Announcing FEMR

In June 2014, the Government announced the Fair and Effective Markets Review (FEMR) which would have two objectives:

  • to reinforce confidence in the fairness and effectiveness of wholesale financial market activity conducted in the UK; and
  • to influence the international debate on trading practices, including highlighting issues that could only be addressed through co-ordinated international action.

The FEMR would run for twelve months and present a final report which would recommend:

  • principles to govern the operation of fair and effective financial markets;
  • reforms to ensure standards of behaviour for firms within those markets were in accordance with those principles;
  • tools to strengthen the oversight of market conduct within both regulated and unregulated markets;
  • whether the regulatory perimeter for wholesale financial markets should be extended; and
  • additional reforms, over and above those already in train in relation to benchmarks, to strengthen the infrastructure which supports these markets.

The run up to the final FEMR recommendations

In August 2014, the FEMR made recommendations to HM Treasury to bring seven major benchmarks in the fixed income, currency and commodity (FICC) markets into the scope of the UK legislation originally put in place to regulate LIBOR. These recommendations were implemented by HM Treasury in Q1 2015. In addition, on 27 October 2014, the FEMR published a consultation document examining what needed to be done to reinforce confidence in the fairness and effectiveness of the FICC markets.

We published a series of blog articles tracking these developments:

The final FEMR recommendations

On 10 June 2015, the FEMR published its final report containing 21 policy recommendations. The recommendations include:

  • proposed International Organization of Securities Commissions’ (IOSCO) standards for FICC market trading practices covering: (a) bilateral relationships between firms, their counterparties and clients; (b) duty for all market participants to uphold market integrity; and (c) applicable competition law. These standards would be applicable to all market participants regardless of regulatory status;
  • minimum qualification and training requirements for “FICC market personnel”;
  • a new FICC Markets Standards Board (FMSB), comprised of senior market and end-user representatives and tasked with preparing guidance on the above minimum qualification and training requirements, advising on trading practices and identifying emerging conduct risks;
  • a new UK civil and criminal market abuse regime for the spot foreign exchange (FX) market and prospectively other over-the-counter instruments outside the scope of the new Market Abuse Regulation;
  • amendments to Part V of the Financial Services and Markets Act 2000 to extend the Senior Managers and Certification Regimes (SM&CR) to a wider range of regulated FICC market participants. Applicable SM&CR elements would include regulatory pre-approval and Statements of Responsibility for senior managers, certification for personnel with critical functions and binding conduct rules for personnel. The final report does not, however, propose extending the new SM&CR ‘presumption of responsibility’ requirement; and
  • new means to promote more and better self-assessments by benchmark administrators against the IOSCO Principles for Financial Benchmarks.

A table setting out all of the final policy recommendations can be found on page 94 of the final report.


On the recommendations Jonathan Herbst commented:

  • “The expansion of the benchmarks manipulation regime is in a sense old news. The new dimension is the extension of the market abuse regime to spot FX products.
  • When linked to the expansion of the senior persons regime and the extension of the criminal penalties this is intended to send a clear message to the market that behaviour and culture must change. In all but name, spot FX will be a fully regulated product. The failure to go as far as requiring senior managers to prove that they took reasonable steps when something goes wrong in their area does not change the significance of the change.
  • The changes are broadly as expected. It is fair to say that the proposals have a less voluntarist industry led feel than we might have expected prior to the recent FX fines. After these, the momentum for a statutory element of the recommendations was probably unstoppable.”

View Fair and Effective Markets Review, 10 June 2015