On 4 April 2022, the Financial Conduct Authority (FCA), Bank of England (BoE) and the Prudential Regulation Authority (PRA) published a joint statement on the London Metal Exchange (LME) and LME Clear.
The joint statement notes that on 8 March 2022, the LME suspended nickel trading, the suspension occurred amid challenging commodity market conditions following Russia’s invasion of Ukraine. Trading resumed on 16 March and the supervisory authorities expect LME and LME Clear to remain vigilant until the situation is fully resolved. However, after a period of stability, the FCA plans to review the LME’s approach and the BoE plans to review the operation of LME Clear. These reviews will be assisted by the appointment of skilled persons to report on the matter, under section 166 of the Financial Services and Markets Act 2000.
The PRA and FCA will also be engaging with firms who held significant positions in the market to assess the effectiveness of their risk management and governance during this period.
The joint statement adds that events around the suspension and resumption of trading have underlined questions raised in a recent LME Discussion Paper on Market Structure, particularly the role of transparency in the LME and related markets. The FCA has been in discussion with the LME on its proposals for some time and expects the LME to consider carefully how recent events should shape its future approach on market structure. Additionally, the LME has agreed the benefits of appointing additional independent directors to strengthen its governance and will now review the best way to achieve this in the context of the skills and composition of its board.