Following the revelations of widespread and historic misconduct in the management of financial benchmarks, the FCA has conducted a sector-wide review to understand what lessons have been learnt. The review, published on 29 July, concluded that although there have been some positive changes; significant further work is needed to ensure that all risks are managed appropriately.

The extensive use of benchmarks in the financial world is underpinned by consumer and market confidence. However, the FCA’s review suggests that firms did not previously understand the wider effect that benchmark failures could have on market integrity. Investigations into benchmark manipulation led to large scale enforcement action brought by regulators and public authorities around the world. In addition, the UK has introduced new legislation and specific FCA rules such as MAR 8, which was implemented in April 2013, to govern market conduct and regulate benchmark activities.

Over the last year the FCA has assessed the extent to which firms have taken appropriate action to improve governance and controls around benchmark activities. Two notable benchmarks, LIBOR and FX, were excluded from the review due to separate assessments having already been conducted. Considerable work has recently been carried out to assess controls over the submission of LIBOR by panel banks and in November 2014 the FCA announced an industry-wide remediation programme into FX rates. However, the review provides useful insight into the way firms should be managing benchmark activities generally.

The review concluded that the scope of change since the failings has been uneven across different benchmarks and benchmark activities. The FCA found that conflicts of interest were not being properly identified and resolved, and there was a notable lack of urgency to progress improvement.  Unsurprisingly, the review found that more pronounced change was seen in business areas which have been subject to publicised failings.

Given widespread public criticism around the benchmark scandals, it is surprising that the FCA has identified outstanding issues. However, the review provides a clear message that going forward firms need to introduce and maintain a robust approach, applying industry best practices where appropriate. The FCA noted that there is evidence to show that enforcement fines have been effective in instigating change. Therefore, if firms do not act now, we can expect to see further fines levied against offenders.