Fair and effective markets

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I think it’s fair to say that there is definitely a change in the approach to the supervision of firms previously almost untouched by regulation. We know our colleagues in retail and banking have come under close scrutiny in recent times, but the days of taking an arms length approach to some of our institutional and capital markets firms seem numbered now.

The Fair and Effective Markets Review or FEMR (a new acronym to get our tongue and brain around), has issued a final report this month. Issued by the HM Treasury, the Bank of England and the FCA, it is broad yet a comprehensive review of the fixed income, currency and commodities markets (FICC). N.B careful how you say this, not to be confused with Del Boys reference to his brother Rodney from time to time! Needless to say it was commissioned to consider the root causes of recent misconduct and designed to identify the potential sources of unfairness across these markets.

Also of note is a section on the training of staff and the issue of qualifications in not just technical topics but also conduct, a sign that tangible change in behaviour should be demonstrated as part of training and CPD evaluation

Its aim is to provide a framework to promote a significant improvement and ensure fairness can be demonstrated.  Whilst there are a total of 21 recommendations, in particular the extension of the SMR (Senior Managers Regime) and the establishment of a FICC Markets Standard Board these recommendations are built on 6 general principles;

  1. Raise standards, professionalism and accountability of individuals
  2. Improve the quality, clarity and market-wide understanding of trading practices
  3. Strengthen regulation of FICC in the UK
  4. Launch international action to raise standards in global FICC markets
  5. Promoting  fairer FICC market structures while also enhancing effectiveness
  6. Forward looking conduct risk identification and mitigation

The extension of the SMR under which Senior Managers can be held criminally liable for poor decisions and found to be delict in their duties will now cover businesses such as inter-dealer brokers and buy-side asset managers.  Also of note is a section on the training of staff and the issue of qualifications in not just technical topics but also conduct, a sign that tangible change in behaviour should be demonstrated as part of training and CPD evaluation.

The FCA has helpfully (?) added the following note to their announcement on FEMR;

“These recommendations do not change the FCA’s current rules; however, if you operate in FICC markets you may consider it helpful to review whether any of the findings or recommendations of the Review are relevant to your business.”

I fear there may be some smaller organisations that are oblivious to the impact of the review and have yet to wake up to the fact that onus is clearly being placed at the door of not only the Execs but individuals as well. As Simon Culhane, CEO of the CISI put it, “the baton has been firmly passed to firms and to individuals to prevent the recent bad conduct in the FICC markets. It is now up to them to show they accept that responsibility. They have been given a last chance before intrusive regulation.

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About Author

Julia Kirkland

Through our award winning training and consultancy partnership FSTP LLP we hope to become a trusted provider of services to client firms across Financial Services. Specialties: Training and consultancy, project and interim management from regulatory issues through to management development and board services. Chartered Member of the Chartered Institute of Securities & Investment

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