The UK's Fair And Effective Markets Review

Introduction

On 10 June 2015, the Bank of England ("BoE"), HM Treasury ("HMT") and the Financial Conduct Authority ("FCA") published the final report on the "Fair and Effective Markets Review" which had been launched one year ago with the aim of reinforcing confidence in the wholesale fixed income, currency and commodity ("FICC") markets. During this period, a wide consultation was carried out with many entities and organisations, including some based outside the UK.

The report provides an analysis of the causes of recent market misconduct and other sources of perceived unfairness in FICC markets and evaluates the impact of reforms already in force or underway. It sets out 21 recommendations for further work and action.

The report states that its recommendations are shaped around the following key principles:

individuals active in FICC markets should be more accountable for their actions; firms active in FICC markets should take greater collective responsibility for developing and adhering to clear, widely understood and practical standards of market practice, in regular dialogue with the authorities; the UK authorities should extend the regulatory perimeter, broaden the regime holding senior management to account and toughen sanctions against misconduct; international authorities should collaborate to raise standards in global FICC markets; market participants and authorities should work together in the years ahead to (i) promote fairer FICC market structures while also enhancing effectiveness and (ii) ensure a more forward-looking approach to the identification and mitigation of conduct risks. Policy Recommendations

The recommendations are divided between near-term actions to improve conduct in FICC markets and principles to guide a more forward-looking approach to such markets.

Recommended Near-Term Actions

1. Raise standards, professionalism and accountability of individuals

Develop a set of globally-endorsed common standards for trading practices in FICC markets, in language that can be readily understood and which will be consistently upheld. The Review is not prescriptive as to what these standards should contain but suggests there should be a balance between high-level principles and more detailed rules. Establish new expectations for training and qualifications standards for FICC market personnel, with a requirement for continuing professional development. The Review contains a blueprint for a possible framework in this regard. Mandate detailed regulatory references to help firms prevent the "recycling" of individuals with poor conduct records between firms. This is referred to as the "rolling bad apple" issue in the Review, and it is noted that firms report that it has become increasingly difficult to obtain information on individuals' conduct records from previous employees through the use of employment references. The Review states that, following the implementation of the Senior Managers and Certification Regimes in the UK, the FCA will continue to maintain a public register of individuals subject to prohibitions, and there will be requirements for regulated firms to notify the regulators of an actual or suspected breach of relevant rules. It also considers that there is a strong case for authorities to mandate a form setting out in detail the minimum information that firms should include in regulatory references and providing that firms should not be allowed to use non-disclosure agreements with departing employees to limit the disclosure of information in such references. Extend UK criminal sanctions for market abuse for individuals and firms to a wider range of FICC instruments. The Review notes that, under the current UK regime, individuals involved in market abuse can still target instruments that fall outside the scope of criminal sanctions in the UK. Also, although the existing regime applies criminal...

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