Section 28: Exemption for recognised investment exchanges and recognised clearing houses
348.Section 28 makes amendments to section 285 of FSMA. Section 285 defines “recognised investment exchange” and “recognised clearing house” for the purposes of FSMA and also describes in subsections (2) and (3) the exemption which each type of recognised body has from the general prohibition specified in section 19 of FSMA (the prohibition from carrying on regulated activities without authorisation). Subsection (2), for example, provides that a recognised investment exchange is exempt from the general prohibition as respects any regulated activity which is (a) carried on as a part of the exchange’s business as an investment exchange; or (b) which is carried on for the purposes of, or in connection with, the provision of clearing services by the exchange. (As a result, prior to the amendments made by the Act coming into effect, a recognised investment exchange need not be separately recognised as a recognised clearing house in order to provide clearing services.)
349.Subsection (2) replaces subsection (2)(b) (the second limb of the exemption for recognised investment exchanges which is referred to in the preceding paragraph). Subsection (3) makes provision in relation to subsection (3) (the exemption for recognised clearing houses). The general effect of these amendments is that a recognised investment exchange will need to apply for the status of, and be specified by the Bank of England as, a recognised clearing house in order to have a Part 18 exemption to provide clearing services. However, recognised investment exchanges will continue to benefit from an exemption in relation to any regulated activities carried on for the purposes of facilitating the provision of clearing services by another person. Recognised clearing houses will also (expressly) benefit from this exemption. An example could be where clearing services are provided by a related company (which might be regulated outside the UK) and the UK recognised clearing house or recognised investment exchange routes trades not arranged using its facilities to a separate clearing house.
350.Subsection (4) inserts a new subsection (4) into section 285 which confers on the Treasury a power to amend new subsection (2)(b) and new subsection (3)(b) from time to time (for example, to expand or narrow the activities for which a recognised body has exemption from the general prohibition). Section 49(2)(a) amends section 429 of FSMA (Parliamentary control of statutory instruments) to provide that orders under this subsection can only be made where a draft of the order has been laid before Parliament and approved by a resolution of each House.
