FEMR Progress Report:

The HM Treasury, the Bank of England (BoE) and FCA have today published the 2018 Progress Report on the Fair and Effective Markets Review (FEMR). Almost three years have passed since the Review published its recommendations in June 2015, and the impact of the initiatives it catalysed are now starting to be seen on the fairness and effectiveness of FICC markets. The Progress Report (11 pages) sets out an initial assessment of the impact of the Review’s recommendations, and additional work done, in the following areas:

  • strengthening individual accountability;
  • improving market standards;
  • embedding a forward-looking approach to FICC markets; and,
  • strengthening benchmarks.

The Progress Report presents the following conclusions:

  • While firms and the authorities have made significant progress towards implementing the FEMR recommendations, rapid technological changes and structural innovation in FICC markets require ongoing assessment of risk and mitigation.
  • The industry must take a leading role in ensuring that market infrastructure keeps pace with innovation.
  • The BoE will continue to support the move to risk-free rates and the development of industry codes.
  • HM Treasury will keep under review the open FEMR recommendations relating to new legislation, particularly in light of forthcoming UK withdrawal from the EU.

Governor Mark Carney – Speech to the Markets Forum 2018

The Bank of England (BoE) has also published Governor Mark Carney’s address to the Markets Forum 2018 at Bloomberg Headquarters. The Governor reviewed progress against the recommendations of the FEMR, before moving on to briefly look ahead to the move to the replacement of Libor.

Key points from the speech:

  • The Governor remarked on the need to “move from an excessive reliance on punitive ex post fines of firms to greater emphasis on more compelling ex ante incentives for individuals, and ultimately a more solid grounding in improved firm culture.”
  • He then briefly covered some of the regulatory initiatives intended to address conduct, including: the overhaul of benchmark regulation in the FICC markets; changes to compensation rules; and measures to ensure appropriate information sharing and disclosure to address the phenomenon of ‘rolling bad apples’.
  • However, regulatory intervention is not enough, and the UK authorities are using their convening powers to encourage the industry to develop its own standards (e.g., efforts under the Banking Standards Board, the global FICC Market Standards Board (FSMB), and the global FX Committees).
  • In the UK, the Senior Managers Regime (SMR) “gives teeth to voluntary codes by incentivising firms to develop, adopt and embed them.”
  • The Governor concluded his remarks with a brief overview of the transition to new risk free rates (rates derived from transactions rather than reliant on judgment) from Libor.

Further resources:

June 2015 : FEMR Report

July 2016: FEMR Implementation Report

November 2017: FCA CP on Industry Codes of Conduct

February 2018: BoE Statement of Commitment to Market Codes