The FCA has published a speech given by Martin Wheatley (Chief Executive, FCA). The speech is entitled Leadership and conduct.
In his speech, Mr Wheatley mentions that looking back on the year, a number of key wholesale themes have emerged which are beginning to flesh out the characteristics of market integrity. These are:
- the principle of acting as a good agent. This is effectively putting clients’ interests before personal ones;
- clean pricing. Firms and markets setting prices that properly reflect underlying supply and demand, liquidity and risk and are not subject to any kind of manipulation or other abuse;
- management of conflicts of interest in the use of information and all the questions the FCA sees around how firms receive, hold and share information;
- financial crime. Markets not being used to support money laundering, avoiding sanctions, terrorist financing or any other activity of this nature; and
- quality of market infrastructure. This covers key issues over how innovations like high frequency trading and threats such as cyber-crime affect the resilience of key trading platforms.
Mr Wheatley states that some of this work has already concluded whilst some is still on-going. Some of the work is moving towards conclusion in the first half of this year, including a couple of major thematic reviews that were launched in the second half of 2013. The first of these reviews was the use of dealing commission. Mr Wheatley states that a feedback statement will be published after Easter. Another review covered best execution and the FCA intends to publish its findings in May. The FCA’s feedback will include an analysis of how well firms act in their clients’ interests and the integrity of the price formation process.
Mr Wheatley also mentions that in Q2 2014, the FCA will be launching a review into the effectiveness of controls over flows of information, looking at key issues, including how firms’ ‘business as usual’ activities and broader strategies take account of this risk. The FCA will be looking at certain priority questions including: do the integrated business models of the wholesale structure create information asymmetries between firms and clients?
In the final part of his speech, Mr Wheatley discusses the FCA’s forthcoming review of control and governance of traders around inputs to benchmarks. The FCA will be considering a few key questions being: how do firms apply the lessons from LIBOR? What are the behavioural drivers of conduct risk in benchmarks? Do firms manage their conflicts of interest? Are front office controls sufficiently robust? Are firms incentivising risk taking through the use of discretionary compensation? The FCA expects firms to have considered the lessons from LIBOR and applied these to their use of other benchmarks and to be managing the kind of trader behaviour it saw lead to manipulation.
View Leadership and conduct, 31 March 2014