The Financial Conduct Authority has told firms that they still have further work to do in improving governance and oversight of benchmark activity.
A thematic review of 12 firms, carried out between August 2014 and June 2015 to get an early assessment of the extent to which they had learnt the lessons from previous failures around benchmarks, found that while some progress has been made, it is uneven across the industry.
The FCA said that the lessons learned from the Libor, forex and gold cases to other benchmarks had been “uneven across the industry and often lacked the urgency required given the severity of recent failings”.
Firms failed to identify a wide enough scope of benchmark activities by interpreting the International Organization of Securities Commissions definition “too narrowly”.
In addition, some firms had “not made sufficient effort” to properly identify the conflicts of interest that could arise from their businesses and benchmark activities.
Following the review, the regulator has said that firms need to:
• continue to strengthen governance and oversight of benchmark activity;
• continue to identify and manage conflicts of interest;
• fully identify their benchmark activities across all business areas;
• establish oversight and controls for any in-house benchmarks where they have not done so; and
• implement appropriate training programmes.
Tracey McDermott, director of supervision for investment, wholesale and specialists at the FCA, said that the markets have seen widespread historic misconduct in relation to benchmarks and it is now critical that firms act to restore trust and confidence in the system.
“Firms should have in place systems to manage the risks posed by benchmark activities and to address the weaknesses that have previously been identified.
“We recognise that this is a significant task and firms had made some improvements, but the consistency of implementation and speed at which these changes have been taking place is disappointing.
She added: “Firms should take our findings on board and consider further steps to improve their oversight.”
The FCA is writing to all firms involved in the review to provide individual feedback and will be following up on this work as part of its regular supervision of firms.
Simon Morris, partner at law firm CMS, said: “Benchmark manipulation came close to shattering the City’s reputation for good, so it’s surprising that the FCA has found a lax approach in some firms to putting things right.
“This report is a clear wake-up call, and if things haven’t speeded up by the autumn we can expect the next round of multi-million pound fines to commence.
“The reference to IOSCO standards is also telling; it affirms the internationalisation of regulation, and shows how the UK regulators are increasing implementing standards designed at EU or global level.”
donia.o’loughlin@ft.com
