REC 5.2 Application process

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

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

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.

An application should:

1. (1)

   be made in accordance with any directions the FSA may make under section 287 (Application by an investment exchange) or section 288 (Application by a clearing house) of the Act;

2. (2)

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

3. (3)

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

4. (4)

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

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

1. (1)

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

2. (2)

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

3. (3)

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

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

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.

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.

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

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).

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.

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.

Where the FSA considers that an applicant satisfies the recognition requirements and in the case of an application to become a UK RIE, the MiFID implementing requirements1, and that the Treasury has had an opportunity to consider any reports from the Director General of Fair Trading and the Competition Commission, the FSA will then seek the Treasury's approval, under section 307 of the Act (Recognition orders: role of the Treasury), to the making of a recognition order.

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.

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.

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).