Firms should ensure they learn the lessons from our previous enforcement cases and apply them to the wide scope of their benchmark activities.
Following misconduct related to LIBOR, foreign exchange (FX) and gold, we were given powers to regulate benchmarks specified by the UK Government. Our powers regarding LIBOR took effect in April 2013, and powers regarding 7 other benchmarks took effect in April 2015. The administrators and, where applicable, submitters to 8 benchmarks, are now subject to the FCA’s standards of governance, controls, accountability, management of conflicts of interest and record keeping. The EU Benchmarks Regulation will bring more firms within the scope of regulation.
Thematic review of financial benchmarks’ oversight and controls
We carried out a thematic review in 2015 and found that firms still have to do more work to identify the full range of their benchmark activities and improve their management of the associated risks. Following the review, we 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, foreign exchange and gold cases to other benchmarks had been uneven across the industry. And it often lacked the urgency required, given the severity of recent failings.
We found that firms were failing to identify a wide enough scope of benchmark activities by interpreting the IOSCO definition (see ‘Benchmark’ in Annex A, p35 for 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:
- 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
- implement appropriate training programmes