On 12 June 2014, the Government announced that HM Treasury, the Bank of England and the Financial Conduct Authority would conduct a review into the way in which the wholesale financial markets operate. Click here to read the announcement and here to read the terms of reference for the review.

Enhancing standards of conduct – key to the economy

The 'Fair and Effective Financial Markets review' (Review) is part of the Government's extensive agenda to raise the standards of conduct in the financial markets. Following a series of recent allegations of misconduct on financial markets, the Review will focus on certain wholesale regulated and unregulated markets where the bulk of concerns about misconduct have arisen – in particular, on fixed income, currency and commodity markets; although the Government notes that the Review could have an impact across a wider range of wholesale markets. It is hoped that the outcome of the Review will reinforce confidence in wholesale financial market activity in the UK but also influence the international debate on trading practices.

What can we expect?

The Review will run for twelve months, following which the Government proposes to make recommendations in relation to the following:

  • principles to govern the operation of fair and effective financial markets
  • reforms to ensure that standards of behaviour are in accordance with those principles
  • tools to strengthen the oversight of market conduct
  • whether the regulatory perimeter for wholesale financial markets should be extended, and to what extent international action is required, and
  • additional reforms in relation to benchmarks, in order to strengthen market infrastructure.

In the meantime, the Government will take action which will include:

  • extending the new legislation regulating LIBOR to cover further benchmarks in the foreign exchange, fixed income and commodity markets. The legislation will include new criminal sanctions
  • extending the 'Senior Managers and Certification regime' to cover all banks that have a branch in the UK, and
  • expanding the tough UK criminal regime for market abuse. Pursuant to its power to do so under the Lisbon Treaty, the UK has decided not to opt into the EU Commission's Directive on criminal sanctions for insider dealing and market manipulation, which was published in the EU Official Journal on 12 June 2014. The Government notes in its press release that the new UK rules will be at least as strong as the EU rules, but will have sufficient flexibility to reflect specific circumstances in the UK's financial sector.

Industry perspective

The Review will call upon public officials, market participants and end-users of wholesale financial services to contribute their views. A panel of market practitioners will be appointed to reflect the view of the financial services industry in the Review. Members of the panel will act in a personal capacity, rather than represent the views of their firm or trade association. A consultation relating to the Review will be launched in autumn 2014 and a final report is expected by June 2015.