Financial Conduct Authority 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.

Martin Wheatley said: ‘Taking on the regulation of consumer credit is an enormous task which effectively doubles the number of firms that we regulate.  Using our new power we want to tackle harm to consumers who are most at risk and our work will focus on protecting vulnerable consumers.’

Other areas of focus for the next year outlined in the Business Plan include:

  • using the FCA’s consumer protection objective to undertake a programme of work ensuring that consumers are being treated fairly.  This will include looking at how firms are implementing the Mortgage Market Review, ensuring that firms have embedded the recommendations made in 2013 regarding motor legal expenses insurance and mobile phone insurance and reviewing the sales practices and disclosures when selling premium finance to consumers alongside general insurance products
  • using market studies to analyse competition and weaknesses in the markets regulated in order to build orderly, competitive financial services markets and achieve the FCA’s objective in promoting competition to protect consumers
  • implementing the measures set out in the Financial Services Act 2013 including establishing Senior Managers and Certified Persons Regime to increase accountability to senior individuals
  • preparing for the operational launch of the Payment Systems Regulator which will be an economic regulator for retail payment systems in the UK and will become a separate legal entity with its own statutory objectives and board, under the FCA
  • the FCA will continue to deliver the commitment to establish a robust framework of supervision for LIBOR and take tough and meaningful action against firms and individuals who fail to follow the rules
  • extensive engagement with Europe on important Directives under consideration including embedding the Alternative Investment Fund Management Directive (AIFMD), and prepare for the implementation of Markets in Financial Instruments Directive (MiFID2)
  • continuing the FCA’s credible deterrence agenda and continue to cooperate with other regulators to pursue cross-border enforcement.  The next 12 months will also see anti-money laundering assessments extended and more work done on enhancing whistleblowing activity.

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.

Martin Wheatley said: ‘We have also announced our Annual Funding Requirement today.  We have worked hard to ensure that the small firms we regulate pay the least and once again we are able to keep the minimum fee at the same level.  The increases will be borne mainly by larger and more complex groups which pose the most risk and are costliest to regulate.’

Notes for editors

  1. A full version of the Business Plan.
  2. A full version of the Annual Funding Requirements.
  3. The FCA has today also published the organisation’s risk outlook for the year.
  4. 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).
  5. 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.
  6. Find out more information about the FCA.