (and so as to afford proper protection to investors), the FSA may have regard to the extent to which the UK RIE's rules and procedures:

  1. (1) are consistent with the Code of Market Conduct (see MAR 1);
  2. (2) prohibit abusive trading practices or the deliberate reporting or publication of false information about trades; and
  3. (3) prohibit or prevent:
    1. (a) trades in which a party is improperly indemnified against losses;
    2. (b) trades intended to create a false appearance of trading activity ("wash trades");
    3. (c) cross trades executed for improper purposes;
    4. (d) improperly prearranged or prenegotiated trades;
    5. (e) trades intended to assist or conceal any potentially identifiable trading abuse ("accommodation trades"); and
    6. (f) trades which one party does not intend to close out or settle.
  • 01/11/2007

REC 2.6.29

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In determining whether a UK RIE is ensuring that business conducted by means of its facilities is conducted in an orderly manner (and so as to afford proper protection to investors), the FSA may have regard to whether the UK RIE's arrangements and practices:

  1. (1) enable members and clients for whom they act to obtain the best price available at the time for their size and type of trade;
  2. (2) ensure:
    1. (a) sufficient pre-trade transparency in the UK RIE's markets taking account of the practices in those markets and the trading systems used; and
    2. (b) sufficient post-trade transparency in the UK RIE's markets taking into account the nature and liquidity of the specified investments traded, market conditions and the scale of transactions, the need (where appropriate) to preserve anonymity for members and clients for whom they act, and the needs of different market participants for timely price information;
  3. (2A) (2) does not apply to a UK RIE's markets for shares admitted to trading on a regulated market. For pre-trade and post-trade transparency for a UK RIE's markets for shares admitted to trading on a regulated market, see in particular REC 2.6.3 UK and REC 2.6.4 UK and REC 2.6.7 EU to REC 2.6.24 EU;
  4. (3) include procedures which enable the UK RIE to influence trading conditions or suspend trading promptly when necessary to maintain an orderly market; and
  5. (4) if they include arrangements to support or encourage liquidity:
    1. (a) are transparent;
    2. (b) are not likely to encourage any person to enter into transactions other than for proper trading purposes (which may include hedging, investment, speculation, price determination, arbitrage and filling orders from any client for whom he acts);
    3. (c) are consistent with a reliable, undistorted price-formation process; and
    4. (d) alleviate dealing or other identified costs associated with trading on the UK RIE's markets and do not subsidise a market position of a user of its facilities or subsidise any margin payments (or the provision of collateral) which such a user would have to make.
  • 01/11/2007

REC 2.6.30

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  1. (1) The FSA accepts that block trading, upstairs trading and other types of specialist transactions (such as the "exchange of futures for physicals" in certain commodity markets) can have a legitimate commercial rationale consistent with the orderly conduct of business and proper protection for investors. They may therefore be permitted under the rules of a UK RIE, subject to any necessary safeguards, where appropriate.
  2. (2) (1) does not apply to a UK RIE's markets for shares admitted to trading on a regulated market. For pre-trade and post-trade transparency for a UK RIE's markets for shares admitted to trading on a regulated market, see in particular REC 2.6.3 UK and REC 2.6.4 UK and REC 2.6.7EU to REC 2.6.24 EU.
  • 01/11/2007

Waiver of pre-trade transparency requirements and deferral of post-trade transparency requirements

REC 2.6.31

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The FSA has exercised its power referred to in REC 2.6.3 UK(3) to waive the pre-trade transparency requirements referred to in REC 2.6.3 UK(1). The waivers granted are those based on market model (see REC 2.6.10 EU1), type of order (see REC 2.6.10 EU2) and transactions which are large in scale (see REC 2.6.13 EU). These waivers apply to all regulated markets and MTFs operated by UK RIEs.
  • 01/11/2007

REC 2.6.32

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The FSA has exercised its power referred to in REC 2.6.4 UK(3) to permit the deferral of the post-trade transparency requirements referred to in REC 2.6.4 UK(1). This permission is with respect to large transactions (see REC 2.6.17 EU). This permission applies to all regulated markets and MTFs operated by UK RIEs.
  • 01/11/2007

Arrangements for making information public

REC 2.6.33

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The FSA considers that for the purposes of ensuring that published information is reliable, monitored continuously for errors, and corrected as soon as errors are detected (see REC 2.6.24 EU(a)), a verification process should be established which does not need to be external from the organisation of the publishing entity, but which should be an independent cross-check of the accuracy of the information generated by the trading process. This process should have the capability to at least identify price and volume anomalies, be systematic and conducted in real-time. The chosen process should be reasonable and proportionate in relation to the business.
  • 01/11/2007

REC 2.6.34

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  1. (1) In respect of arrangements facilitating the consolidation of data as required in REC 2.6.24 EU(b), the FSA considers information as being made public in accordance with REC 2.6.24 EU(b), if it:
    1. (a) is accessible by automated electronic means in a machine-readable way;
    2. (b) utilises technology that facilitates consolidation of the data and permits commercially viable usage; and
    3. (c) is accompanied by instructions outlining how users can access the information.
  2. (2) The FSA considers that an arrangement fulfils the 'machine-readable' criteria where the data:
    1. (a) is in a physical form that is designed to be read by a computer;
    2. (b) is in a location on a computer storage device where that location is known in advance by the party wishing to access the data; and
    3. (c) is in a format that is known in advance by the party wishing to access the data.
  3. (3) The FSA considers that publication on a non-machine-readable website would not meet the MiFID requirements.
  4. (4) The FSA considers that information that is made public in accordance with REC 2.6.24 EU should conform to a consistent and structured format based on industry standards. Regulated markets or market operators operating an MTF can choose the structure that they use.
  • 01/11/2007

REC 2.7

Access to facilities

  • 01/12/2004

REC 2.7.1

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Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(a)

REC 2.7.1A

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Schedule to the Recognition Requirements Regulations, Paragraph 7B

  • 01/11/2007

REC 2.7.1B

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Schedule to the Recognition Requirements Regulations, Paragraph 7C

  • 01/11/2007

REC 2.7.2

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Schedule to the Recognition Requirements Regulations, Paragraph 19(2)(a)

REC 2.7.2A

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Schedule to the Recognition Requirements Regulations, Paragraph 21A

  • 01/11/2007

REC 2.7.3

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In assessing whether access to a UK recognised body's facilities is subject to criteria designed to protect the orderly functioning of the market, or of those facilities, and the interests of investors, the FSA may have regard to whether:

  1. (1) the UK recognised body limits access as a member to persons:
    1. (a) over whom it can with reasonable certainty enforce its rules contractually;
    2. (b) who have sufficient technical competence to use its facilities;
    3. (c) whom it is appropriate to admit to membership having regard to the size and sophistication of users of its facilities and the nature of the business effected by means of, or cleared through, its facilities; and
    4. (d) (if appropriate) who have adequate financial resources in relation to their exposure to the UK recognised body or its central counterparty;
  2. (2) [deleted]
  3. (3) indirect access to the UK recognised body's facilities is subject to suitable criteria, remains the responsibility of a member of the UK recognised body and is subject to its rules; and
  4. (4) where access is granted to members outside the United Kingdom, there are adequate safeguards against financial crime (see also REC 2.10).

REC 2.7.3A

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REC 2.7.3 G does not apply to a UK RIE's arrangements to grant access to investment firms or credit institutions.
  • 01/11/2007

Electronic access

REC 2.7.4

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The FSA may have regard to the arrangements made to permit electronic access to the UK recognised body's facilities and to prevent and resolve problems likely to arise from the use of electronic systems to provide indirect access to its facilities by persons other than its members, including:

  1. (1) the rules and guidance governing members' procedures, controls and security arrangements for inputting instructions into the system;
  2. (2) the rules and guidance governing the facilities members provide to clients to input instructions into the system and the restrictions placed on the use of those systems;
  3. (3) the rules and practices to detect, identify, and halt or remove instructions breaching any relevant restrictions;
  4. (4) the quality and completeness of the audit trail of any transaction processed through an electronic connection system; and
  5. (5) procedures to determine whether to suspend trading by those systems or access to them by or through individual members.
  • 21/06/2001

REC 2.8

Settlement and clearing services

  • 01/12/2004

REC 2.8.1

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Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(d)

REC 2.8.1A

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Schedule to the Recognition Requirements Regulations, Paragraph 7D

  • 01/11/2007

REC 2.8.2

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Schedule to the Recognition Requirements Regulations, Paragraph 19(2)(b)

REC 2.8.3

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In determining whether there are satisfactory arrangements for securing the timely discharge of the rights and liabilities of the parties to transactions, the FSA may have regard to the UK recognised body's:

  1. (1) rules and practices relating to clearing and settlement;
  2. (2) arrangements for matching trades and ensuring that the parties are in agreement about trade details;
  3. (3) arrangements for making deliveries and payments and, where relevant, for collecting margin and holding collateral, in all relevant jurisdictions;
  4. (4) procedures to detect and deal with the failure of a member to settle in accordance with its rules;
  5. (5) arrangements for taking action to settle a trade if a member does not settle in accordance with its rules;
  6. (6) arrangements for monitoring its members' settlement performance; and
  7. (7) (where appropriate) default rules and default procedures.
  • 21/06/2001

REC 2.8.4

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A UK recognised body will not be regarded as failing to comply with the recognition requirement merely because it is unable to arrange for a specific transaction to be settled.
  • 21/06/2001

REC 2.9

Transaction recording

  • 01/12/2004

REC 2.9.1

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Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(e)

REC 2.9.2

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Schedule to the Recognition Requirements Regulations, Paragraph 19(2)(c)

REC 2.9.3

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In determining whether a UK recognised body has satisfactory arrangements for recording the transactions effected on, or cleared or to be cleared by means of, its facilities, the FSA may have regard to:

  1. (1) whether the UK recognised body has arrangements for creating, maintaining and safeguarding an audit trail of transactions for at least three years (five years in respect of transactions carried out by members who are not incorporated in the United Kingdom if the UK recognised body is a regulated market); and
  2. (2) the type of information recorded and the extent to which the record includes details for each transaction of:
    1. (a) the name of the investment (and, if relevant, the underlying asset) and the price, quantity and date of the transaction;
    2. (b) the identities and, where appropriate, the roles of the counterparties to the transaction;
    3. (c) if the UK recognised body's rules make provision for transactions to be effected, cleared or to be cleared in more than one type of facility, or under more than one part of its rules, the type of facility in which, or the part of its rules under which, the transaction was effected, cleared or to be cleared; and
    4. (d) the date and manner of settlement of the transaction.
  • 21/06/2001

REC 2.9.4

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Where transactions are effected on an UK RIE and cleared through an UK RCH, the UK recognised bodies concerned may agree which information is to be recorded by each UK recognised body and need not duplicate each other's records.
  • 21/06/2001

REC 2.10

Financial crime and market abuse

  • 01/12/2004

REC 2.10.1

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Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(f)

REC 2.10.2

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Schedule to the Recognition Requirements Regulations, Paragraph 19(2)(d)

REC 2.10.3

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In determining whether a UK recognised body's measures are appropriate to reduce the extent to which its facilities can be used for a purpose connected with market abuse or financial crime, to facilitate their detection and to monitor their incidence, the FSA may have regard to:

  1. (1) whether the rules of the UK recognised body enable it to disclose any information to the FSA, or other appropriate bodies involved in the detection, prevention or pursuit of market abuse or financial crime in the United Kingdom or overseas; and
  2. (2) whether the arrangements, resources, systems, and procedures of the UK recognised body enable it to:
    1. (a) monitor the use made of its facilities so as to obtain information regarding possible patterns of normal, abnormal or improper use of those facilities;
    2. (b) detect possible instances of market abuse and financial crime, for example, by detecting suspicious patterns in the use of its facilities;
    3. (c) communicate information about market abuse and financial crime promptly and accurately to appropriate organisations; and
    4. (d) cooperate with all relevant bodies in the prevention, investigation and pursuit of market abuse and financial crime.
  • 21/06/2001

REC 2.10.4

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The law on market abuse and financial crime, including Part VI of the Criminal Justice Act 1988 and the Money Laundering Regulations, applies to UK recognised bodies. This recognition requirement (and this guidance) does not restrict, diminish or alter the obligations contained in that legislation.
  • 21/06/2001

REC 2.11

Custody

  • 01/12/2004

REC 2.11.1

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Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(g)

REC 2.11.2

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Schedule to the Recognition Requirements Regulations, Paragraph 19(2)(e)

REC 2.11.3

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In determining whether a UK recognised body has made satisfactory arrangements for the safeguarding and administration of assets belonging to the users of its facilities, the FSA may have regard to:

  1. (1) the level of protection which the arrangements provide against the risk of theft or other types or causes of loss;
  2. (2) whether the arrangements ensure that assets are only used or transferred in accordance with the instructions of the owner of those assets or in accordance with the terms of the agreement by which the UK recognised body undertook to safeguard and administer those assets;
  3. (3) whether the arrangements ensure that the assets are not transferred to the UK recognised body or to any other person to settle the debts of the owner (or other person with the appropriate rights over the assets) except in accordance with valid instructions from a person entitled to give those instructions, or in accordance with the terms of the agreement by which the UK recognised body undertook to safeguard and administer those assets;
  4. (4) whether the arrangements include satisfactory procedures to ensure that any rights arising in relation to the assets held as a result of any actions by the issuers of those assets (or other relevant persons) are held, transferred or acted upon in a timely and accurate manner in accordance with the instructions of the owner of those assets or in accordance with the terms of the agreement by which the UK recognised body undertook to safeguard and administer those assets;
  5. (5) whether there are adequate arrangements to ensure the proper segregation of assets belonging to the UK recognised body (or to undertakings in the same group) from those belonging to the users of its facilities for the safeguarding and administration of assets;
  6. (6) whether the arrangements include satisfactory procedures for the selection, oversight and review of custodians or sub-custodians used to hold the assets;
  7. (7) whether the agreements by which the UK recognised body undertakes to safeguard and administer assets belonging to users of its facilities include appropriate information regarding the terms and conditions of that service and the obligations of the UK recognised body to the user of the service and of the user of the service to the UK recognised body;
  8. (8) whether the records kept of those assets and the operation of the safeguarding services provide sufficient accurate and timely information:
    1. (a) to identify the legal and beneficial owners of the assets and of any persons who have charges over, or other interests, in the assets;
    2. (b) to record separately any additions, reductions and transfers in each account of assets held for safeguarding or administration; and
    3. (c) to identify separately the assets owned by (or, where appropriate, on behalf of) different persons, including, where appropriate, the assets owned by members of the UK recognised body and their clients;
  9. (9) the frequency of reconciliation of the assets held by (or on behalf of) the UK recognised body with the accounts held with the UK recognised body by the users of its safeguarding and administration services and the extent of the arrangements for resolving a shortfall identified in any reconciliation; and
  10. (10) the frequency with which statements of their holdings are provided to the users of the safeguarding and administration services, to the owners of the assets held and other appropriate persons in accordance with the terms of the agreement by which the UK recognised body undertook to safeguard and administer those assets.
  • 21/06/2001

REC 2.11.4

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Where a UK recognised body arranges for other persons to provide services for the safeguarding and administration services of assets belonging to users of its facilities, it will also need to satisfy the recognition requirement in Regulation 6 of the Recognition Requirements Regulations (see REC 2.2).
  • 21/06/2001

REC 2.12

Availability of relevant information and admission of financial instruments to trading (UK RIEs only)

REC 2.12.1

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Schedule to the Recognition Requirements Regulations, Paragraph 4(2)(c)

REC 2.12.2

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Schedule to the Recognition Requirements Regulations, Paragraph 4(3)

REC 2.12.2A

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Schedule to the Recognition Requirements Regulations, Paragraph 7A

  • 01/11/2007

REC 2.12.2B

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Article 35 of the MiFID Regulation

  • 01/11/2007

REC 2.12.2C

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Recital 19 to the MiFID Regulation

  • 01/11/2007

REC 2.12.2D

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Article 36 of the MiFID Regulation

  • 01/11/2007

REC 2.12.2E

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Article 37 of the MiFID Regulation

  • 01/11/2007

Proper information

REC 2.12.11

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In determining whether appropriate arrangements have been made to make relevant information available to persons engaged in dealing in specified investments admitted to trading on the UK RIE, the FSA may have regard to:

  1. (1) the extent to which members and clients for whom they act are able to obtain information about those specified investments, either through accepted channels for dissemination of information or through other regularly and widely accessible communication media, to make a reasonably informed judgment about the value and the risks associated with those specified investments in a timely fashion;
  2. (2) what restrictions, if any, there are on the dissemination of relevant information to the UK RIE's members and clients for whom they act; and
  3. (3) whether relevant information is or can be kept to restricted groups of persons in such a way as to facilitate or encourage dealing in contravention of the Code of Market Conduct (see MAR 1).
  • 21/06/2001

Own means of dissemination

REC 2.12.12

handbook-guidance
UK RIEs do not need to maintain their own arrangements for disseminating news or information about specified investments (or underlying assets) to their members where they have made adequate arrangements for other persons to do so on their behalf or there are other effective and reliable arrangements for this purpose.
  • 21/06/2001

Rules concerning the admission of financial instruments to trading on a multilateral trading facility

REC 2.12.14

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In determining whether a UK RIE has clear and transparent rules concerning the admission of financial instruments to trading on any multilateral trading facility operated by it, the FSA considers that it is reasonable that the rules be based on criteria designed to promote fair and orderly trading (see REC 2.6.2 UK). In determining whether the rules are based on such criteria, the FSA may have regard to:

  1. (1) whether there is a sufficient range of persons already holding the financial instrument (or, where relevant, the underlying asset) or interested in dealing in it to bring about adequate forces of supply and demand;
  2. (2) the extent to which there are any limitations on the persons who may hold or deal in the financial instrument, or the amounts of the financial instrument which may be held; and
  3. (3) whether the UK RIE has adequate procedures for obtaining information relevant for determining whether or not to suspend or discontinue trading in that financial instrument.
  • 01/11/2007

REC 2.13

Promotion and maintenance of standards

  • 01/12/2004

REC 2.13.1

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Schedule to the Recognition Requirements Regulations, Paragraph 6

REC 2.13.2

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Schedule to the Recognition Requirements Regulations, Paragraph 20

REC 2.13.3

handbook-guidance
In determining whether a UK recognised body is able and willing to promote and maintain high standards of integrity and fair dealing in the carrying on of regulated activities, the FSA may have regard to the extent to which the UK recognised body seeks to promote and encourage, through its rules, practices and procedures, conduct in regulated activities which is consistent with the Code of Market Conduct (see MAR 1) and with any other codes of conduct, rules or principles relating to behaviour in regulated activities which users of the financial system in the United Kingdom would normally expect to apply to the regulated activity and the conduct in question.

REC 2.13.4

handbook-guidance
In assessing the ability of a UK recognised body to cooperate with the FSA and other appropriate bodies, the FSA may have regard to the extent to which the constitution and rules of the UK recognised body and its agreements with its members enable it to obtain information from members and to disclose otherwise confidential information to the FSA and other appropriate bodies.
  • 21/06/2001

REC 2.13.5

handbook-guidance

In assessing the willingness of a UK recognised body to cooperate with the FSA and other appropriate bodies, the FSA may have regard to:

  1. (1) the extent to which the UK recognised body is willing to provide information about it and its activities to assist the FSA in the exercise of its functions;
  2. (2) the extent to which the UK recognised body is open with the FSA or other appropriate bodies in regulatory matters;
  3. (3) how diligently the UK recognised body investigates or pursues enquiries from the FSA or other appropriate bodies; and
  4. (4) whether the UK recognised body participates in appropriate international fora.
  • 21/06/2001

REC 2.13.6

handbook-guidance
For the purpose of this section, 'information' includes information held about large positions held by members of a UK recognised body.
  • 21/06/2001

REC 2.14

Rules and consultation

  • 01/12/2004

REC 2.14.1

handbook-uk-text

Schedule to the Recognition Requirements Regulations, paragraph 7

REC 2.14.2

handbook-uk-text

Schedule to the Recognition Requirements Regulations, paragraph 21

REC 2.14.3

handbook-guidance

In determining whether a UK recognised body has appropriate procedures for it to make rules, for keeping its rules under review and for amending them, the FSA may have regard to:

  1. (1) the arrangements made for taking decisions about making and amending rules in the UK recognised body, including the level at which the decisions are taken and any provision for the delegation of decisions by the governing body;
  2. (2) the arrangements made for determining whether or not it is appropriate to consult members or other users of the UK recognised body's facilities;
  3. (3) the procedures for consulting members and other users of its facilities in appropriate cases; and
  4. (4) the arrangements for notifying members (and other appropriate persons) of rule changes.
  • 21/06/2001

REC 2.14.4

handbook-guidance
  1. (1) In determining whether a UK recognised body's procedures include procedures for consulting users of its facilities in appropriate cases, the FSA may have regard to whether those procedures include provision for consulting users of those facilities before changes are made to any rules relating to its regulatory functions.
  2. (2) In the FSA's view, a UK recognised body's procedures may not need to contain provision for consulting users of its facilities before making minor changes to any rules of an administrative or commercial character.
  • 21/06/2001

REC 2.14.5

handbook-guidance
  1. (1) In determining whether a UK recognised body's procedures for consulting members and other users of its facilities are appropriate, the FSA may have regard to the range of persons to be consulted by the UK recognised body under those procedures.
  2. (2) In the FSA's view, consultation with a smaller range of persons may be appropriate where limited, technical changes to a UK recognised body's rules are proposed.
  3. (3) In the FSA's view, a UK recognised body's procedures may include provision to restrict consultation where it is essential to make a change to the rules without delay in order to ensure continued compliance with the recognition requirements or other obligations under the Act.
  • 21/06/2001

REC 2.14.6

handbook-guidance

In determining whether a UK recognised body's procedures for consulting members and other users of its facilities are appropriate, the FSA may have regard to the extent to which the procedures include:

  1. (1) informal discussions at an early stage with users of its facilities or appropriate representative bodies;
  2. (2) publication to users of its facilities of a formal consultation paper which includes clearly expressed reasons for the proposed changes and an appropriately detailed assessment of the likely costs and benefits;
  3. (3) adequate time for users of its facilities to respond to the consultation paper and for the UK recognised body to take their responses properly into account;
  4. (4) adequate arrangements for making responses to consultation available for inspection by users of its facilities, unless the respondent requests otherwise;
  5. (5) adequate arrangements for ensuring that the UK recognised body has proper regard to the representations received; and
  6. (6) publication, no later than the publication of the amended rules, of a reasoned account of the UK recognised body's decision to amend its rules.
  • 21/06/2001

REC 2.15

Discipline

  • 01/12/2004

REC 2.15.1

handbook-uk-text

Schedule to the Recognition Requirements Regulations, Paragraph 8

REC 2.15.2

handbook-uk-text

Schedule to the Recognition Requirements Regulations, Paragraph 22

REC 2.15.3

handbook-guidance

In determining whether a UK recognised body has effective arrangements for monitoring and enforcing compliance with its rules (and, in the case of a UK RIE, its settlement arrangements), the FSA may have regard to:

  1. (1) the UK recognised body's ability to:
    1. (a) monitor and oversee the use of its facilities;
    2. (b) assess its members' compliance with its rules (and settlement arrangements, where appropriate);
    3. (c) assess the significance of any non-compliance;
    4. (d) take appropriate disciplinary action against members in breach of its rules (and settlement arrangements, where appropriate);
    5. (e) suspend a member's access to its facilities;
    6. (f) refer members' or others' conduct to other appropriate authorities for possible action or further investigation;
    7. (g) retain authority over a member for at least one year after he has ceased to be a member;
    8. (h) where appropriate, enforce its rules (and settlement arrangements, where appropriate) against users (other than members) of its facilities; and
    9. (i) take action against suppliers of services to members (for example, warehouses) whose performance or conduct may be critical to ensuring compliance with its rules (and settlement arrangements, where appropriate);
  2. (2) the position, management and resources of the departments responsible for monitoring and overseeing the use of the UK recognised body's facilities and for enforcing compliance with its rules (and settlement arrangements, where appropriate); and
  3. (3) the arrangements made for the determination of disciplinary matters including the arrangements for disciplinary hearings and the arrangements made for appeals from the UK recognised body's decisions in those matters.
  • 21/06/2001

REC 2.15.4

handbook-guidance

In assessing whether the procedures made by a UK recognised body to investigate complaints about the users of its facilities are satisfactory, the FSA may have regard to:

  1. (1) whether these procedures include arrangements which enable the UK recognised body to:
    1. (a) acknowledge complaints promptly;
    2. (b) consider and investigate these complaints objectively, promptly and thoroughly;
    3. (c) provide a timely reply to the complainant; and
    4. (d) keep adequate records of complaints and investigations;
  2. (2) the arrangements made to enable a person who is the subject of a complaint to respond in an appropriate manner to that complaint; and
  3. (3) the documentation of these procedures and the arrangements made to ensure that the existence of these procedures is brought to the attention of persons who might wish to make a complaint.
  • 21/06/2001

REC 2.15.5

handbook-guidance

In assessing whether the arrangements include procedures for the fair, independent and impartial resolution of appeals against decisions of a UK recognised body, the FSA may have regard to at least the following factors:

  1. (1) the appeal procedures of the UK recognised body, including the composition and roles of any appeal committees or tribunals, and their relationship to the governing body;
  2. (2) the arrangements made to ensure prompt hearings of appeals from decisions made by the UK recognised body;
  3. (3) the format, organisation and rules of procedure of those hearings;
  4. (4) the arrangements made to select the persons to preside over those hearings and to serve as members of any appeal tribunal;
  5. (5) the provision for determining whether or not such hearings should be in public;
  6. (6) the provision made to enable an appellant to be aware of the procedure at any appeal hearing and to have the opportunity to prepare and present his case at that hearing;
  7. (7) the provision made for an appeal tribunal to give an explanation of its decision;
  8. (8) the provision for publicity for any appeals or for determining whether or not publicity should be given to the outcome of any appeal.
  • 21/06/2001

REC 2.15.6

handbook-guidance

In assessing whether a UK recognised body's arrangements include appropriate provision for ensuring the application of any financial penalties in ways described in the recognition requirement, the FSA may have regard to:

  1. (1) the UK recognised body's policy regarding the application of financial penalties;
  2. (2) the arrangements made for applying that policy in individual cases;

but the FSA does not consider that it is necessary for UK recognised bodies to follow any specific policy in order to meet this recognition requirement.

  • 21/06/2001

REC 2.16

Complaints

  • 01/12/2004

REC 2.16.1

handbook-uk-text

Schedule to the Recognition Requirements Regulations, Paragraph 9

REC 2.16.2

handbook-uk-text

Schedule to the Recognition Requirements Regulations, Paragraph 23

REC 2.16.3

handbook-guidance

In determining whether a UK recognised body has effective arrangements for the investigation and resolution of complaints arising in connection with the performance of, or failure to perform, any of its regulatory functions, the FSA may have regard to the extent to which the UK recognised body's resources and procedures enable it to:

  1. (1) acknowledge complaints promptly;
  2. (2) make an objective, prompt and thorough initial investigation of complaints;
  3. (3) provide a timely reply to the complainant after that initial investigation;
  4. (4) inform the complainant of his right to apply to the UK recognised body's complaints investigator; and
  5. (5) keep adequate records of complaints and investigations.
  • 21/06/2001

REC 2.16.4

handbook-guidance

In determining whether a UK recognised body's arrangements for the investigation of complaints include appropriate arrangements for the complaint to be fairly and impartially investigated by an independent person (a "complaints investigator"), the FSA may have regard to:

  1. (1) the arrangements made for appointing (and removing) a complaints investigator, including the terms and conditions of such an appointment and the provision for remuneration of a complaints investigator;
  2. (2) the complaints investigator's access to, and relationship with, the UK recognised body's governing body and key individuals;
  3. (3) the arrangements made for giving complainants access to the complaints investigator;
  4. (4) the facilities made available to the complaints investigator to enable him to pursue his investigation and prepare his report and recommendations, including access to the UK recognised body's records, key individuals and other staff (including, where appropriate suppliers, contractors or other persons to whom any functions have been outsourced and their staff); and
  5. (5) the arrangements made for the UK recognised body to consider the complaints investigator's report and recommendations.
  • 21/06/2001

REC 2.16A

Operation of a multilateral trading facility

  • 01/11/2007

REC 2.16A.1

handbook-uk-text

Schedule to the Recognition Requirements Regulations, Paragraph 9A

  • 01/11/2007

REC 2.16A.2

handbook-guidance
In determining whether a UK RIE operating a multilateral trading facility complies with those requirements of Chapter I of Title II of MiFID and the MiFID implementing Directive which are applicable to a market operator operating such a facility, the FSA will have regard to the compliance of the UK RIE with equivalent recognition requirements.
  • 01/11/2007

REC 2.17

Recognition requirements relating to the default rules of UK recognised bodies

  • 01/12/2004

REC 2.17.1

handbook-guidance
The text of Parts II and IV of the Schedule to the Recognition Requirements Regulations is set out below.

REC 2.17.2

handbook-uk-text

Schedule to the Recognition Requirements Regulations, Part II

REC 2.17.3

handbook-uk-text

Schedule to the Recognition Requirements Regulations, Part IV

REC 2.17.4

handbook-guidance
UK RIEs which, under their rules, have market contracts and UK RCHs which, under their rules, enter into market contracts are required to have default rules. The default rules must enable the UK recognised body to take action in relation to a member or, for an RIE, a designated non-member, who appears unable, or likely to become unable, to meet his obligations in respect of one or more unsettled market contracts.

REC 2.17.5

handbook-guidance
This action is to provide for all rights and liabilities of the defaulter and any counterparty to an unsettled market contract to be discharged and for there to be paid between the defaulter and each counterparty one sum representing the net amount of all the contracts between them. Where property has been provided by the defaulter as cover for margin, that property may be set off against any amount owing by the defaulter. At the conclusion of this process, the UK recognised body must certify the sum finally payable in each case.

REC 2.17.6

handbook-guidance
The Companies Act 1989 contains provisions which protect action taken by a UK recognised body under its default rules from the normal operation of insolvency law which might otherwise leave this action open to challenge by a relevant office-holder.
  • 21/06/2001

Export chapter as

REC 3

Notification rules for UK recognised bodies

REC 3.1

Application and purpose

  • 01/12/2004

Application

REC 3.1.1

handbook-rule
  1. (1) The notification rules in this chapter, which are made under section 293 of the Act (Notification requirements), apply to all UK recognised bodies.
  2. (2) The rules relating to the form and method of notification in REC 3.2 also apply to overseas recognised bodies.
  • 21/06/2001

REC 3.1.2

handbook-guidance
The notification rules for overseas recognised bodies are set out in REC 6. The guidance set out at REC 3.3 in relation to the waiving and modification of notification rules also applies to the notification rules in this chapter and to the notification rules in REC 6.
  • 21/06/2001

REC 3.1.3

handbook-guidance
The notification rules in this chapter are in addition to the requirements on UK recognised bodies to give notice or information to the FSA under sub-sections 293(5), (6) and (7) of the Act.
  • 21/06/2001

Purpose

REC 3.1.4

handbook-guidance
The notification rules in this chapter are made by the FSA in order to ensure that it is provided with notice of events and information which it reasonably requires for the exercise of its functions under the Act.
  • 21/06/2001

REC 3.2

Form and method of notification

  • 01/12/2004

Form of notification

REC 3.2.1

handbook-rule
Where a recognised body is required to give any notice or information under any notification rule, it may do so (unless that rule expressly provides otherwise) orally or in writing, whichever is the more appropriate in the circumstances, but, where it gives notice or information orally, it must confirm that notice or information in writing promptly.
  • 21/06/2001

Method of notification

REC 3.2.2

handbook-rule

Unless otherwise stated in the notification rule, a written notification required from a recognised body under any notification rule must be:

  1. (1) given to, or addressed for the attention of, the recognised body's usual supervisory contact at the FSA;
  2. (2) delivered to the FSA by one of the methods in REC 3.2.3 R.
  • 21/06/2001

REC 3.2.3

handbook-rule

Methods of notification

  • 21/06/2001

REC 3.2.4

handbook-rule
The address for a written notification to the FSA is:

The Financial Services Authority

25 The North Colonnade

Canary Wharf

London E14 5HS
  • 21/06/2001

Timely notification

REC 3.2.5

handbook-rule

If a notification rule requires notification within a specified period:

  1. (1) the recognised body must give the notification so as to be received by the FSA no later than the end of that period; and
  2. (2) if the end of that period falls on a day which is not a business day, the notification must be given so as to be received by the FSA no later than the first business day after the end of that period.
  • 21/06/2001

Service of Notice Regulations

REC 3.2.6

handbook-guidance
The Financial Services and Markets Act 2000 (Service of Notices) Regulations 2001 (SI 2001/1420) contain provisions relating to the service of documents on the FSA. They do not apply to notifications required under the notification rules in this chapter and in REC 6 because of the specific rules in this section.
  • 21/06/2001

REC 3.3

Waivers

  • 01/12/2004

Statutory power

REC 3.3.1

handbook-guidance
Under section 294 of the Act (Modification or waiver of rules), the FSA may, on the application or with the consent of a recognised body (including an overseas recognised body), direct that any notification rule is not to apply to the body or is to apply with such modifications as may be specified in the waiver.
  • 21/06/2001

REC 3.3.2

handbook-guidance
A waiver given under section 294 of the Act may be made subject to conditions.
  • 21/06/2001

REC 3.3.3

handbook-guidance

Under section 294(4) of the Act, before the FSA may give a waiver of notification rules, it must be satisfied that:

  1. (1) compliance by the recognised body with those notification rules, or with those rules as unmodified, would be unduly burdensome or would not achieve the purpose for which those rules were made; and
  2. (2) the waiver would not result in undue risk to persons whose interests those rules are designed to protect.
  • 21/06/2001

Applications

REC 3.3.4

handbook-guidance
Where a recognised body wishes to make an application to the FSA for a waiver of a notification rule, it should in the first instance inform its usual supervisory contact at the FSA.
  • 21/06/2001

REC 3.3.5

handbook-guidance

There is no application form, but applicants should make their application formally and in writing and in accordance with any direction the FSA may make under section 294(2) of the Act. Each application should set out at least:

  1. (1) full particulars of the waiver which is requested;
  2. (2) the reason why the recognised body believes that the criteria set out in section 294(4) (and described in REC 3.3.3 G) would be met, if this waiver were granted; and
  3. (3) where the recognised body believes that these criteria would be met if the FSA gave a waiver under section 294 subject to any condition, particulars of the kind of condition contemplated.
  • 21/06/2001

REC 3.3.6

handbook-guidance
The FSA may request further information from the applicant, before deciding whether to give a waiver under section 294 of the Act.
  • 21/06/2001

Waivers

REC 3.3.7

handbook-guidance

Any waiver given by the FSA under section 294 of the Act will be made in writing, stating:

  1. (1) the name of the recognised body in respect of which the waiver is made;
  2. (2) the notification rules which are to be waived or modified in respect of that body;
  3. (3) where relevant, the manner in which any rule is to be modified;
  4. (4) any condition or time limit to which the waiver is subject; and
  5. (5) the date from which the waiver is to take effect.
  • 21/06/2001

REC 3.3.8

handbook-guidance
Where the FSA considers that it will not give the waiver which has been applied for, the FSA will give reasons to the applicant for its decision. The FSA will endeavour, where practicable, to inform an applicant in advance where it seems that an application is likely to fail unless it is amended or expanded, so that the applicant will have the opportunity to make any necessary amendments or additions before the application is considered.
  • 21/06/2001

REC 3.3.9

handbook-guidance
Where the FSA wishes to give a waiver under section 294 of the Act with the consent of a recognised body (rather than on the application of a recognised body), the FSA will correspond or discuss this with that body in order to agree an appropriate waiver.
  • 21/06/2001

Reviews of waivers

REC 3.3.10

handbook-guidance
The FSA will periodically review any waiver it has given. The FSA has the right to revoke a waiver under section 294(6) of the Act. This right is likely to be exercised in the event of a material change in the circumstances of the recognised body or in any fact on the basis of which the waiver was given.
  • 21/06/2001

REC 3.4

Key individuals and internal organisation

  • 01/12/2004

Purpose

REC 3.4.1

handbook-guidance
The purpose of REC 3.4 is to enable the FSA to monitor changes in the arrangements a UK recognised body makes for the carrying out of its relevant functions or for overseeing the work of key individuals or departments responsible for its relevant functions.
  • 21/06/2001

Key individuals

REC 3.4.2

handbook-rule
Where, in relation to a UK RCH, a person has been appointed or elected, has resigned as, or has ceased to be, a key individual, that UK RCH must immediately give notice of that event, and give the information specified for the purposes of this rule in REC 3.4.4 R to the FSA.

REC 3.4.2A

handbook-rule

Where, in relation to a UK RIE a proposal has been made to appoint or elect a person as a key individual, that UK RIE must at least 30 days before the date of the appointment or election give notice of that event, and give the information specified for the purposes of this rule in REC 3.4.4A R to the FSA.

[Note: Article 37(1), paragraph 1, second sentence of MiFID]

  • 01/11/2007

REC 3.4.2B

handbook-rule

Where, in relation to a UK RIE a person has resigned as, or has ceased to be, a key individual, that UK RIE must immediately give notice of that event, and give the name of the person.

[Note: Article 37(1), paragraph 1, second sentence of MiFID]

  • 01/11/2007

REC 3.4.3

handbook-guidance
  1. (1) Key individuals include the persons who, under the operational or managerial arrangements of the UK recognised body, are appointed to manage the departments responsible for carrying out its relevant functions, whether or not they are members of its governing body. A person appointed to carry out specific tasks, such as to conduct a particular investigation into a specific set of facts, would not usually be a key individual.
  2. (2) A key individual need not be an employee of a UK recognised body. For example, an employee of an undertaking in the same group or a self-employed contractor of a UK recognised body might be a key individual, depending on the role he plays in that body.
  3. (3) A department of a UK recognised body should be regarded as responsible for carrying out a relevant function if it is responsible for any activity or activities which form a significant part of a relevant function or which make a significant contribution to the performance of a relevant function.
  4. (4) The FSA does not need to be notified where minor changes are made to the responsibilities of a key individual, but where a major change in responsibilities is made which amounts to a new appointment, the FSA should be notified under REC 3.4.2 R.
  • 21/06/2001

REC 3.4.4

handbook-rule

The following information is specified for the purposes of REC 3.4.2 R:

  1. (1) where a person has been appointed or elected as a key individual:
    1. (a) that person's name;
    2. (b) his date of birth;
    3. (c) a description of the responsibilities which he will have in the post to which he has been appointed or elected; or
  2. (2) where a person has resigned as or otherwise ceased to be a key individual, that person's name.

REC 3.4.4A

handbook-rule

The following information is specified for the purposes of REC 3.4.2A R:

  1. (1) that person's name;
  2. (2) his date of birth;
  3. (3) a description of the responsibilities which he will have in the post to which he is to be appointed or elected.

[Note: Article 37(1), paragraph 1, second sentence of MiFID]

  • 01/11/2007

Standing committees

REC 3.4.5

handbook-rule

Where the governing body of a UK recognised body delegates any of its functions (which relate to that UK recognised body's relevant functions) to a standing committee, or appoints a standing committee to manage or oversee the carrying out of any of that UK recognised body's relevant functions, that UK recognised body must immediately notify the FSA of that event and give the FSA the following information:

  1. (1) the names of the members of that standing committee; and
  2. (2) the terms of reference of that standing committee (including a description of any powers delegated to that committee and any conditions or limitations placed on the exercise of those powers).
  • 21/06/2001

REC 3.4.6

handbook-rule

Where:

  1. (1) there is any change in the composition or the terms of reference of any standing committee referred to in REC 3.4.5 R; or
  2. (2) any such committee is dissolved;

the UK recognised body must immediately notify the FSA of that event and give particulars of any change referred to in (1) to the FSA.

  • 21/06/2001

REC 3.4.7

handbook-guidance
  1. (1) Standing committees include permanent committees with executive, supervisory, policy-making or rule-making responsibilities. Committees appointed for particular tasks or committees established for purely consultative or advisory purposes would not usually be considered to be standing committees.
  2. (2) Committees which include persons who are not members of the governing body can be standing committees.
  • 21/06/2001

REC 3.5

Disciplinary action and events relating to key individuals

  • 01/12/2004

Disciplinary action

REC 3.5.1

handbook-rule

Where any key individual of a UK recognised body:

  1. (1) is the subject of any disciplinary action because of concerns about his alleged misconduct;
  2. (2) resigns as a result of an investigation into his alleged misconduct; or
  3. (3) is dismissed for misconduct;

that body must immediately give the FSA notice of that event, and give the information specified for the purposes of this rule in REC 3.5.2 R.

  • 21/06/2001

REC 3.5.2

handbook-rule

The following information is specified for the purposes of REC 3.5.1 R:

  1. (1) the name of the key individual and his responsibilities within the UK recognised body;
  2. (2) details of the acts or alleged acts of misconduct by that key individual; and
  3. (3) details of any disciplinary action which has been or is proposed to be taken by that body in relation to that key individual.
  • 21/06/2001

Other events

REC 3.5.3

handbook-rule

Where a UK recognised body becomes aware that any of the following events has occurred in relation to a key individual, it must immediately give the FSA notice of that event:

  1. (1) a petition for bankruptcy is presented (or similar or analogous proceedings under the law of a jurisdiction outside the United Kingdom are commenced) against that key individual; or
  2. (2) a bankruptcy order (or a similar or analogous order under the law of a jurisdiction outside the United Kingdom) is made against him; or
  3. (3) he enters into a voluntary arrangement (or a similar or analogous arrangement under the law of a jurisdiction outside the United Kingdom) with his creditors.
  • 21/06/2001

REC 3.6

Constitution and governance

  • 01/12/2004

REC 3.6.1

handbook-rule

Where a UK recognised body is to circulate any notice or other document proposing any amendment to its memorandum or articles of association (or other similar agreement or document relating to its constitution) to:

  1. (1) its shareholders (or any group or class of them); or
  2. (2) its members (or any group or class of them); or
  3. (3) any other group or class of persons which has the power to make that amendment or whose consent or approval is required before it may be made;

that UK recognised body must give notice of that proposed amendment, and give the information specified for the purposes of this rule in REC 3.6.2 R to the FSA, at the same time as that notice or document is circulated.

  • 21/06/2001

REC 3.6.2

handbook-rule

The following information is specified for the purposes of REC 3.6.1 R:

  1. (1) the proposed amendments referred to in REC 3.6.1 R;
  2. (2) the reasons for the proposal; and
  3. (3) a description of the group or class of persons to whom the proposal is to be circulated.
  • 21/06/2001

REC 3.6.3

handbook-guidance
A UK recognised body which is incorporated as a company in the United Kingdom will, in many circumstances, be able to comply with REC 3.6.1 R by providing a copy of the notice of special resolution issued to its shareholders.
  • 21/06/2001

REC 3.6.4

handbook-rule
Where a UK recognised body makes an amendment to its memorandum or articles of association (or other similar agreement or document relating to its constitution), that UK recognised body must immediately give the FSA notice of that event, and give written particulars of that amendment and of the date on which it is to become or became effective.
  • 21/06/2001

REC 3.6.5

handbook-guidance
A UK recognised body which is incorporated as a company in the United Kingdom will, in many circumstances, be able to comply with REC 3.6.4 R by providing a copy of the special resolution effecting the amendment.
  • 21/06/2001

REC 3.6.6

handbook-rule

Where any change is made to an agreement which relates to the constitution or governance of a UK recognised body:

  1. (1) between that UK recognised body and another person; or
  2. (2) between the owners of that UK recognised body; or
  3. (3) between the owners of that UK recognised body and another person; or
  4. (4) between other persons;

that UK recognised body must give the FSA notice of that event as soon as it is aware of it, and give written particulars of that change and of the date on which it is to become or became effective.

  • 21/06/2001

REC 3.6.7

handbook-guidance
The purpose of REC 3.6.6 R is to ensure that the FSA is informed of changes to agreements which specify the arrangements by which a UK recognised body will be governed or by which important decisions will be taken within that body. It is not intended to cover any agreement by which someone is appointed to be a key individual or which covers the terms and conditions of service in such an appointment.
  • 21/06/2001

REC 3.7

Auditors

  • 01/12/2004

REC 3.7.1

handbook-rule

Where the auditors of a UK recognised body cease to act as such, that UK recognised body must immediately give the FSA notice of that event, and the following information:

  1. (1) whether the appointment of those auditors expired or was terminated;
  2. (2) the date on which they ceased to act; and
  3. (3) if it terminated, or decided not to renew, their appointment, its reasons for taking that action or decision.
  • 21/06/2001

REC 3.7.2

handbook-rule

Where a UK recognised body appoints new auditors, that body must immediately give the FSA notice of that event, and the following information:

  1. (1) the name and business address of those new auditors; and
  2. (2) the date of their appointment as auditors.
  • 21/06/2001

REC 3.8

Financial and other information

  • 01/12/2004

REC 3.8.1

handbook-rule

A UK recognised body must give the FSA:

  1. (1) a copy of its annual report and accounts; and
  2. (2) a copy of the consolidated annual report and accounts:
    1. (a) of any group in which the UK recognised body is a subsidiary undertaking; or
    2. (b) (if the UK recognised body is not a subsidiary undertaking in any group) of any group of which the UK recognised body is a parent undertaking;

no later than the time specified for the purpose of this rule in REC 3.8.2 R.

  • 21/06/2001

REC 3.8.2

handbook-rule

The time specified for the purpose of REC 3.8.1 R is the latest of:

  1. (1) four months after the end of the financial year to which the document which is to be given to the FSA relates; or
  2. (2) the time when the documents described in REC 3.8.1 R (1) or REC 3.8.1 R (2)(b) are sent to the members or shareholders of the UK recognised body; or
  3. (3) the time when the document described in REC 3.8.1 R (2)(a) are sent to the shareholders in a parent undertaking of the group to which that document relates.
  • 21/06/2001

REC 3.8.3

handbook-rule
Where an audit committee of a UK recognised body has prepared a report in relation to any period or any matter relating to any relevant function of that UK recognised body, the UK recognised body must immediately give the FSA a copy of that report.
  • 21/06/2001

REC 3.8.4

handbook-rule

A UK recognised body must give the FSA a copy of:

  1. (1) its quarterly management accounts; or
  2. (2) its monthly management accounts;

within one month of the end of the period to which they relate.

  • 21/06/2001

REC 3.8.5

handbook-guidance
A UK recognised body is not required to provide quarterly and monthly management accounts in respect of the same period, but management accounts (whether quarterly or monthly) should be submitted for all periods. A UK recognised body may choose whichever method is the more suitable for it, but where it intends to change from providing monthly to quarterly management accounts (or from quarterly to monthly management accounts), it should inform the FSA of that fact.
  • 21/06/2001

REC 3.8.6

handbook-rule

A UK recognised body must give the FSA:

  1. (1) a statement of its anticipated income, expenditure and cashflow for each financial year; and
  2. (2) an estimated balance sheet showing its position as it is anticipated at the end of each financial year;

before the beginning of that financial year.

  • 21/06/2001

REC 3.8.7

handbook-rule
Where the accounting reference date of a UK recognised body is changed, that body must immediately give notice of that event to the FSA and inform it of the new accounting reference date.
  • 21/06/2001

REC 3.9

Fees and incentive schemes

  • 01/12/2004

REC 3.9.1

handbook-guidance
The purpose of REC 3.9.2 R is to enable the FSA to obtain information on changes to standard tariffs for matters such as membership and trading and of any scheme introduced by the UK recognised body for rebating or waiving fees or charges. A UK recognised body is not required to inform the FSA of fees or charges for which the UK recognised body does not charge according to a standard tariff.
  • 21/06/2001

REC 3.9.2

handbook-rule

A UK recognised body must give the FSA a summary of:

  1. (1) any proposal to change the fees or charges levied on its members (or any group or class of them), at the same time as the proposal is communicated to those members; and
  2. (2) any such change, no later than the date when it is published or notified to those members.
  • 21/06/2001

REC 3.10

Complaints

  • 01/12/2004

REC 3.10.1

handbook-rule

Where a UK recognised body's complaints investigator has investigated a complaint arising in connection with the performance of, or failure to perform, any of its regulatory functions, and that complaints investigator has made a recommendation in respect of that complaint that the UK recognised body should:

  1. (1) make a compensatory payment to any person; or
  2. (2) remedy the matter which was the subject of that complaint;

the UK recognised body must immediately notify the FSA of that event, and give the FSA a copy of the complaints investigator's report and particulars of his recommendations as soon as that report or those recommendations are available to it.

  • 21/06/2001

REC 3.11

Insolvency events

  • 01/12/2004

REC 3.11.1

handbook-rule

On:

  1. (1) the presentation of a petition for the winding up of a UK recognised body (or the commencement of any similar or analogous proceedings under the law of a jurisdiction outside the United Kingdom); or
  2. (2) the appointment of a receiver, administrator, liquidator, trustee or sequestrator of assets of that body (or of any similar or analogous appointment under the laws of a jurisdiction outside the United Kingdom); or
  3. (3) the making of a voluntary arrangement by that body with its creditors (or of any similar or analogous arrangement under the law of a jurisdiction outside the United Kingdom);

that body must immediately give the FSA notice of that event.

  • 21/06/2001

REC 3.12

Legal proceedings

  • 01/12/2004

REC 3.12.1

handbook-rule

If any civil or criminal legal proceedings are instituted against a UK recognised body, it must, unless REC 3.12.2 R applies, immediately give notice of that event and give the following information to the FSA:

  1. (1) in the case of civil proceedings, the name of the claimant, particulars of the claim, the amount of damages and any other remedy sought by the claimant, and particulars of any allegation that any act or omission of that body was in bad faith; and
  2. (2) in the case of criminal proceedings, particulars of the offence with which that body is charged.
  • 21/06/2001

REC 3.12.2

handbook-rule

A UK recognised body is not required to give notice of civil legal proceedings or information about them to the FSA under REC 3.12.1 R, where:

  1. (1) the amount of damages claimed would not significantly affect that UK recognised body's financial resources, if the claim were successful;
  2. (2) the claim would not have a significant adverse effect on the reputation and standing of that body, if that claim were successful; and
  3. (3) the claim does not relate to that body's regulatory functions.
  • 21/06/2001

REC 3.13

Delegation of relevant functions

  • 01/12/2004

REC 3.13.1

handbook-guidance
  1. (1) The purpose of REC 3.13 is to enable the FSA to monitor any significant instances where UK recognised bodies outsource their functions to other persons (as they are permitted to do under Regulation 6 of the Recognition Requirements Regulations. See REC 2.2).
  2. (2) The FSA does not need to be notified of every instance of outsourcing by a UK recognised body, but only where an activity or activities which form a significant part of a relevant function or which make a significant contribution to the performance of a relevant function are outsourced.

REC 3.13.2

handbook-rule

Where a UK recognised body makes an offer or agrees to delegate any of its relevant functions to another person, it must immediately give the FSA notice of that event, and:

  1. (1) inform the FSA of the reasons for that delegation or proposed delegation;
  2. (2) inform the FSA of the reasons why it is satisfied that it will continue to meet the recognition requirements following that delegation;
  3. (3) where it makes such an offer by issuing a written invitation to tender to another body or person, give the FSA a copy of that invitation to tender; and
  4. (4) where it makes such an agreement, give the FSA a copy of that agreement.

REC 3.13.3

handbook-rule
A UK recognised body must immediately give the FSA notice, where it makes an offer or agrees to undertake any relevant function of another UK recognised body.
  • 21/06/2001

REC 3.14

Products, services and normal hours of operation

  • 01/12/2004

Purpose

REC 3.14.1

handbook-guidance
The purpose of REC 3.14 is to ensure that the FSA is informed of planned changes to the services a UK recognised body intends to provide and of the normal hours of operation of those services. Unplanned suspensions of those services, unplanned changes in hours of operation and events causing a UK recognised body to be unable to provide those services should be notified to the FSA under the rules in REC 3.15.
  • 21/06/2001

Products and services

REC 3.14.2

handbook-rule

Where a UK RIE proposes to admit to trading (or to cease to admit to trading) by means of its facilities:

  1. (1) a specified investment (other than a security or an option in relation to a security); or
  2. (2) a type of security or a type of option in relation to a security;

it must give the FSA notice of that event, and the information specified for the purposes of this rule in REC 3.14.6 R to the FSA, at the same time as that proposal is first formally communicated to its members or shareholders (or any group or class of them).

  • 21/06/2001

REC 3.14.2A

handbook-rule

When a UK RIE removes a financial instrument from trading on a regulated market, it must immediately give the FSA notice of that event and relevant information including particulars of that financial instrument and the reasons for the action taken.

[Note: Article 41(1), paragraph 2 of MiFID]

  • 01/11/2007

REC 3.14.3

handbook-rule

Where a UK recognised body proposes to provide (or to cease to provide) clearing services in respect of:

  1. (1) a specified investment (other than a security or an option in relation to a security); or
  2. (2) a type of security or a type of option in relation to a security;

it must, unless REC 3.14.4 R applies, give the FSA notice of that event and the information specified for the purposes of this rule in REC 3.14.6 R, at the same time as that proposal is first formally communicated to its members or shareholders (or any group or class of them).

  • 21/06/2001

REC 3.14.4

handbook-rule
A UK RCH is not required to give the FSA notice or information under REC 3.14.3 R where it proposes to offer (or to cease to offer) clearing services under an agreement with a UK RIE in respect of a specified investment for which that UK RIE is required to give the FSA notice under REC 3.14.2 R, provided that the UK RIE has given the FSA the information specified in REC 3.14.6 R (3).
  • 21/06/2001

REC 3.14.5

handbook-guidance
Securities falling within the same article in Part III of the Regulated Activities Order which may be given the same generic description (for example, shares admitted to the UK official list) will normally be regarded as being of the same type. Options in relation to the same type of security will normally be regarded as being options of the same type.
  • 21/06/2001

REC 3.14.6

handbook-rule

The following information is specified for the purposes of REC 3.14.2 R and REC 3.14.3 R:

  1. (1) a description of the specified investment to which the proposal relates;
  2. (2) where that specified investment is a derivative, the proposed terms of that derivative; and
  3. (3) in the case of a UK RIE which is admitting that specified investment to trading, the name of any RCH which will provide clearing services in respect of that specified investment under an agreement with that UK RIE.
  • 21/06/2001

REC 3.14.7

handbook-rule

Where:

  1. (1) a UK RIE proposes to amend the standard terms of any derivative admitted to trading by means of its facilities; or
  2. (2) a UK recognised body proposes to amend the standard terms relating to the provision of clearing services for any derivative in respect of which it provides clearing services;

it must give the FSA notice of that event, and written particulars of those proposed amendments, at the same time as that proposal is first formally communicated to its members or shareholders (or any group or class of them).

  • 21/06/2001

REC 3.14.8

handbook-rule
Where a UK recognised body proposes to make (or to cease to make) arrangements for the safeguarding and administration of assets belonging to any other person (other than an undertaking in the same group), that recognised body must give the FSA notice of that event, and the information specified for the purposes of this rule in REC 3.14.9 R, at the same time as that proposal is first formally communicated to its members or shareholders (or any group or class of them).
  • 21/06/2001

REC 3.14.9

handbook-rule

The following information is specified for the purposes of REC 3.14.8 R:

  1. (1) a description of the assets (or types of assets) to which the proposal relates; and
  2. (2) the date or dates on which arrangements referred to in REC 3.14.8 R will be made (or cease to be made).
  • 21/06/2001

REC 3.14.10

handbook-guidance
The FSA does not need to be notified of proposals to offer (or to withdraw offers of) safeguarding and administration services for individual assets of the same type. Specified investments (other than securities) falling within the same article in Part III of the Regulated Activities Order will normally be regarded as being of the same type. Securities falling within the same article in Part III of the Regulated Activities Order which may be given the same generic description (for example, shares admitted to the UK official list) will also normally be regarded as being of the same type.
  • 21/06/2001

Hours of operation

REC 3.14.11

handbook-rule
Where a UK recognised body proposes to change its normal hours of operation, it must give the FSA notice of that proposal, and particulars of, and the reasons for, the actions proposed, at the same time as the proposal is first formally communicated to its members or shareholders, or any group or class of them.

REC 3.14A

Operation of a regulated market or MTF

  • 01/11/2007

Purpose

REC 3.14A.1

handbook-guidance
The purpose of REC 3.14A is to ensure that the FSA is informed of planned changes to a UK RIE markets and their regulatory status as either a regulated market or MTF.
  • 01/11/2007

Operation of a regulated market

REC 3.14A.2

handbook-rule
Where a UK RIE proposes to operate a new regulated market or close an existing regulated market it must give the FSA notice of that event and the information specified for the purposes of this rule in REC 3.14A.3 R, at the same time as that proposal is first formally communicated to its members or shareholders (or any group or class of them).
  • 01/11/2007

REC 3.14A.3

handbook-rule

The following information is specified for the purposes of REC 3.14A.2 R:

  1. (1) where the UK RIE proposes to operate a new regulated market:
    1. (a) a description of the regulated market; and
    2. (b) a description of the specified investments which will be admitted to trading on that regulated market.
  2. (2) where the UK RIE proposes to close a regulated market, the name of that regulated market.
  • 01/11/2007

Operation of an MTF

REC 3.14A.4

handbook-rule
Where a UK RIE proposes to operate a new MTF or close an existing MTF it must give the FSA notice of that event and the information specified for the purposes of this rule in REC 3.14A.5 R, at the same time as that proposal is first formally communicated to its members or shareholders (or any group or class of them).
  • 01/11/2007

REC 3.14A.5

handbook-rule

The following information is specified for the purposes of REC 3.14A.4 R:

  1. (1) where the UK RIE proposes to operate a new MTF:
    1. (a) a description of the MTF; and
    2. (b) a description of the specified investments which will be admitted to trading on that MTF.
  2. (2) where the UK RIE proposes to close a MTF, the name of that MTF.
  • 01/11/2007

REC 3.15

Suspension of services and inability to operate facilities

  • 01/12/2004

Purpose

REC 3.15.1

handbook-guidance
  1. (1) The purpose of REC 3.15.2 R to REC 3.15.5 G is to enable the FSA to obtain information where a UK recognised body decides to suspend the provision of its services in relation to particular investments. Planned changes to the provision of services should be notified to the FSA under REC 3.14.
  2. (2) REC 3.15.6 R to REC 3.15.7 R provide for notification to the FSA where a UK recognised body is unable to operate or provide its facilities for reasons outside its control or where it decides to extend its hours of operation in an emergency.

Suspension of services

REC 3.15.2

handbook-rule

Where, for any reason, an RIE:

  1. (1) suspends trading in any derivative (other than an option in relation to a security), in any type of security or in any type of option in relation to a security; or
  2. (2) temporarily calls a trading halt in respect of any type of security or in any type of option in relation to a security;

it must immediately give the FSA notice of that event, particulars of that derivative, type of security or type of option in relation to a security, as the case may be, and the reasons for the action taken.

  • 21/06/2001

REC 3.15.2A

handbook-rule

When a UK RIE suspends trading on a regulated market in any financial instrument, it must immediately give the FSA notice of that event and relevant information including particulars of that financial instrument and the reasons for the action taken.

[Note: Article 41(1), paragraph 2 of MiFID]

  • 01/11/2007

REC 3.15.3

handbook-rule
Where a UK recognised body suspends providing clearing services generally in respect of any derivative (other than an option in relation to a security), type of security or type of option in relation to a security, it must immediately give the FSA notice of that event, particulars of that derivative, type of security or type of option in relation to a security, as the case may be, and the reasons for the action taken.
  • 21/06/2001

REC 3.15.4

handbook-rule
Where a UK recognised body suspends any arrangements it makes for the safeguarding and administration of any type of asset belonging to any other person (other than an undertaking in the same group), that UK recognised body must immediately give the FSA notice of that event, particulars of that type of asset and the reasons for the action taken.
  • 21/06/2001

REC 3.15.5

handbook-guidance
Specified investments (other than securities or options in relation to securities) falling within the same article in Part III of the Regulated Activities Order will normally be regarded as being assets of the same type. Securities falling within the same article in Part III of the Regulated Activities Order which may be given the same generic description (for example, shares admitted to the UK official list) will normally be regarded as being of the same type. Options in relation to the same type of security will normally be regarded as being options of the same type.
  • 21/06/2001

Inability to operate facilities

REC 3.15.6

handbook-rule

Where, because of the occurrence of any event or circumstances, a UK recognised body is unable to operate any of its facilities within its normal hours of operation, it must immediately give the FSA notice of that inability and inform the FSA:

  1. (1) which facility it is unable to operate;
  2. (2) what event or circumstance has caused it to become unable to operate that facility within those hours; and
  3. (3) what action, if any, it is taking or proposes to take to enable it to recommence operating that facility.
  • 21/06/2001

Extension of hours of operation

REC 3.15.7

handbook-rule

Where, because of the occurrence of any event or circumstances, a UK recognised body extends its hours of operation, it must immediately give the FSA notice of that event, and inform the FSA:

  1. (1) what event or circumstance has caused it to do so;
  2. (2) the new hours of operation; and
  3. (3) the date on which it expects to revert to its normal hours of operation.
  • 21/06/2001

REC 3.16

Information technology systems

  • 01/12/2004

REC 3.16.1

handbook-guidance
The purpose of REC 3.16 is to ensure that the FSA receives a copy of the UK recognised body's plans and arrangements for ensuring business continuity if there are major problems with its computer systems. The FSA does not need to be notified of minor revisions to, or updating of, the documents containing a UK recognised body's business continuity plan (for example, changes to contact names or telephone numbers).
  • 21/06/2001

REC 3.16.2

handbook-rule
Where a UK recognised body changes any of its plans for action in the event of a failure of any of its information technology systems resulting in disruption to the operation of its facilities, it must immediately give the FSA notice of that event, and a copy of the new plan.
  • 21/06/2001

REC 3.16.3

handbook-rule

Where any reserve information technology system of a UK recognised body fails in such a way that, if the main information technology system of that body were also to fail, it would be unable to operate any of its facilities during its normal hours of operation, that body must immediately give the FSA notice of that event, and inform the FSA:

  1. (1) what action that UK recognised body is taking to restore the operation of the reserve information technology system; and
  2. (2) when it is expected that the operation of that system will be restored.
  • 21/06/2001

REC 3.17

Inability to discharge regulatory functions

  • 01/12/2004

REC 3.17.1

handbook-rule

Where, because of the occurrence of any event or circumstances, a UK recognised body is unable to discharge any regulatory function, it must immediately give the FSA notice of its inability to discharge that function, and inform the FSA:

  1. (1) what event or circumstance has caused it to become unable to do so;
  2. (2) which of its regulatory functions it is unable to discharge; and
  3. (3) what action, if any, it is taking or proposes to take to deal with the situation and, in particular, to enable it to recommence discharging that regulatory function.
  • 21/06/2001

REC 3.18

Membership

  • 01/12/2004

REC 3.18.1

handbook-guidance
  1. (1) The purpose of REC 3.18 is to enable the FSA to monitor changes in the types of member admitted by UK recognised bodies and to ensure that the FSA has notice of foreign jurisdictions in which the members of UK recognised bodies are based. UK recognised bodies may admit persons who are not authorised persons or persons who are not located in the United Kingdom, provided that the recognition requirements continue to be met.
  2. (2) REC 3.18.2 R focuses on the admission of persons who are not authorised persons (whether or not they are located in the United Kingdom) and on whether the specific recognition requirement relating to access to facilities can still be met. REC 3.18.3 R focuses on the admission of members from outside the UK and whether all relevant recognition requirements can be met.
  3. (3) The information required under REC 3.18 is relevant to the FSA's supervision of the UK recognised body's obligations in relation to the enforceability of compliance with the UK recognised body's rules. It is also relevant to the FSA's broader responsibilities concerning market confidence and, in particular, its functions in relation to market abuse and financial crime. It may also be necessary in the case of members based outside the United Kingdom to examine the implications for the enforceability of default rules or collateral and the settlement of transactions, and thus the ability of the UK recognised body to continue to meet the recognition requirements. It follows that the admission of a member from outside the United Kingdom who is not an authorised person could require notification under both REC 3.18.2 R and REC 3.18.3 R, although a single report from the UK recognised body covering both notifications would be acceptable to the FSA.

REC 3.18.2

handbook-rule

Where a UK recognised body admits a member who is not an authorised person of a type of which, immediately before that time, that UK recognised body had not admitted to membership, it must immediately give the FSA notice of that event, and:

  1. (1) a description of the type of person whom it is admitting to membership; and
  2. (2) particulars of its reasons for considering that, in admitting that type of person to membership, it is able to continue to satisfy the recognition requirement in paragraph 4(2)(a) or paragraph 19(2)(a) of the Schedule to the Recognition Requirements Regulations which applies to it.

REC 3.18.3

handbook-rule

Where a UK recognised body admits for the first time a member whose head or registered office is in a jurisdiction from which that UK recognised body has not previously admitted members, it must immediately give the FSA notice of that event, and:

  1. (1) the name of that jurisdiction;
  2. (2) the name of any regulatory authority in that jurisdiction which regulates that member in respect of activities relating to specified investments; and
  3. (3) particulars of its reasons for considering that, in admitting a member from that jurisdiction to membership, it is able to continue to satisfy the recognition requirements which apply to it.

REC 3.18.4

handbook-guidance
A type of member means the description of any group of members to whom the same generic description could be applied. For example, the description of any group of members separately identified or defined in the rules might constitute a type of member for the purposes of this section.
  • 21/06/2001

REC 3.19

Investigations

  • 01/12/2004

REC 3.19.1

handbook-rule

Where a UK recognised body becomes aware that a person has been appointed by any regulatory body (other than the FSA or a UK recognised body) to investigate:

  1. (1) any business transacted by means of its facilities, if it is an RIE; or
  2. (2) any aspect of the clearing services which it provides;

it must immediately give the FSA notice of that event.

REC 3.19.2

handbook-guidance

A UK recognised body need not give the FSA notice of:

  1. (1) routine inspections or visits undertaken in the course of regular monitoring, complaints handling or as part of a series of 'theme visits'; or
  2. (2) routine requests for information; or
  3. (3) investigations into the conduct of members of the UK recognised body or of other users of its facilities where the use of its facilities is a small or incidental part of the subject matter of the investigation.
  • 21/06/2001

REC 3.20

Disciplinary action relating to members

  • 01/12/2004

REC 3.20.1

handbook-rule

Where a UK recognised body has taken any disciplinary action against any member or any employee of a member, in respect of a breach of a rule relating to the carrying on by the UK recognised body of any of its regulatory functions, that body must immediately notify the FSA of that event, and give:

  1. (1) the name of the person concerned;
  2. (2) details of the disciplinary action taken by the UK recognised body; and
  3. (3) the UK recognised body's reasons for taking that disciplinary action.
  • 21/06/2001

REC 3.20.2

handbook-rule

Where an appeal is lodged against any disciplinary action referred to in REC 3.20.1 R, the UK recognised body must immediately give the FSA notice of that event, and:

  1. (1) the name of the appellant and the grounds on which the appeal is based, immediately; and
  2. (2) the outcome of the appeal, when known.
  • 21/06/2001

REC 3.21

Criminal offences and civil prohibitions

  • 01/12/2004

REC 3.21.1

handbook-rule

Where a UK recognised body has evidence tending to suggest that any person has:

  1. (1) been carrying on any regulated activity in the United Kingdom in contravention of the general prohibition; or
  2. (2) been engaged in market abuse; or
  3. (3) committed a criminal offence under the Act or subordinate legislation made under the Act; or
  4. (4) committed a criminal offence under Part V of the Criminal Justice Act 1993 (Insider dealing); or
  5. (5) committed a criminal offence under the Money Laundering Regulations;

it must immediately give the FSA notice of that event, and full details of that evidence in writing.

[Note: Article 26(2), first sentence (part) and Article 43(2), first sentence (part) of MiFID. The rest of Article 26(2), first sentence (in so far as it relates to market operators operating an MTF) and Article 43(2), first sentence of MiFID is implemented by REC 3.25.1 R]

  • 21/06/2001

REC 3.22

Restriction of, or instruction to close out, open positions

  • 01/12/2004

REC 3.22.1

handbook-rule

Where a UK RIE decides to:

  1. (1) restrict the open position on any of the contracts of a member; or
  2. (2) issue instructions to a member to close out its positions on any contracts;

that UK RIE must immediately give the FSA notice of that event, and the member's name, the nature and size of any position to be restricted or closed out and the reasons for the UK RIE's decision.

  • 21/06/2001

REC 3.23

Default

  • 01/12/2004

REC 3.23.1

handbook-rule

Where a UK recognised body decides to put a member into default, it must immediately give notice of that event, and give the following information to the FSA, at the same time as that decision is communicated to that member or to any other member (or group or class of them) of that body:

  1. (1) the name of the member and (where relevant) the class of membership;
  2. (2) the reasons for that decision; and
  3. (3) the names of any other exchange or clearing house on which, to the best of that UK recognised body's knowledge, that member clears business or transacts for, or in respect of, its clients;

and as soon as practicable afterwards, give the FSA a summary of the member's open positions, margin liability, cash and collateral balances in respect of that member's accounts (including client accounts).

REC 3.24

Transfers of ownership

  • 01/11/2007

REC 3.24.1

handbook-rule

When a UK RIE becomes aware of a transfer of ownership of the UK RIE which gives rise to a change in the persons who are in a position to exercise significant influence over the management of the UK RIE, whether directly or indirectly, it must immediately notify the FSA of that event, and:

  1. (1) give the name of the person(s) concerned; and
  2. (2) give details of the transfer.

[Note: Article 38(2)(b) of MiFID]

REC 3.24.2

handbook-guidance
The FSA may regard a person who falls within any of the cases in section 301(B)(2) of the Act as being in a position to exercise significant influence.
  • 01/11/2007

REC 3.25

Significant breaches of rules and disorderly trading conditions

  • 01/11/2007

REC 3.25.1

handbook-rule

A UK RIE must immediately notify the FSA of:

  1. (1) significant breaches of its rules; or
  2. (2) disorderly trading conditions on any of its markets;

[Note: Article 26(2), first sentence (part) and Article 43(2), first sentence (part) of MiFID. The rest of Article 26(2), first sentence (in so far as it relates to market operators operating an MTF) and Article 43(2), first sentence of MiFID is implemented by REC 3.21.1 R (2)]

REC 3.26

Proposals to make regulatory provision

  • 19/12/2007

Statutory power

REC 3.26.1

handbook-guidance
Under section 300B(1) of the Act (Duty to notify proposal to make regulatory provision), a UK recognised body that proposes to make any regulatory provision must give written notice of the proposal to the FSA without delay.

REC 3.26.2

handbook-guidance

Under section 300B(2) of the Act, the FSA may, by rules under section 293 (Notification requirements):

  1. (1) specify descriptions of regulatory provision in relation to which, or circumstances in which, the duty in section 300B(1) does not apply, or
  2. (2) provide that the duty applies only to specified descriptions of regulatory provision or in specified circumstances.
  • 19/12/2007

REC 3.26.3

handbook-guidance

Under section 300B(3) of the Act, the FSA may also by rules under section 293:

  1. (1) make provision as to the form and contents of the notice required, and
  2. (2) require the UK recognised body to provide such information relating to the proposal as may be specified in the rules or as the FSA may reasonably require.
  • 19/12/2007

Disapplication of duty to notify proposal to make regulatory provision

REC 3.26.4

handbook-rule

The duty in section 300B(1) of the Act does not apply to any of the following:

  1. (1) any regulatory provision which is required under Community law or any enactment or rule of law in the United Kingdom; or
  2. (2)
    1. (a) the specification of the standard terms of any derivative which a UK RIE proposes to admission to trading, or the amendment of the standard terms of any derivative already admitted to trading; or
    2. (b) the specification or any amendment of standard terms relating to the provision of clearing services for any derivative; or
    3. (c) the specification or any amendment of operating procedures which are reasonably consequential on any regulatory provision falling within (a) or (b); or
  3. (3) any regulatory provision which is expressed to have effect for no longer than three months which is made by a UK recognised body in response to an emergency event (including, without limitation, a war, terrorist attack or labour strike); or
  4. (4) any regulatory provision which does not impose a requirement (including any obligation or burden) on persons affected (directly or indirectly) by it; or
  5. (5) any other regulatory provision which has not been excluded under (1), (2), (3) or (4) other than any such provision which (taken together with any other regulatory provision not otherwise the subject of a notice under section 300B(1) of the Act):
    1. (a) materially increases disclosure, reporting or corporate governance requirements imposed on any person (whether directly or indirectly); or
    2. (b) imposes a material limitation affecting any person (whether directly or indirectly including, without limitation, through an amendment to fees or charges) on the type or nature of financial instruments which may be listed or the subject of admission to trading on the facilities operated by the UK RIE proposing to make the regulatory provision; or
    3. (c) materially limits access to, or use by, any person (whether directly or indirectly including, without limitation, through an amendment to fees or charges) of the facilities operated by the UK recognised body proposing to make the regulatory provision or
    4. (d) materially adds to the circumstances in which any person (whether directly or indirectly) may be liable to penalties or other sanctions or have liability in damages.

Notice to the FSA

REC 3.26.5

handbook-rule

A notice under section 300B(1) of the Act of a proposal to make a regulatory provision must be in writing and state expressly that it is a notice for the purpose of that section. To be effective, a notice must:

  1. (1) contain full particulars of the proposal to make a regulatory provision which is the subject of that notice; and
  2. (2) either be accompanied by sufficient supporting information to enable the FSA to assess the purpose and effect of the proposed regulatory provision or refer to such information in circumstances where such information has already been provided to the FSA.
  • 19/12/2007

REC 3.26.6

handbook-guidance

In determining whether a UK recognised body has provided sufficient supporting information, the FSA may have regard to the extent to which the information includes:

  1. (1) clearly expressed reasons for the proposed regulatory provision; and
  2. (2) an appropriately detailed assessment of the likely costs and benefits of the proposed regulatory provision.

REC 3.26.7

handbook-rule
A UK recognised body must provide such additional information in connection with a notice under section 300B(1) of the Act as the FSA may reasonably require.

REC 3.26.8

handbook-guidance
Where a UK recognised body wishes to give notice to the FSA for the purposes of section 300B(1) of the Act, it should in the first instance inform its usual supervisory contact at the FSA.

REC 3.26.9

handbook-guidance
The FSA expects that an advanced draft of any consultation document a UK recognised body intends to publish in connection with a proposed regulatory provision could provide some or all of the information described in REC 3.26.5 R

Export chapter as

REC 4

Supervision

REC 4.1

Application and purpose

  • 01/12/2004

Application

REC 4.1.1

handbook-guidance
REC 4.2, REC 4.3 and REC 4.5 apply to UK recognised bodies. REC 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.
  • 21/06/2001

Purpose

REC 4.1.2

handbook-guidance

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

  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 FSA's approach to the exercise of its powers under:
    1. (a) section 296 of the Act (FSA's power to give directions) to give directions to recognised bodies (REC 4.6);
    2. (b) section 297 of the Act (Revoking recognition) to revoke recognition orders (REC 4.7);
  3. and the procedure to be followed in those cases and where the FSA decides to refuse an application for recognition as a recognised body (REC 4.8); and
  4. (3) the FSA's approach to, and procedures for, the exercise of its powers under sections 166 and 167 of the Companies Act 1989 to give directions to UK recognised bodies in relation to action under their default rules (REC 4.5).

REC 4.1.3

handbook-guidance

The FSA's general approach to supervision is intended to ensure that:

  1. (1) the FSA has sufficient assurance that recognised bodies continue at all times to satisfy the recognition requirements and other obligations imposed by or under the Act and UK RIEs continue at all times to satisfy the MiFID implementing requirements; and
  2. (2) the FSA's supervisory resources are allocated, and supervisory effort is applied, in ways which reflect the actual risks to the regulatory objectives.

REC 4.1.4

handbook-guidance
In applying these principles of risk based supervision to the supervision of recognised bodies, the FSA 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 FSA's general duties).
  • 21/06/2001

REC 4.1.5

handbook-guidance
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.
  • 21/06/2001

REC 4.2

The supervisory relationship with UK recognised bodies

  • 01/12/2004

REC 4.2.1

handbook-guidance
The FSA 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 recognition requirements. This broad picture is intended to complement the information which the FSA will obtain under section 293 of the Act (Notification requirements) or under notification rules made under that section (see REC 3). The FSA 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.

REC 4.2.2

handbook-guidance
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 the recognition requirements, the MiFID implementing requirements (in the case of a UK RIE) and other obligations in or under the Act.

REC 4.2.3

handbook-guidance
The FSA expects a UK recognised body to take its own steps to assure itself that it will continue to satisfy the recognition requirements , the MiFID implementing requirements (in the case of a UK RIE) and other obligations in or under the Act when considering any changes to its business or operations.

REC 4.2.4

handbook-guidance
However, the FSA also expects that UK recognised bodies will keep it informed of all significant developments and of progress with its plans and operational initiatives, and will provide it with appropriate assurance that the recognition requirements and the MiFID implementing requirements (in the case of a UK RIE) will continue to be satisfied.

REC 4.2A

Publication of information by UK RIEs

REC 4.2A.1

handbook-guidance
Under 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 RIE, whether directly or indirectly, as the FSA may reasonably require.

REC 4.2A.2

handbook-guidance
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, whether directly or indirectly, publish such particulars of any such transfer as the FSA may reasonably require.

REC 4.2A.3

handbook-guidance
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 FSA may reasonably require.
  • 01/11/2007

REC 4.2B

Exercise of passport rights by a UK RIE

  • 01/11/2007

REC 4.2B.1

handbook-guidance

Under 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 or multilateral trading facility operated by it, it must give the FSA written notice of its intention to do so. The notice must:

  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

handbook-guidance
The FSA must, within one month of receiving the UK RIE's notice, send a copy of it to the Host State regulator.
  • 01/11/2007

REC 4.2B.3

handbook-guidance
The UK RIE may not make the arrangements until the FSA has sent a copy of the notice to the Host State regulator.
  • 01/11/2007

REC 4.2B.4

handbook-guidance
The requirements that a UK RIE must give the FSA written notice and the UK RIE may not make the arrangements until the FSA 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.
  • 01/11/2007

REC 4.2C

Control over a UK RIE

  • 01/11/2007

REC 4.2C.1

handbook-guidance
Section 301A(1) of chapter 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 RIE to notify the FSA, before making the acquisition. Furthermore, those persons are required to obtain the FSA's approval before acquiring control or increasing the level of control held.

REC 4.2C.2

handbook-guidance
The FSA will approve an acquisition or an increase in control 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).

REC 4.2C.3

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

REC 4.2C.4

handbook-guidance
If a controller or proposed controller has not complied with the duty to notify, the procedure the FSA will follow if it approves or does not approve of that person becoming a controller or increasing the level of control held is set out in section 301D of the Act.
  • 01/11/2007

REC 4.2C.5

handbook-guidance
If the FSA becomes aware of matters as a result of which it is satisfied that the criterion set out in REC 4.2C.2 G is not met, the procedure it will follow is set out in section 301D of the Act.
  • 01/11/2007

REC 4.2C.6

handbook-guidance
The FSA's internal arrangements provide for any decisions to refuse to approve an acquisition or object to an existing control to be taken at an appropriately senior level.

REC 4.2C.7

handbook-guidance
If the FSA refuses to approve an acquisition or objects to an existing control, the person concerned may refer the matter to the Tribunal (see EG 2.39).

REC 4.2C.8

handbook-guidance
The powers the FSA can exercise in the event that a person acquires or continues to exercise control notwithstanding the FSA's refusal to approve the acquisition of control or the FSA's objection to the exercise of control are set out in sections 301J and 301K of the Act.

REC 4.2C.9

handbook-guidance
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 of the Act.

REC 4.2D

Suspension and removal of financial instruments from trading

  • 01/11/2007

REC 4.2D.1

handbook-guidance
  1. (1) Under section 313A of the Act, the FSA may for the purpose of protecting:
    1. (a) the interests of investors; or
    2. (b) the orderly functioning of the financial markets;
  2. require a UK RIE to suspend or remove a financial instrument from trading.
  3. (2) If the FSA exercises this power, the UK RIE concerned may refer the matter to the Tribunal.
  • 01/11/2007

REC 4.2D.2

handbook-guidance
The procedure the FSA will follow if it exercises its power to require a UK RIE to suspend or remove a financial instrument from trading is set out in section 313B of the Act. The FSA's internal arrangements provide for decisions to exercise this power to be taken at an appropriately senior level. If the FSA 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).

REC 4.2D.3

handbook-guidance

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

  1. (1) publish its decision in such manner as it considers appropriate; and
  2. (2) inform the competent authorities of all other EEA States of its decision.

REC 4.2D.4

handbook-guidance
Under section 313C(2) of the Act, if the FSA 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 FSA must inform the competent authorities of all other EEA States of the action taken by the UK RIE.
  • 01/11/2007

REC 4.2D.5

handbook-guidance
Under sections 313C(3) and (4) of the Act, if the FSA 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 FSA must require each UK RIE to suspend the instrument from trading on any regulated market or multilateral trading facility operated by the UK RIE.
  • 01/11/2007

REC 4.2D.6

handbook-guidance
Under sections 313C(3) and (5) of the Act, if the FSA 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 FSA must require each UK RIE to remove the instrument from trading on any regulated market or multilateral trading facility operated by the UK RIE.
  • 01/11/2007

REC 4.2E

Information: compliance of UK RIEs with the MiFID Regulation

REC 4.2E.1

handbook-guidance
Under section 293A of the Act, the FSA may require a UK RIE to give such information as it reasonably requires in order to satisfy itself that the UK RIE is complying with the MiFID Regulation,.

REC 4.3

Risk assessments for UK recognised bodies

  • 01/12/2004

REC 4.3.1

handbook-guidance
Information is needed to support the FSA's 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 FSA's general duties under the Act. The central element of the process of risk based supervision is a systematic assessment by the FSA (a risk assessment) of the main supervisory risks and concerns for each regulated entity.
  • 21/06/2001

REC 4.3.2

handbook-guidance
For each UK recognised body, the FSA 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.
  • 21/06/2001

REC 4.3.3

handbook-guidance
The risk assessment will guide the FSA's supervisory focus. It is important, therefore, that there is good dialogue between the FSA and the recognised body. The FSA 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 FSA 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.
  • 21/06/2001

REC 4.4

Complaints

  • 01/12/2004

Recognised body's arrangements

REC 4.4.1

handbook-guidance
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).

The FSA's arrangements

REC 4.4.2

handbook-guidance
The Act does not provide a mechanism for appeals to the FSA from decisions by recognised bodies in relation to complaints. However, the FSA 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 FSA's arrangements for investigating relevant complaints.
  • 21/06/2001

REC 4.4.3

handbook-guidance
Where the FSA 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 FSA 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 FSA will encourage the complainant to do so.
  • 21/06/2001

REC 4.4.4

handbook-guidance
The FSA 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 FSA.
  • 21/06/2001

REC 4.4.5

handbook-guidance
When it is considering a relevant complaint, the FSA 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.
  • 21/06/2001

REC 4.4.6

handbook-guidance
The FSA 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.
  • 21/06/2001

REC 4.5

FSA supervision of action by UK recognised bodies under their default rules

  • 01/12/2004

REC 4.5.1

handbook-guidance
UK recognised bodies which, 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.
  • 21/06/2001

REC 4.5.2

handbook-guidance
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.
  • 21/06/2001

REC 4.5.3

handbook-guidance
The Companies Act 1989 also gives the FSA powers to supervise the taking of action under default rules. Under section 166 of the Companies Act 1989 (Powers of the FSA to give directions) (see REC 4.5.4 G), the FSA may direct a UK recognised body to take, or not to take, action under its default rules. Before exercising these powers the FSA must consult the recognised body concerned. The FSA 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).
  • 21/06/2001

REC 4.5.4

handbook-guidance

The Companies Act 1989: section 166

  • 21/06/2001

REC 4.5.5

handbook-guidance

The FSA's view is that the exercise of these powers will only be justified in exceptional circumstances. The most likely case in which the FSA would consider exercising them is if there were a need to coordinate action by different UK recognised bodies because, for example:

  1. (1) the likelihood of a default may not be apparent to all UK recognised bodies; or
  2. (2) there was a need to avoid premature default action by one UK recognised body; or
  3. (3) significantly different settlement prices had been fixed by different UK recognised bodies.
  • 21/06/2001

REC 4.5.6

handbook-guidance

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.

  • 21/06/2001

REC 4.5.7

handbook-guidance
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.
  • 21/06/2001

REC 4.5.8

handbook-guidance
Under section 166(7) of the Companies Act 1989, where a UK recognised body has taken action either of its own accord or in response to a direction, the FSA may direct it to do or not to do specific things subject to these being within the powers of the UK recognised body concerned under its default rules. However, the FSA cannot give such a direction unless it is satisfied that this will not impede or frustrate the proper and efficient conduct of the default proceedings.
  • 21/06/2001

Section 167 of the Companies Act 1989

REC 4.5.9

handbook-guidance

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

  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 recognised body 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 FSA under section 167 of the Companies Act 1989 (Application to determine whether default proceedings to be taken).

  • 21/06/2001

REC 4.5.10

handbook-guidance
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 FSA to take action under section 166 of the Companies Act 1989 (see REC 4.5.4G).
  • 21/06/2001

REC 4.5.11

handbook-guidance

The procedure is that the FSA 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) takes action under its default rules; or
  2. (2) notifies the FSA that it proposes to take action forthwith; or
  3. (3) is directed to take action by the FSA under section 166(2)(a) of the Companies Act 1989;

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.

  • 21/06/2001

REC 4.6

The section 296 power to give directions

  • 01/12/2004

REC 4.6.1

handbook-guidance
Under section 296 of the Act (FSA's power to give directions), the FSA has the power to give directions to a recognised body to take specified steps in order to secure its compliance with the recognition requirements or other obligations in or under the Act or, in the case of a UK RIE, the MiFID implementing requirements. In the case of a UK RIE those steps may include granting the FSA 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 direction.

REC 4.6.2

handbook-guidance
The FSA must also give a direction to a recognised body if it is directed to do so by the Treasury under section 308 of the Act (Directions by the Treasury).

REC 4.6.3

handbook-guidance

The FSA is likely to exercise its power under section 296 of the Act if it considers that:

  1. (1) there has been, or was likely to be, a failure to satisfy the recognition requirements or there has been a failure to comply with any other obligation in or under the Act or, in the case of a UK RIE, the MiFID implementing requirements which has serious consequences;
  2. (2) compliance with the direction would ensure that the recognition requirements, or other obligation in or under the Act or, in the case of a UK RIE, the MiFID implementing requirements, were satisfied; and
  3. (3) the recognised body is capable of complying with the direction.

REC 4.6.4

handbook-guidance

Under section 298(7) of the Act (Directions and revocation: procedure), the FSA 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 essential to do so. The FSA is likely to consider it essential to cut short the procedure if, in the absence of immediate action, there would be:

  1. (1) a serious risk of substantial losses to investors, particularly retail clients; or
  2. (2) a serious threat to market confidence or to the stability of the financial system; or
  3. (3) a serious risk of money laundering or other serious financial crime.

REC 4.7

The section 297 power to revoke recognition

  • 01/12/2004

REC 4.7.1

handbook-guidance
Under section 297 of the Act (Revoking recognition), the FSA has the power to revoke a recognition order relating to a recognised body.

REC 4.7.2

handbook-guidance

The FSA will revoke a recognition order if:

  1. (1) it is directed to do so by the Treasury under section 308 of the Act (Directions by the Treasury); or
  2. (2) the recognised body has asked the FSA to revoke the order.
  • 21/06/2001

REC 4.7.3

handbook-guidance

The FSA will usually consider revoking a recognition order if:

  1. (1) the recognised body is failing or has failed to satisfy the recognition requirements or other obligations in or under the Act or, in the case of a UK RIE, the MiFID implementing requirements and that failure has or will have serious consequences; or
  2. (2) it would not be possible for the recognised body to comply with a direction under section 296 of the Act (FSA's power to give directions); or
  3. (3) for some other reason, it would not be appropriate for the FSA to give a direction under section 296 or;
  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.

REC 4.7.4

handbook-guidance

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

  1. (1) the recognised body appears not to have the resources or management to be able to organise its affairs so as to satisfy the recognition requirements or other obligations in or under the Act or, in the case of a UK RIE, the MiFID implementing requirements; or
  2. (2) the recognised body does not appear to be willing to satisfy the recognition requirements or other obligations in or under the Act or, in the case of a UK RIE, the MiFID implementing requirements; or
  3. (3) the recognised body is failing or has failed to comply with a direction made under section 296 of the Act or
  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 the recognition requirements or, in the case of a UK RIE, the MiFID implementing requirements in respect of the regulated activities for which recognised body status is relevant.

REC 4.7.5

handbook-guidance
In addition to the relevant factors set out in REC 4.7.4 G, the FSA will usually consider that it would not be able to secure an overseas recognised body's 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 FSA that the overseas recognised body 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.

REC 4.8

The section 298 procedure

  • 01/12/2004

REC 4.8.1

handbook-guidance

A decision to:

  1. (1) revoke a recognition order under section 297 of the Act (Revoking recognition); or
  2. (2) make a direction under section 296 (FSA's powers to give directions); or
  3. (3) refuse to make a recognition order under section 290 (Recognition orders) or 290A (Refusal of recognition on ground of excessive regulatory provision);

is a serious one and section 298 of the Act (Directions and revocation: procedure) sets out a procedure (see REC 4.8.9 G) which the FSA 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, in a case where the FSA proposes to make a direction under section 296, it considers it is essential not to follow, or to cut short, the procedure (see REC 4.6.4 G and REC 4.8.7 G).

REC 4.8.2

handbook-guidance
The FSA's internal arrangements provide for any of these decisions to be taken at an appropriately senior level.
  • 21/06/2001

REC 4.8.3

handbook-guidance

In considering whether it would be appropriate to exercise the powers under section 296 or section 297 of the Act, the FSA will have regard to all relevant information and factors including:

  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 the recognition requirements or other obligations in or under the Act or, in the case of a UK RIE, the MiFID implementing requirements may affect the regulatory objectives.

REC 4.8.4

handbook-guidance
In considering whether or not to make a recognition order, the FSA 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.
  • 21/06/2001

REC 4.8.5

handbook-guidance
The procedures laid down in section 298 of the Act are summarised, with the FSA's guidance about the actions it proposes to take in following these procedures, in the table at REC 4.8.9 G.

REC 4.8.6

handbook-guidance
Before exercising its powers under section 296 or section 297 of the Act, the FSA 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.

REC 4.8.7

handbook-guidance
Under section 298(7) of the Act, the FSA need not follow the procedure in section 298 in relation to giving a direction under section 296, when it considers it essential not to do so. Guidance on the circumstances in which the FSA will usually act in this way is given in REC 4.6.4 G.

REC 4.8.8

handbook-guidance
Under section 290(6) of the Act, the FSA need not follow the procedure in section 298 in relation to a refusal to make a recognition order if (under section 307) the Treasury has not given its approval for the recognition order to be made. Further guidance is given in REC 5 and REC 6 (for overseas applications).

REC 4.8.9

handbook-guidance

Key steps in the section 298 procedure

Export chapter as

REC 5

Applications for Recognition
(UK recognised bodies)

REC 5.1

Introduction and legal background

  • 01/12/2004

REC 5.1.1

handbook-guidance
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.
  • 21/06/2001

REC 5.1.2

handbook-guidance
This chapter sets out guidance for UK applicants and for UK entities which are considering making an application. Guidance for applicants and prospective applicants for overseas recognised body status is given in REC 6.
  • 21/06/2001

REC 5.1.3

handbook-guidance
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.

REC 5.1.4

handbook-guidance
  1. (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. (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. (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.)

REC 5.1.5

handbook-guidance
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.
  • 21/06/2001

REC 5.1.6

handbook-guidance
The Office of Fair Trading may also make informal requests for further information from an applicant. The Director General of Fair Trading also has powers under section 305 of the Act (Investigations by Director) to obtain compulsorily documents or information from the applicant or other persons.
  • 21/06/2001

REC 5.1.7

handbook-guidance
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.
  • 21/06/2001

REC 5.2

Application process

  • 01/12/2004

REC 5.2.1

handbook-guidance
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 requirements before 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 requirements at all times. (Guidance on the recognition requirements applicable to UK recognised bodies (and applicants) is given in REC 2).

REC 5.2.1A

handbook-guidance
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.
  • 19/12/2007

REC 5.2.2

handbook-guidance
  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.
  • 21/06/2001

REC 5.2.3

handbook-guidance

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) (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 requirements will be met; and
  4. (4) be accompanied by the appropriate fee (see REC 7).

REC 5.2.3A

handbook-guidance

The 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.
  • 01/11/2007

REC 5.2.4

handbook-guidance
Other information and documentation which should normally accompany an application is listed in more detail in REC 5.2.14 G.
  • 21/06/2001

REC 5.2.5

handbook-guidance
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.
  • 21/06/2001

REC 5.2.6

handbook-guidance
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

handbook-guidance
In 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

handbook-guidance
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

handbook-guidance
  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.
  • 21/06/2001

REC 5.2.9

handbook-guidance
  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

handbook-guidance
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 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.

REC 5.2.11

handbook-guidance
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

handbook-guidance
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

handbook-guidance
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

handbook-guidance

Information and supporting documentation (see REC 5.2.4 G).

Export chapter as

REC 6

Overseas Investment Exchanges and Overseas Clearing Houses

REC 6.1

Introduction and legal background

  • 01/12/2004

REC 6.1.1

handbook-guidance

The Act prohibits any person from carrying on, or purporting to carry on, regulated activities in the United Kingdom unless that person is an authorised person or an exempt person. If an overseas investment exchange or overseas clearing house wishes to undertake regulated activities in the United Kingdom, it will need to:

  1. (1) obtain a Part IV permission from the FSA;
  2. (2) (in the case of an EEA firm or a Treaty firm) qualify for authorisation under Schedule 3 (EEA Passport Rights) or Schedule 4 (Treaty rights) to the Act, respectively; or
  3. (3) (in the case of an EEA market operator) obtain exempt person status by exercising its passport rights under Articles 31(5) and 31(6) of MiFID (in the case of arrangements relating to a multilateral trading facility) or Article 42(6) of MiFID (in the case of arrangements relating to a regulated market); or
  4. (4) obtain exempt person status by being declared by the FSA to be (in the case of an overseas investment exchange) an ROIE or (in the case of an overseas clearing house) an ROCH.

REC 6.1.2

handbook-guidance
Having the status of an overseas recognised body facilitates the participation of overseas investment exchanges and overseas clearing houses in UK markets. In comparison with authorisation, it reduces the involvement which UK authorities need to have in the day-to-day affairs of an overseas recognised body because they are able to rely substantially on the supervisory and regulatory arrangements in the country where the applicant's head office is situated.
  • 21/06/2001

REC 6.2

Applications

  • 01/12/2004

REC 6.2.1

handbook-guidance
  1. (1) Overseas investment exchanges and overseas clearing houses which are considering whether to seek authorisation or recognition should first consider whether they will be carrying on regulated activities in the United Kingdom. Overseas investment exchanges and overseas clearing houses which do not carry on regulated activities in the United Kingdom need take no action.
  2. (2) Prospective applicants should discuss authorisation and recognition with the FSA before deciding whether to seek authorisation or recognition.
  • 21/06/2001

REC 6.2.2

handbook-guidance
A prospective applicant may wish to contact the Markets Division at the FSA at an early stage for advice on the preparation, scheduling and practical aspects of an application to become an overseas recognised body.
  • 21/06/2001

REC 6.2.3

handbook-guidance
Applicants for authorised person status should refer to the FSA website "How do I get authorised": http://www.fsa.gov.uk/Pages/Doing/how/index.shtml. Applications for recognition as an overseas recognised body should be addressed to:
The Financial Services Authority (Markets Division)
25 The North Colonnade
Canary Wharf
London E14 5HS

REC 6.2.4

handbook-guidance

There is no standard application form for application for recognition as an overseas recognised body. An application should be made in accordance with any direction the FSA may make under section 287 (Application by an investment exchange) or section 288 (Application by a clearing house) of the Act and should include:

  1. (1) the information, evidence and explanatory material necessary to demonstrate to the FSA that the recognition requirements (set out in REC 6.3) will be met;
  2. (2) the application fee (see REC 7);
  3. (3) the address of the applicant's head office in its home territory;
  4. (4) the address of a place in the United Kingdom for the service on the applicant of notices or other documents required or authorised to be served on it under the Act (see section 292(1));
  5. (5) the applicant's regulatory provisions;
  6. (6) one copy of each of the following documents:
    1. (a) its most recent annual report and accounts; and
    2. (b) the applicant's memorandum and articles of association or any similar or analogous documents; and
  7. (7) information identifying the following (if not contained in the documents listed in (5) or (6) or the material referred to in (1)):
    1. (a) any type of regulated activity which the applicant envisages carrying on in the United Kingdom;
    2. (b) any type of specified investment dealt in on, or cleared by, the applicant;
    3. (c) the date by which the applicant wishes the recognition order to take effect; and
    4. (d) any body or authority which supervises the applicant under the law of the home territory, the status of the applicant under that law, and the enactment or regulation under which the supervision is conducted.
  • 21/06/2001

REC 6.2.5

handbook-guidance
The FSA may require further information from the applicant and may need to have discussions with the appropriate authorities in the applicant's home territory. To allow sufficient time for applications to be processed and for the necessary contacts to be made with the appropriate home territory authorities, applications should be made not later than six months before the applicant wishes the recognition order to take effect. No guarantee can be given that a decision will be reached within this time, although the FSA will endeavour to meet the applicant's reasonable timing requirements.
  • 21/06/2001

REC 6.2.6

handbook-guidance
All material should be supplied in English, or accompanied, if appropriate, by an accurate English translation. An English glossary of technical or statistical terms may be sufficient to accompany tables of statistical or financial information.
  • 21/06/2001

REC 6.3

Recognition requirements

  • 01/12/2004

REC 6.3.1

handbook-guidance
Before making a recognition order, the FSA will need to be satisfied that the recognition requirements in section 292(3) of the Act (Overseas investment exchanges and clearing houses) have been met. These requirements are the only recognition requirements applicable to overseas recognised bodies.
  • 21/06/2001

REC 6.3.2

handbook-uk-text

Sections 292(3) and 292(4) state:

REC 6.3.3

handbook-guidance
The reference to recognition requirements in section 292(3)(a) of the Act is a reference to the requirements applicable to UK RIEs or UK RCHs in the Recognition Requirements Regulations. These requirements are set out, together with guidance, in REC 2.
  • 21/06/2001

REC 6.4

Competition scrutiny

  • 01/12/2004

REC 6.4.1

handbook-guidance
Applications from overseas investment exchanges and overseas clearing houses are subject to the same competition scrutiny as applications from prospective UK recognised bodies (see REC 5). The FSA will therefore follow the relevant steps set out in REC 5.2 and may not make a recognition order without the approval of the Treasury.
  • 21/06/2001

REC 6.4.2

handbook-guidance
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 or guidance which they consider they may need to discuss with the Office of Fair Trading.
  • 21/06/2001

REC 6.5

FSA decision on recognition

  • 01/12/2004

REC 6.5.1

handbook-guidance
If the FSA considers that the requirements of the Act are satisfied, it may make a recognition order, which will state the date on which it takes effect.
  • 21/06/2001

REC 6.5.2

handbook-guidance
Where the FSA considers that it is unlikely to make a recognition order, it will discuss its concerns with the applicant with a view to enabling the applicant to make changes to its rules or guidance, or other parts of the application. If the FSA decides to refuse to make a recognition order, it will follow the procedure set out in section 298 of the Act (Directions and revocation: procedure) (which applies in consequence of section 290(5) of the Act (Recognition orders)) which is described in more detail in REC 4.8.
  • 21/06/2001

REC 6.5.3

handbook-guidance
The FSA will notify the applicant if the Treasury fails to give its approval under section 307 of the Act (Recognition orders: role of the Treasury). Under section 290, the FSA is not required to follow the procedure under section 298 in this case and will not normally do so.
  • 21/06/2001

REC 6.6

Supervision

  • 01/12/2004

REC 6.6.1

handbook-guidance

An overseas recognised body is required to notify the FSA of certain events and give information to it on a regular basis and when certain specified events occur. Section 295 of the Act (Notification: overseas investment exchanges and overseas clearing houses) requires each overseas recognised body to provide the FSA, the Treasury and the Director General of Fair Trading with a report (at least once a year) which contains:

  1. (1) a statement as to whether any events have occurred which are likely:
    1. (a) to affect the assessment of whether it is satisfied that the overseas recognised body continues to satisfy the recognition requirements set out in section 292(3) of the Act (Overseas investment exchanges and overseas clearing houses) (see REC 6.3); and
    2. (b) to have any effect on competition;
  2. (2) the information specified in the FSA's notification rules for overseas recognised bodies (see REC 6.7).
  • 21/06/2001

REC 6.6.2

handbook-guidance

The following events are examples of events likely to affect an assessment of whether an overseas recognised body is continuing to satisfy the recognition requirements, or to have an effect on competition:

  1. (1) significant changes to any relevant law or regulation in its home territory, including laws or regulations:
    1. (a) governing exchanges or clearing houses;
    2. (b) designed to prevent insider dealing, market manipulation or other forms of market abuse or misconduct;
    3. (c) designed to protect the interests of clients of members of the overseas recognised body, or of a class of bodies which includes the overseas recognised body;
    4. (d) which affect:
      1. (i) the ability of the overseas recognised body to seek information (whether compulsorily or voluntarily) from its members, including information relating to the price and volume of transactions, the identity of parties to transactions, and the movement of funds associated with transactions;
      2. (ii) which affect the ability of the overseas recognised body to pass such information, on request, to UK authorities;
  2. (2) significant changes to its internal organisation or structure;
  3. (3) significant changes to the practices of the overseas recognised body applying to any regulated activities carried on by it in the United Kingdom;
  4. (4) any other event or series of events in relation to the body which:
    1. (a) affects or may significantly affect cooperation between the overseas recognised body, or its supervisor in its home territory, and the FSA; or
    2. (b) has or may have a substantial effect on the structure of the markets in which the body operates; or
    3. (c) brings about or may bring about a substantial change in the nature and composition of its membership in the United Kingdom; or
    4. (d) brings about or may bring about a substantial change in the regulated activities undertaken by it in the United Kingdom.
  • 21/06/2001

REC 6.6.3

handbook-guidance
The period covered by a report submitted under section 295(1) of the Act starts on the day after the period covered by its last report or, if there is no such report, after the making of the recognition order recognising the overseas recognised body as such, and ends on the date specified in the report or, if no date is specified, on the date of the report.
  • 21/06/2001

REC 6.6.4

handbook-guidance
If an overseas recognised body changes the period covered by its report, it should ensure that the first day of the period covered by a report is the day immediately following the last day of the period covered by the previous report.
  • 21/06/2001

REC 6.6.5

handbook-guidance
The period covered by a report submitted under section 295(1) of the Act would most conveniently be one year.
  • 21/06/2001

REC 6.6.6

handbook-guidance
Copies of the report should be sent to the FSA, the Treasury and the Director General of Fair Trading within two months after the end of the period to which it relates.
  • 21/06/2001

REC 6.7

Notification rules for overseas recognised bodies

  • 01/12/2004

Application

REC 6.7.1

handbook-rule
The notification rules in this chapter, which are made under sections 293 (Notification requirements) and 295 of the Act (Notification: overseas investment exchanges and overseas clearing houses), apply to all overseas recognised bodies.
  • 21/06/2001

Purpose

REC 6.7.2

handbook-guidance
The notification rules in this chapter are made by the FSA in order to ensure that it is provided with notice of events and information which it reasonably requires for the exercise of its functions under the Act.
  • 21/06/2001

Reports under section 295

REC 6.7.3

handbook-rule
Where an overseas recognised body includes in its report made under section 295(1) of the Act (Notification: overseas investment exchanges and overseas clearing houses) a statement in compliance with section 295(2)(a) of the Act that an event has occurred in the period covered by that report which is likely to affect the FSA's assessment of whether it is satisfied as to the requirements set out in section 292(3) (Overseas investment exchanges and overseas clearing houses), it must include particulars of that event.
  • 21/06/2001

REC 6.7.4

handbook-rule

An overseas recognised body must include in its report submitted in compliance with section 295(1) of the Act:

  1. (1) particulars of any changes to:
    1. (a) its memorandum and articles of association or any similar or analogous documents;
    2. (b) its regulatory provisions;
    3. (c) its chairman or president, or chief executive (or equivalent);
  2. (2) particulars of any disciplinary action (or any similar or analogous action) taken against it by any supervisory authority in its home territory, whether or not that action has been made public in that territory; and
  3. (3) a copy of its annual report and accounts;
where those events occurred, or the period covered by that annual report and accounts ended, in the period covered by that report.
  • 21/06/2001

First report

REC 6.7.5

handbook-rule

An overseas recognised body must include in the first report submitted under section 295(1) of the Act after the recognition order in relation to that overseas recognised body is made:

  1. (1) particulars of any events of the kind described in section 295(2) of the Act which occurred;
  2. (2) particulars of any change specified in REC 6.7.4 R (1) or disciplinary action specified in REC 6.7.4 R (2) which occurred; and
  3. (3) any annual report and accounts which covered a period ending;

after the application for recognition was submitted to the FSA but which were not included in the application or in any supplementary information submitted to the FSA before the recognition order was made.

  • 21/06/2001

REC 6.7.6

handbook-guidance
Guidance on the period covered by an overseas recognised body's report submitted in compliance with section 295(1) of the Act is given in REC 6.6.3 .
  • 21/06/2001

Changes of address

REC 6.7.7

handbook-rule

Where an overseas recognised body proposes to change:

  1. (1) its address in the United Kingdom for the service of notices or other documents required or authorised to be served on it under the Act; or
  2. (2) the address of its head office;

it must give notice to the FSA and inform it of the new address at least 14 days before the change is effected.

  • 21/06/2001

Revocation or modification of home territory licence, permission or authorisation

REC 6.7.8

handbook-rule

Where an overseas recognised body has notice that any licence, permission or authorisation which it requires to conduct any regulated activity in its home territory has been or is about to be:

  1. (1) revoked; or
  2. (2) modified in any way which would materially restrict the overseas recognised body in performing any regulated activity in its home territory or in the United Kingdom;

it must immediately notify the FSA of that fact and must give the FSA the information specified for the purposes of this rule in REC 6.7.9 R, as soon as that information is known to it.

  • 21/06/2001

REC 6.7.9

handbook-rule

The following information is specified for the purposes of REC 6.7.8 R:

  1. (1) particulars of the licence, permission or authorisation which has been or is to be revoked or modified, including particulars of the overseas recognised body's regulated activities to which it relates;
  2. (2) an explanation of how the revocation or modification restricts or will restrict the overseas recognised body in carrying on any regulated activity in its home territory or in the United Kingdom;
  3. (3) the date on which the revocation or modification took, or will take, effect and, if it is a temporary measure, any date on which, or any conditions that must be met before which, it will cease to have effect; and
  4. (4) any reasons given for the revocation or modification.
  • 21/06/2001

Language of notice

REC 6.7.10

handbook-rule
Any notice to be given or information to be supplied under these notification rules must be supplied in English, and any document to be provided must be accompanied, if not in English, by an accurate English translation.
  • 21/06/2001

REC 6.7.11

handbook-guidance
An English glossary of technical or statistical terms may be sufficient to accompany tables of statistical or financial information.
  • 21/06/2001

Form and method of notification

REC 6.7.12

handbook-rule
The rules relating to the form and method of notification in REC 3.2 also apply to overseas recognised bodies .
  • 21/06/2001

Waivers

REC 6.7.13

handbook-guidance
Overseas recognised bodies may apply to the FSA for a waiver of any of the notification rules. The procedure is the same as that for applications from UK recognised bodies. Guidance on the procedure is given in REC 3.3.
  • 21/06/2001

REC 6.8

Powers of direction and revocation of recognition orders

  • 01/12/2004

REC 6.8.1

handbook-guidance

The FSA has similar powers to supervise overseas recognised bodies to those it has to supervise UK recognised bodies. It may (in addition to any other powers it might exercise):

  1. (1) give directions to an overseas recognised body under section 296 of the Act (Authority's power to give directions) if it has failed, or is likely to fail, to satisfy the recognition requirements or if it has failed to comply with any other obligation imposed by or under the Act; or
  2. (2) revoke a recognition order under section 297 of the Act (Revoking recognition) if an overseas recognised body is failing, or has failed, to comply with the recognition requirements or any other obligation in or under the Act.
  • 21/06/2001

REC 6.8.2

handbook-guidance
The FSA will follow the approach in REC 4.6, REC 4.7 and REC 4.8 if it is considering exercising these powers in relation to an overseas recognised body.
  • 21/06/2001

Export chapter as

REC 6A

EEA market operators in the United
Kingdom

REC 6A.1

Exercise of passport rights by EEA market operator

  • 01/11/2007

REC 6A.1.1

handbook-guidance

Under section 312A of the Act, an EEA market operator may make arrangements in the United Kingdom to facilitate access to, or use of, a regulated market or multilateral trading facility operated by it if:

  1. (1) the operator has given its Home State regulator notice of its intention to make such arrangements; and
  2. (2) the Home State regulator has given the FSA notice of the operator's intention.
  • 01/11/2007

REC 6A.1.2

handbook-guidance
In making these arrangements, the operator has exempt person status as respects any regulated activity, which is carried on as a part of its business of operating the market or facility in question, or in connection with, or for the purposes of that business.
  • 01/11/2007

REC 6A.1.3

handbook-guidance
An EEA market operator has exempt person status as respects any regulated activity which is carried on as a part of its business of operating a regulated market or multilateral trading facility if the operator made arrangements in the United Kingdom on or before 31 October 2007 to facilitate access to, or use of, that regulated market or multilateral trading facility.
  • 01/11/2007

REC 6A.2

Removal of passport rights from EEA market operator

  • 01/11/2007

REC 6A.2.1

handbook-guidance

Under section 312B of the Act, the FSA may prohibit an EEA market operator from making or, as the case may be, continuing arrangements in the United Kingdom, to facilitate access to, or use of, a regulated market, or multilateral trading facility, operated by the operator if:

  1. (1) the FSA has clear and demonstrable grounds for believing that the operator has contravened a relevant requirement, and
  2. (2) the FSA has first complied with sections 312B(3) to (9) of the Act.
  • 01/11/2007

REC 6A.2.2

handbook-guidance

A requirement is relevant if it is imposed:

  1. (1) by the operator's Home State regulator in the implementation of MiFID or any Community legislation made under MiFID;
  2. (2) by provision implementing MiFID, or any Community legislation made under it, in the operator's Home State; or
  3. (3) by any directly applicable Community regulation made under MiFID.

REC 6A.2.3

handbook-guidance
The procedure the FSA will follow if it is to exercise this prohibition power is set out in sections 313B(3) to (9) of the Act.
  • 01/11/2007

REC 6A.2.4

handbook-guidance
If the FSA exercises this prohibition power it must at the earliest opportunity notify the Commission of the action taken in relation to the operator.

REC 6A.2.5

handbook-guidance
The operator's exempt person status ceases to apply if the FSA exercises this prohibition power.
  • 01/11/2007

REC 6A.2.6

handbook-guidance
The operator's right to make arrangements in the United Kingdom, to facilitate access to, or use of, a regulated market, or multilateral trading facility, operated by the operator may be reinstated (together with its exempt person status) if the FSA is satisfied that the contravention which led the FSA to exercise its prohibition power has been remedied.
  • 01/11/2007

Export chapter as

REC 7

Fees

REC 7.1

[deleted: the provisions in relation to Recognised Investment Exchanges and Recognised Clearing Houses are set out in FEES 1,2, 3 and 4]

REC 7.2

[deleted: the provisions in relation to Recognised Investment Exchanges and Recognised Clearing Houses are set out in FEES 1,2, 3 and 4]

REC 7.3

[deleted: the provisions in relation to Recognised Investment Exchanges and Recognised Clearing Houses are set out in FEES 1,2, 3 and 4]

REC 7 Annex 1

[deleted: the provisions in relation to Recognised Investment Exchanges and Recognised Clearing Houses are set out in FEES 4 Annex 6R]

REC 7 Annex 2

[deleted: the provisions in relation to Recognised Investment Exchanges and Recognised Clearing Houses are set out in FEES?3 Annex 3R]

Export chapter as

Transitional Provisions and Schedules

REC TP 1

Transitional provisions

Introduction

REC TP 1.1
REC TP 1.2

(overleaf)

REC Sch 1

Record keeping requirements

  • 01/12/2004

REC Sch 1.1

handbook-guidance

REC Sch 2

Notification requirements

  • 01/12/2004

REC Sch 2.1

handbook-guidance

REC Sch 2.2

handbook-guidance

REC Sch 3

Fees and other required payments

  • 01/12/2004

REC Sch 3.1

handbook-guidance
  • 01/12/2004

REC Sch 3.2

handbook-guidance
  • 01/12/2004

REC Sch 4

Powers exercised

  • 01/12/2004

REC Sch 4.1

handbook-guidance

REC Sch 4.2

handbook-guidance
  • 03/09/2001

REC Sch 5

Rights of action for damages

  • 01/12/2004

REC Sch 5.1

handbook-guidance
  • 01/12/2004

REC Sch 6

Rules that can be waived

  • 01/12/2004

REC Sch 6.1

handbook-guidance
  • 01/12/2004

Export chapter as

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