Overseas Investment Exchanges and Overseas Clearing Houses

Part

REC Recognised Investment Exchanges and Recognised Clearing Houses

Chapter

Overseas Investment Exchanges and Overseas Clearing Houses

Printed on: 07/11/2024

Rulebook at: 01/11/2012

REC 6

Overseas Investment Exchanges and Overseas Clearing Houses

REC 6.1

Introduction and legal background

01/12/2004

REC 6.1.1

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) obtain a Part IV permission from the FSA;
(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) (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) 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.

01/11/2007

REC 6.1.2

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

(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) 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

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

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

06/10/2007

REC 6.2.4

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) 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) the application fee (see REC 7);
(3) the address of the applicant's head office in its home territory;
(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) the applicant's regulatory provisions;
(6) one copy of each of the following documents:

(a) its most recent annual report and accounts; and
(b) the applicant's memorandum and articles of association or any similar or analogous documents; and

(7) information identifying the following (if not contained in the documents listed in (5) or (6) or the material referred to in (1)):

(a) any type of regulated activity which the applicant envisages carrying on in the United Kingdom;
(b) any type of specified investment dealt in on, or cleared by, the applicant;
(c) the date by which the applicant wishes the recognition order to take effect; and
(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

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

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

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

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

Section 292(3)

The requirements are that-

(a)

investors are afforded protection equivalent to that which they would be afforded if the body concerned were required to comply with recognition requirements ;

(b)

there are adequate procedures for dealing with a person who is unable, or likely to become unable, to meet his obligations in respect of one or more market contracts connected with the [ROIE] or [ROCH];

(c)

the applicant is able and willing to co-operate with the [FSA] by the sharing of information and in other ways; and

(d)

adequate arrangements exist for co-operation between the [FSA] and those responsible for the supervision of the applicant in the country or territory in which the applicant's head office is situated.

Section 292(4)

In considering whether it is satisfied as to the requirements mentioned in subsections (3)(a) and (b), the [FSA] is to have regard to-

(a)

the relevant law and practice of the country or territory in which the applicant's head office is situated;

(b)

the rules and practices of the applicant.

01/11/2007

REC 6.3.3

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

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

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

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

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

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

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) a statement as to whether any events have occurred which are likely:

(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
(b) to have any effect on competition;

(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

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) significant changes to any relevant law or regulation in its home territory, including laws or regulations:

(a) governing exchanges or clearing houses;
(b) designed to prevent insider dealing, market manipulation or other forms of market abuse or misconduct;
(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;
(d) which affect:

(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;
(ii) which affect the ability of the overseas recognised body to pass such information, on request, to UK authorities;

(2) significant changes to its internal organisation or structure;
(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) any other event or series of events in relation to the body which:

(a) affects or may significantly affect cooperation between the overseas recognised body, or its supervisor in its home territory, and the FSA; or
(b) has or may have a substantial effect on the structure of the markets in which the body operates; or
(c) brings about or may bring about a substantial change in the nature and composition of its membership in the United Kingdom; or
(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

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

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

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

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

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

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

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

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

(1) particulars of any changes to:

(a) its memorandum and articles of association or any similar or analogous documents;
(b) its regulatory provisions;
(c) its chairman or president, or chief executive (or equivalent);

(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) 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

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) particulars of any events of the kind described in section 295(2) of the Act which occurred;
(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) 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

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

Where an overseas recognised body proposes to change:

(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) 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

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) revoked; or
(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

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

(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) 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) 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) any reasons given for the revocation or modification.

21/06/2001

Language of notice

REC 6.7.10

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

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

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

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

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) 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) 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

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