More needs to be done to restore trust in the global fixed-income, currency, and commodities markets (FICC), suggests a new report from the U.K. government.
The U.K.’s Fair and Effective Markets Review (FEMR) published its final report on Wednesday, setting out 21 recommendations to help restore trust in the wholesale FICC markets in the wake of a series of scandals, including the LIBOR market manipulation scandal that has played out over the past several years.
The U.K.’s chancellor of the exchequer and the governor of the Bank of England initiated the review a year ago to address the fallout from these recent high-profile abuses.
The FEMR report notes that although the FICC markets are critical to the operation of the global economy, “the scale of misconduct seen in recent years has both damaged public trust and impaired the effectiveness of these important markets.”
Specifically, the FEMR report points to a lack of governance and controls at financial services firms, an absence of market practice standards and “a culture of impunity,” which have all contributed to an “ethical drift” in the financial services sector and these markets in particular.
The review found that “the professionalism and accountability of individuals in FICC markets remains too low and variable.” Furthermore, the report says that key FICC markets lack effective mechanisms for developing and enforcing market standards — and there are gaps in regulation as well.
Thus, the FEMR report recommends: calling on the International Organization of Securities Commissions (IOSCO) to consider developing a set of common standards for trading in FICC markets; extending criminal sanctions for market abuse to a wider range of FICC instruments and increasing the maximum sentence from seven to 10 years in jail; and imposing qualification standards.
The FEMR report also calls on the financial services sector to develop a mechanism to improve the quality, clarity and understanding of FICC trading practices. The report also makes recommendations to the U.K. authorities on how to strengthen regulation of FICC markets.
In addition, the FEMR report recommends that, at the global level, policy-makers should agree on a single global code to govern trading practices around market integrity, information handling, the treatment of counterparties and other standards — and, that policy-makers should look for ways to improve the alignment of remuneration and conduct risk.
U.K. Chancellor of the Exchequer George Osborne is expected to say in his annual Mansion House speech on Wednesday evening that “the public rightly asks why it is that after so many scandals, and such cost to the country, so few individuals have faced punishment in the courts. The governor and I agree: individuals who fraudulently manipulate markets and commit financial crime should be treated like the criminals they are — and they will be.”
“With its publication today, all the main building blocks are now in place for the real markets we need,” said Mark Carney, governor of the Bank of England.