The FCA has demonstrated through high-profile enforcement action, for example in relation to benchmark and FX market conduct, its willingness to pursue enforcement action for misconduct in relation to the unregulated as well as the regulated activities of financial institutions. In the past, such action has typically been brought on the basis of breaches of systems and controls requirements.
On Friday the FCA published a paper containing proposals which, in combination, would assist the FCA in the future to bring such cases against individuals and firms on a conduct basis. First, the FCA proposes to use industry codes applicable to unregulated markets (such as spot FX) when assessing whether senior managers and certified persons at banks have complied with its Conduct Rule concerning proper standards of market conduct. Second, the FCA proposes to adopt a process of ‘recognising’ certain codes as representing a proper standard of conduct in unregulated markets. Third, the FCA proposes extending its market conduct principle (Principle 5) to unregulated markets. These proposals present significant challenges and opportunities for financial institutions, as we explain in our briefing. For example, the proposals may assist firms who comply with voluntary codes by increasing pressure on others to do so, thereby improving standards of conduct and creating a more level playing field in unregulated markets. On the other hand, there is a risk that aspirational statements of best (rather than reasonable) practice end up being treated as a benchmark against which conduct is judged in enforcement.
We would welcome your views on the consultation, which we are considering responding to.