The FICC Markets Standards Board (FMSB) has issued its 2019 Annual Report setting out the progress made to enhance standards of behaviour in the wholesale fixed income, currencies and commodities (FICC) markets and its priorities for the year ahead.

FMSB is a private sector, practitioner-led organisation whose membership collectively accounts for a substantial share of the business conducted in wholesale FICC markets worldwide.

The report describes the work undertaken by FMSB in pursuit of the four strategic goals set out in the Fair and Effective Markets Review (FEMR), which was conducted jointly by the UK’s Treasury, the Bank of England, and the Financial Conduct Authority (FCA). These were to identify global market vulnerabilities through scanning the horizon for emerging business practice risks; the development of best market practice through the production of standards and other materials that create a common understanding; drive global adherence through ensuring standards are comprehensible and practical; and the development of consistent approaches to market practices through the identification of gaps and inconsistencies in existing regulatory standards and working with other standards setting bodies.

The FMSB has already issued five Standards and 10 Statements of Good Practice and says it has a significant amount of work in progress and planned for the year ahead to support its strategic goals. These include the development and publication of further Standards, Statements of Good Practice and Spotlight Reviews; a look at the impact of existing Standards to understand how business practices are changing in response; and the finalisation of a series of publications on the role of data in ensuring fair and effective FICC markets.

Additionally, FMSB says it will explore Ibor benchmark reform and the remaining risks and issues that could arise as the industry transfers to alternative risk-free rates; look at the commodities markets in metals and energy through the recently established working groups in these areas; and assess the viability of creating a series of FICC market practice training programmes that could be recognised across institutions and locations.

“FMSB has achieved a great deal since it was created, and in 2019 we made significant progress against our central objective of raising standards of conduct in global wholesale FICC markets so that they are more transparent, fair and effective for all participants,” says Mark Yallop, Chair of FMSB .” We now have 15 published Standards or Statements of Good Practice, with more in the pipeline. We are continuing to scan the horizon for new vulnerabilities, recognising that markets are evolving constantly and we see new challenges today that didn’t exist when FMSB was created, including the opportunities and potential hazards afforded by new technology, in particular the growth of machine learning and data science.

“We have a significant amount of activity planned for 2020, including our focus on assessing the potential risks that could arise with the replacement of Ibor with other near risk-free rates,’ he continues. “This is a clear example of FMSB’s important role in global markets.

“As a network organisation, we rely on expert market practitioners from across member firms,” he adds. “They commit their time, dedication, and insight to the FMSB, and I would like to thank all our members and their people for the strong commitment and support we receive.”

FMSB says it continues to receive strong support from UK and international central banks and regulatory bodies. Mark Carney, governor of the Bank of England, says, “A new economy is emerging, driven by immense changes in technology, the reordering of global economic power, and the growing pressures of climate change. This transition needs markets that are effective and fair and that balance innovation and resilience. I support the FMSB’s work to achieve that goal. The private sector is responsible for supporting competition in FICC markets and managing conduct risks. By developing standards on transparency and fairness, the FMSB promotes the new finance needed for the new economy.”

Meanwhile incoming Bank of England governor and current CEO of the FCA, Andrew Bailey, says, “The FCA always and only regulates in the public interest. We place the strongest emphasis on outcomes and principles, and understand that rules alone cannot deliver these particularly in wholesale markets that are global in nature. The FCA sees the FMSB’s role as a practitioner-led standards setter as an important supplement to the regulatory framework to improve business practices and rebuild trust in the financial system. The FCA supports the FMSB’s ambitious workplan to deliver more transparent, fair and effective global wholesale markets.”

Elsewhere, Ashley Alder, chair of IOSCO Board, says, “Eight years have now passed since multiple conduct failures in wholesale finance first came to light, resulting in unprecedented fines and other sanctions. In response, FMSB has been unrelenting in harnessing the deep expertise of its participants to develop a series of detailed, actionable industry standards aimed at restoring confidence and trust in FICC markets. IOSCO commends and supports this important work.”

Colin Lambert

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