The UK’s Fair and Effective Markets Review (FEMR) will reportedly formally propose an industry ban on front-running of client orders in FX in addition to extending the Bank of England’s senior managers regime to hold a broader range of bank and the buy side managers accountable.
Such moves would bring FICC regulation more in line with the equity market, in addition to other expected recommendations such as harsher sentences for insider trading and more powers banning individuals implicated in misconduct from the industry, according to sources cited by the Financial Times.
Gaps in the regulation of FX markets were recently revealed when the Financial Conduct Authority was only able to fine banks for weak controls rather than for market manipulation.
As part of the review, due to be unveiled 10 June, a new code of conduct was also under consideration that would be overseen by a new industry body similar to the M&A market’s Takeover Panel.
A further expected recommendation will be to ban the current banking practice of providing positive job references regardless of past performance. Instead, obligatory disclosure of improper conduct could be introduced as part of job references the sources add.
In related news Jesse Norman, the UK MP for Hereford and South Herefordshire, says that there continues to be “serious public disquiet” about the thoroughness of an inquiry by Lord Grabiner, commissioned by the Bank of England (BoE) last year to investigate how alleged FX misconduct claims were handled by its staff.
In an opinion piece for the Financial Times, Norman argues that “inadvertently or by design” the BoE set the original terms of the Grabiner report far too narrowly.
He adds that there were two possible tests which could have been used. “The first asks what its staff ought to have been aware of, and what they should have done about it,” Norman explains. “The second merely asks what its staff actually were aware of, and whether they were involved in actual or potential market manipulation.”
He claims that with inquiries into serious professional misconduct it is normally the first, more stringent test that is applied and yet the BoE instead adopted the second “much less demanding” standard.
“The Grabiner report is manifestly inadequate,” he concludes. “It does not resolve the question of whether BoE officials, including senior staff, were negligent or otherwise at fault. It leaves a shadow of doubt over an institution that aspires to be above suspicion.”
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