FCA to investigate how firms deal with risk benchmark manipulation 

The Financial Conduct Authority (FCA) has announced plans to look into how firms can reduce the risk of traders manipulating key benchmarks as a central part of its Business Plan for 2014/15, which was published today.

The forward-looking thematic review will assess whether firms have learnt lessons from LIBOR and other recent controversies and ask if adequate controls on traders behaviour and activity are now in place to prevent future manipulation of benchmarks.

Speaking at the City UK Conference, FCA Chief Executive Martin Wheatley said:

‘Following widespread attempted manipulation of Libor, firms should ensure that traders are not able to act in this way in the future. We are determined that firms need to take the matter of manipulation of any benchmark seriously and will be working with firms to seek out any issues that may remain.’

The Business Plan also confirmed that a series of new thematic reviews into the conduct of wholesale banking and investment management firms would be undertaken.

In investment banking, the FCA will look at the issues surrounding conflicts of interest and a separate piece of work on the way firms ensure that confidential information received in one part of the business is not abused by a different part of the business.

The FCA will also examine the behaviour of asset managers, focusing both on how firms ensure that trading activity is consistent with expectations of market conduct and how asset managers are acting as good agents and taking proper account of investor interests.

Martin Wheatley, chief executive of the FCA, said ‘Over the next year we will increase the intensity with which we supervise wholesale conduct to ensure that transactions undertaken by these firms do not have a harmful impact on market integrity.’

The thematic reviews in the wholesale market will sit alongside an assessment of competition issues in wholesale markets, these assessments will help to identify potential candidates for future market studies.

During 2014/15 the FCA will assume a number of new responsibilities. The organisation has said it will build on the successes of its first year with a major focus on the new consumer credit regime as well as the key activities which will be undertaken to ensure that this market is working well for consumers.

In particular the FCA will begin thematic work on arrears management, identify and address poor financial promotions and visit the top five high-cost short-term credit lenders to check they are following the FCA’s new rules.

The FCA has also set out its annual funding requirement (AFR) for 2014/15 required to meet the plans laid out in the Business Plan. The AFR has risen to £446.4m, from £432.1 an increase of 3.3% (£14.3m) on the previous year.

The increase in the AFR has been driven by the costs of the new competition team established to deliver the organisation’s competition objective and a change in the level of underspends returned. The costs the FCA inherited from the FSA have been kept at the same level as last year.

In terms of fees charged to the industry the FCA also confirmed that the minimum fee of £1000 remains unchanged for the fifth year running. 42% of firms will only pay the minimum fee next year.

Source: FCA

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