A status update has just been released describing some of the steps taken to reform the wholesale Fixed Income, Currency and Commodities (FICC) markets, following the earlier review. Whilst some of the legal and process related issues have been addressed, there are many cultural and behaviourial issues which remain to be addressed by market participants. The review stresses that Firms must create, both individually and collectively, cultures that place integrity, professionalism and high ethical standards at their core to ensure that behaviours are not limited to complying with the letter of regulation or laws. It took years for the ‘ethical drift’ that resulted in misconduct to occur and it will take time to build new ethical norms in financial markets. Progress is at a critical point.
The Fair and Effective Markets Review (FEMR) was launched in June 2014 to conduct a comprehensive and forward-looking assessment of the way the wholesale Fixed Income, Currency and Commodities (FICC) markets operate; help to restore trust in those markets in the wake of a number of high profile abuses in both UK and global financial markets; and to influence the international debate on trading practices.
On 10 June 2015 a Final Report was published, setting out 21 recommendations to:
- raise standards, professionalism and accountability of individuals;
- improve the quality, clarity and market-wide understanding of FICC trading practices;
- strengthen regulation of FICC markets in the United Kingdom;
- launch international action to raise standards in global FICC markets;
- promote fairer FICC market structures while also enhancing effectiveness; and
- promote forward-looking conduct risk identification and mitigation.
Now a status update has been presented to Chancellor of the Exchequer, the Governor of the Bank of England and the Chairman of the Financial Conduct Authority.
The job is far from done. A key theme that came out of the ‘Open Forum’ held by the Bank in November 2015 was that there remains a lack of trust in financial markets and financial institutions because of past misconduct. Participants saw cultural and ethical changes as an essential component of building a social licence for financial markets.
Responsibility must now fall increasingly to market participants to see through the changes in market practices and behaviours that are necessary to restore the reputation of the industry and thereby deliver markets that are both fair and effective. Firms must create, both individually and collectively, cultures that place integrity, professionalism and high ethical standards at their core to ensure that behaviours are not limited to complying with the letter of regulation or laws. As was indicated in the Final Report, a failure to do so will inevitably lead to further regulation and/or legislation.
While authorities can put in place legislation and regulation, firms are responsible for creating, both individually and collectively, cultures that place integrity, professionalism and high ethical standards at their core to ensure that behaviours are not limited to complying with the letter of regulations or laws. The work of the FMSB to ensure that market practices and structures are consistent with broader principles of fairness and effectiveness is therefore of vital importance and must be sustained. The complementary work of the Banking Standards Board (BSB) to promote high standards of behaviour and competence in the banking sector has a crucial role to play in this area too and we strongly support its work.
They state that the initial momentum must not be lost. It took years for the ‘ethical drift’ that resulted in misconduct to occur and it will take time to build new ethical norms in financial markets. Progress is at a critical point. It requires all involved to see through the changes that have begun, and to be alert to future challenges, if the financial services of tomorrow are to be characterised by the high standards of fairness and effectiveness to which we aspire.
