The Bank of England yesterday released its fair and effective market review report. This report identifies a number of policy proposals that enhance the fairness of FICC (wholesale Fixed Income, Currency and Commodities) markets while also boosting their overall effectiveness in the wake of the serious misconduct seen in recent years. It provides real insight into the way that Bank of England and the regulators are looking to reduce and prevent conduct risk.
These policy proposals include:1. Individuals active in FICC markets should be more accountable for their actions;
2. Firms active in FICC markets should take greater collective responsibility for developing and adhering to clear, widely understood and practical standards of market practice, in regular dialogue with the authorities;
3. The UK authorities should extend the regulatory perimeter, broaden the regime holding senior management to account and toughen sanctions against misconduct;
4. International authorities should collaborate to raise standards in global FICC markets;
5. To promote fairer FICC market structures while also enhancing effectiveness;
6. To ensure a more forward-looking approach to the identification and mitigation of conduct risks.
In the case of (6), where misconduct, or the potential for misconduct, can be identified at an earlier stage, regulators, such as the FCA will increasingly make use of forward-looking supervisory strategies and ‘early intervention’ actions to address concerns in a more timely way instead of a full disciplinary investigation. Use of such actions covers a wide range of scenarios, ranging from a firm changing its behaviour voluntarily on account of supervisory prompting, to change being imposed by the regulator’s formal use of its statutory powers. A key part of this will be the identification of key conduct risks and the creation of risk mitigation programmes, which may be voluntary or enforced.