In October 2014, the UK Treasury, the Bank of England and the Financial Conduct Authority launched a public consultation to examine the fairness and effectiveness of the FICC markets. This consultation was launched in the wake of recent high-profile market abuses, such as the attempted manipulation of LIBOR and other benchmarks. The three regulators (terming themselves the “Fair and Efficient Market Review” or the “Review”) acknowledge that there has already been a significant industry and regulatory response to these various market abuses but consider there is a need to assess whether the changes and action implemented have gone far enough to restore confidence in the FICC markets.

The Review considers that “effective” FICC markets are those that enable market participants to trade at competitive prices and allow the ultimate end users to undertake investment, funding, risk transfer and other transactions in a predictable fashion.

“Fair” markets are those that:

  • have clear and consistently applied standards of market practice;
  • demonstrate sufficient transparency and open access;
  • allow market participants to compete on the basis of merit; and
  • provide confidence that participants will behave with integrity.

Based upon those premises, the Review will focus on structural features that may have facilitated recent abuses, such as the greater ease of manipulation in markets for bespoke products that are rarely traded, as well as conflicts of interests, limited transparency and market concentration.

In addition, it will also consider issues of market conduct, including:

  • poor standards of market practice and personal ethics;
  • weak cultures of accountability, poor controls and inappropriate remuneration structures within firms; and
  • poor benchmark governance and transparency.

Lastly, it will also consider concerns expressed by market participants about the potential resilience of liquidity in post- crisis FICC markets.

Based upon these different sub-categories, the Review is seeking views firstly on the extent to which regulatory, organizational and technological changes since the financial crisis are likely to address any perceived deficiencies in fairness and effectiveness, and secondly what further steps might be needed to help boost fairness and effectiveness in particular FICC markets.

The consultation is open for responses until 30 January 2015, and the Review plans to publish its recommendations in June 2015.