Firms still have to do further work to identify the full range of their benchmark activities and improve their management of the associated risks according to the Financial Conduct Authority’s thematic review of oversight and controls of financial benchmarks published today.
The FCA found that some progress had been made on improving the oversight and controls around benchmarks. However, the application of 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.
Tracey McDermott, director of supervision – investment, wholesale and specialists at the FCA said:
"We have seen widespread historic misconduct in relation to benchmarks. 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. Firms should take our findings on board and consider further steps to improve their oversight."
The FCA found that firms were failing to identify a wide enough scope of benchmark activities by interpreting the IOSCO 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 FCA has said that firms need to:
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.
Both LIBOR and FX were out of scope of the report given the considerable work already carried out on both benchmarks.
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