The FCA has published its latest Market Watch newsletter (No. 49).
In this issue of Market Watch the FCA reports on its findings following a review on firms’ trading and broking across the oil, energy, metals and soft commodities sectors and the adequacy of their front office and market abuse controls. The FCA also reviewed the governance arrangements, culture and processes in place in relation to the commodities markets to assess each firm’s ability to manage the impact of these structural changes on their businesses.
Key findings include:
- the effectiveness of the controls, management and governance structures the FCA assessed varied widely across the firms reviewed;
- many firms had not embedded the lessons learnt from recent market abuse cases (such as LIBOR, FX and Gold). The FCA found that some firms believed that commodity markets were ‘too deep, too liquid, and there are too many participants’ to be manipulated. In some cases this view was held by both front office staff and senior management. At the majority of firms, trader/broker understanding of their responsibilities on the use of inside and market sensitive information was poor. Many firms had inadequate suspicious transaction reporting procedures, with typically no written procedures and a lack of clarity on what constitutes a suspicious transaction report;
- most firms had not carried out a Code of Market Conduct risk assessment and could not demonstrate that they had adequate monitoring and surveillance across the full range of market abuse risks to which they were exposed; and
- whilst some firms had embedded risk, such as risk analysts and risk systems on the trading desk, few firms demonstrated intraday management information or risk monitoring.
View Market Watch No.49, 3 September 2015