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Freshfields Risk & Compliance

| 2 minutes read

Bad behaviour: Areas of FICC focus for UK regulators

Areas to review for bad behaviour

Using the work of the FICC Markets Standards Board (FMSB) as a proxy for likely areas of interest for the UK regulators, market participants can arguably expect heightened regulatory scrutiny of their structure and conduct in electronic trading, government bond auctions, the sharing of allocation information in primary bond markets, the management of large trades and the conduct of precious metals fixes

These areas are conceivably also at risk of antitrust scrutiny. Global investigations relating to Libor and other benchmark rates, FX trading and price setting for metals – all pursued by financial and antitrust regulators in tandem – were the reason why the FMSB was set up in the first place. 

If in-house legal and compliance functions are considering where to focus their resources for the coming year, it is worthwhile keeping the above list in mind.

The FMSB - a UK private sector, market-led organisation which was created in 2015 to raise standards of conduct in wholesale fixed income, currencies and commodities (FICC) markets - has published its 2018 annual report. Although its membership is drawn from the private sector, the FMSB was formed under the sponsorship of the UK Treasury, the Bank of England and the Financial Conduct Authority, who take a keen interest in its output. We can therefore expect that the areas identified above by the FMSB as worthy of review will also be on the radar of the UK regulators.

The report also provides information on the FMSB’s 13 published Standards and Statements of Good Practice which cover a wide range of topics, including risk management transactions, suspicious transaction and order reporting (STORs) and monitoring of written electronic communications.

STORs provide a good example of the overlap between the FMSB priorities and those of the UK regulators. The FMSB published its Statement of Good Practice on STORs in mid-January, whilst in February the FCA identified STORs in FICC markets as an area of interest for the coming year. Julia Hoggett, Director of Market Oversight at the FCA, said in a speech given in February:

 …when we look across all markets, the spread of STORs is still heavily biased towards equity-related STORs… Whilst we have seen some progress in relation to fixed income and commodity STORs, we think that the total number of STORs received in both of these areas remains low, suggesting that firms with significant business lines in these asset classes need to do more to detect and report suspicious activity. This is where we will continue to focus our supervisory attention and I would argue we still have quite a lot of work to do here.

How to review for bad behaviour

Once areas of likely regulatory scrutiny are identified, we would expect most market participants will already have a framework in place for their internal assessments. However, it is worthwhile comparing any existing internal processes with the FMSB’s “Behavioural Cluster Analysis” to cross-check that all behavioural risk areas are covered.

The 2018 annual report gives further detail on the FMSB’s Behavioural Cluster Analysis workstream, a review of enforcement cases to identify trends in behavioural patterns which leads to market misconduct. It categorises behaviour clusters into seven topic areas: Price Manipulation, Circular Trading, Collusion & Information Sharing, Inside Information, Reference Price Influence, Improper Order Handling and Misleading Customers.

If in-house legal and compliance functions are considering where to focus their resources for the coming year, it is worthwhile keeping the areas listed by the FMSB in mind.


investigations and enforcement, governance, financial services, investment trading and markets, benchmarks, fig competition