FICC Markets Group Issues Best Practice Guidelines

The FICC Markets Standards Board (FMSB) has published the final version of its Statement of Good Practice (SGP) on Suspicious Transaction and Order Reporting.

The FMSB is an independent body set up by market practitioners to try and improve standards of conduct in wholesale FICC markets. It aims to bring transparency to grey areas in the wholesale FICC markets by identifying emerging vulnerabilities, clarifying and documenting practice and agreeing standards to improve conduct and market behaviour.

Setting up the FMSB was one of the main recommendations to emerge from the Fair and Effective Markets Review (FEMR), which was conducted by HM Treasury, the Bank of England and the Financial Conduct Authority (FCA).

The final version of the Statement of Good Practice issued today deals with the identification of suspicious transactions and orders and their reporting to the relevant regulator, and highlights 10 specific good practices for firms active in the FICC markets to follow. From the text of the FSMB document, these are:

  1. Firms should have a clear organisational structure in place to facilitate monitoring and reporting of suspicious orders or transactions. Surveillance activities should be appropriate, independent and proportionate in relation to the scale, size and nature of the business activities of the firm.
  2. Roles and responsibilities should be clearly defined for the monitoring and reporting of suspicious orders and transactions. They should be defined across the lines of defence, with appropriate allocation of resources and appropriate documentation of these roles and responsibilities.
  3. Surveillance capabilities should be supported by the firm’s conduct risk framework.
  4. Firms should have a regular training programme in place in which employees are educated on how to identify and escalate suspicious orders and transactions.
  5. Firms should have a structured approach to calibrating their surveillance systems to identify suspicious orders and transactions. The analytics should be regularly reviewed and updated to improve the detection of potential suspicious behaviour.
  6. Alerts arising from surveillance systems should be processed, investigated and closed out in a diligent manner in line with agreed and documented processes and governance. Investigation should be conducted by surveillance or control officers with relevant expertise and experience as outlined in Good Practice Statement 1 with specific consideration for the targeted engagement with front office and other relevant areas of subject matter expertise to cater for appropriate and informed analysis.
  7. In addition to reactive alertbased surveillance systems, firms should consider other monitoring programmes for manual surveillance which reflect the inappropriate behaviour and risks in firm activities that the firm is attempting to prevent.
  8. Firms should have a decisionmaking process in place to establish whether there is a ‘reasonable suspicion’ regarding an order or a transaction or a series of orders and transactions.
  9. Firms should provide guidance to employees on required actions after a suspicious transaction and order report (STOR) is submitted. This will be dependent on the nature of communications with the regulator and the status of any consequent investigation.
  10. Firms should deploy a relevant record keeping tool that is able to provide for the full lifecycle of any suspicions. Every alert and case that is investigated or analysed should have a full audit trail which is recallable in the future.

It’s worth noting that FMSB standards and statements of good practice do not have the status of regulation and do not impose any legal obligations on market participants. In addition, the document issued today highlights that there will be some overlap between these best practices and other codes of conduct that exist within FICC markets, such as the FX Global Code.

As a result, the FMSB says that it “will seek to ensure it adopts a consistent approach in cases of overlap wherever possible, and will seek to avoid issuing a Standard or SGP where the subject matter is already covered adequately by existing regulation or a Code issued by another body. It may, however, draw the attention of member firms to an existing code and request that members act in a manner consistent with it, once appropriate steps have been taken to confirm its applicability”.

 

Galen Stops

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