Top executives at asset management firms should be among those forced to bear responsibility for misconduct and face fines and punishments under new rules, a major regulatory review has recommended.
The Bank of England’s Fair Markets Review was established by the Chancellor and Governor of the Bank of England last year to help to “restore trust in the wake of a number of recent high profile abuses”.

The report, published yesterday, has suggested extending elements of the Senior Managers and Certification Regimes to a wider range of regulated firms.

This comprises MiFID investment firms, including asset managers and interdealer brokers. HM Treasury should consult on legislation to extend this, the review said.

The review’s recommendations are aimed at restoring trust and fairness in FICC markets, while also boosting their overall effectiveness.

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The report stated: “This recommendation (the extension of the regime) would need to be subject to consultation. Among other things, that consultation would need to consider the precise scope of the extension and the exact makeup of an expanded regime.

“Any extension should apply to authorised firms that are active in FICC markets, but are currently out of scope of the existing regimes. That would include: MiFID investment firms, including asset managers and interdealer brokers; hedge funds under the EU Alternative Investment Fund Managers Directive; and fund managers under the EU Undertakings for the Collective Investment of Transferable Securities Directive.”

Explaining why they thought it was important to extend the regime, officials said in their report: “Extending the conduct rules to a wider range of regulated firms active in FICC markets would emphasise that traders and other individuals in those firms are personally responsible for observing proper standards of market conduct.

“Regulatory references required under the SM&CR can be an effective tool to minimise the risk of ‘rolling bad apples’ and should therefore be a requirement for a wider range of regulated FICC firms.”

Martin Wheatley, chief executive of the FCA, said: “These markets are central to our economy and today’s recommendations will be important in rebuilding public trust in their integrity.

“Domestic regulatory reform is only one piece of the puzzle. Driving up global standards needs international cooperation between regulators, but confidence is underpinned by the behaviour of the firms and individuals active in them.

“We will know the review has truly succeeded when we see these changes being embraced at every level in industry.”

Mark Carney, governor of the Bank of England, said: “With its publication, all the main building blocks are now in place for the real markets we need.”

Recommendations to raise standards, professionalism and accountability of individuals include:

i. Encouraging IOSCO to consider developing a set of common standards for trading practices that will apply across all FICC markets

ii. Extending UK criminal sanctions for market abuse to a wider range of FICC instruments and lengthening the maximum sentence from 7 to 10 years’ imprisonment

iii. Mandating qualification standards to improve professionalism and disclosure requirements for references to avoid misconduct going undetected when individuals change jobs.

Recommendations to firms to improve the quality, clarity and understanding of FICC trading practices:

iv. Creating a new FICC Market Standards Board with participation from a broad cross-section of firms and end users and, involving regular dialogue with the public authorities, to address areas of uncertainty in trading practices and promote adherence to standards.

Recommendations to the UK authorities to strengthen regulation of FICC markets include:

v. Extending elements of the Senior Managers and Certification Regimes to a wider range of regulated firms active in FICC markets

vi. Creating a new statutory civil and criminal market abuse regime for spot foreign exchange, drawing on the international work on a global code