Background
4.The Act is intended to meet concerns that UK recognised bodies might introduce regulatory provision (rules, guidance and similar material) which imposes an excessive regulatory burden on the issuers of securities admitted to trading on the markets they provide or support, or on their members or other users of those markets. A regulatory provision will be excessive if it is not required by UK or Community law and either it is out of proportion to the end to be achieved, or it pursues some end which could not be considered to be a reasonable regulatory objective.
5.Part 18 of the Financial Services and Markets Act 2000 provides for the recognition of UK investment exchanges and clearing houses which meet recognition requirements set out in that Act and in regulations made by the Treasury under powers conferred in that Act (1). (The current recognition requirements will be amended shortly as part of the steps necessary to implement the EC Markets in Financial Instruments Directive (2004/39/EC)).
6.The FSA has no power under existing legislation to prevent a recognised body from changing its rules or guidance, provided that the body continues to meet the recognition requirements. In particular, the FSA cannot currently prevent a UK recognised body from making excessive regulatory provision.
7.The recognition requirements for UK recognised bodies are currently framed in terms of the objective to be achieved or the minimum standards which the body has to meet. It would be difficult to reformulate the recognition requirements in ways which set both minimum and maximum standards (i.e. the standards beyond which any regulatory provision might be considered to be excessive) without making the recognition requirements much more detailed and specific. Such an approach might be unduly restrictive on the ability of UK recognised bodies to devise regulatory provision appropriate for the markets they serve and which meets the needs of their own customers. In addition, if it were a recognition requirement that a body did not adopt excessive regulatory provision, the only remedies available to the FSA would be withdrawal of the recognition or the making of a direction to the recognised body to take specified steps to secure its compliance with the recognition requirements, whereas the scheme provided for in the Bill allows the FSA to veto excessive provision without a body's recognition status being affected.