REC 2.2 Method of satisfying the recognition requirements

The FCA3 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;

   4
5. (4A)

   competition in the markets for services provided, or proposed to be provided, by the UK recognised body or applicant in its capacity as such; and4

6. (5)

   the nature and scale of the risks to the statutory objectives associated with the matters described in (1) to (4A4);

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.

It is the UK recognised body's responsibility to demonstrate to the FCA3 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 they are5 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.

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.

[Note: MiFID RTS 7 contains further requirements for a trading venue whose systems enable algorithmic trading when outsourcing all or part of its functions]5

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.

In determining whether the UK recognised body meets the recognition requirement in Regulation 6(3), the FCA3 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 .

[Note: MiFID RTS 7 contains further requirements for a trading venue whose systems enable algorithmic trading when outsourcing all or part of its functions]5

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 FCA3 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.

[Note: MiFID RTS 7 contains further requirements for a trading venue whose systems enable algorithmic trading when outsourcing all or part of its functions]5