FCA finds firms still failing to fully manage benchmark risks

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:

  • 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.

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.

Notes to editors

  1. TR15/11: Financial Benchmarks: Thematic Review of Oversight and Controls
  2. The IOSCO definition of benchmarks (see ‘Benchmark’ in Annex A, p35 for definition).
  3. Both LIBOR and FX were out of scope of the report given the considerable work already carried out on both benchmarks.

  4. Following benchmark cases on LIBOR, Forex and Gold, the UK government passed legislation to regulate benchmark activities in UK. The administrators and submitters to eight benchmarks are now subject to FCA’s standards of governance, controls, accountability, management of conflicts of interest and record keeping.
  5. For more information about the FCA’s regulation of benchmarks.
  6. On 1 April 2013, the FCA became responsible for the conduct supervision of all regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA). On 1 April 2014, the FCA took over responsibility for consumer credit regulation.
  7. The FCA has an overarching strategic objective of ensuring the relevant markets function well. To support this it has three operational objectives: to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.
  8. Find out more information about the FCA.