The FICC Market Standards Board (FMSB) has recently published an important research document which analyses the behavioural patterns in financial misconduct cases over a period of 225 years. The Behavioural Cluster Analysis (BCA) is the first time that these patterns of behaviour have been collated, analysed and published as a single reference point for market participants.
The FMSB addresses the finding of the Fair and Effective Markets Review that:
“One of the Review’s most striking findings has been that, although the specific aspects of individual misconduct may have varied substantially across traders, firms and markets, the underlying behaviours were remarkably similar in many cases and relatively straightforward to describe.”
The BCA’s key finding is that the behavioural patterns evident in misconduct cases are not unique to each case - the same behavioural patterns consistently recur over time. The review also identifies that these same behavioural patterns occur in different jurisdictions and across different asset classes. This demonstrates the importance of focusing on the underlying behavioural patterns rather than the individual circumstances of each case.
A team at Macfarlanes worked with the FMSB on this project. Mark Carney (Governor, Bank of England) described the BCA as an “innovative and evidence based methodology, of great value to market participants as well as regulators”. It is a practical document which will assist market participants working on the design and enhancement of systems for oversight and control. We hope it will become a useful reference point for financial services firms and their advisors.