In June 2015, the Fair and Effective Markets Review published its Final Report.

Some important recommended changes

Overall, the Final Report sets out some important proposed changes for FICC markets, such as creating a new statutory civil and criminal market abuse regime for spot FX, lengthening the maximum sentence for criminal market abuse and extending the Senior Managers and Certification Regime to cover asset managers, hedge funds and broker-dealers. The Final Report also emphasises the importance of raising standards of conduct and professionalism amongst those who are active in FICC markets and recommends the creation of a FICC Market Standards Board to help improve the quality, clarity and market-wide understanding of FICC trading practices.

What the impact will be in practice

We query how much of an impact some of the recommendations made by the Fair and Effective Markets Review will have in practice. For example, many of the recommendations set out in the Final Report rely on separate and existing initiatives, such as the Senior Managers and Certification Regime, the regulation of seven additional FICC benchmarks (which has been effective since 1 April 2015) and the expansion of the market abuse regime by the Market Abuse Regulation. In addition, most of the recommendations set out in the Final Report are aimed at senior management and industry leaders, leaving us questioning how these recommendations will filter down in practice to reach middle management and those more junior employees who are involved in FICC markets – the very categories of individuals who have been identified by regulators as having engaged in historic misconduct in connection with FICC markets.

As the Final Report acknowledges, the way in which the Fair and Effective Markets Review has drafted its recommendations allows those responsible for implementing them (including the FCA, PRA, IOSCO, HM Treasury and the Bank of England) a great deal of flexibility in terms of how they address and implement them. As a result, it remains to be seen how significant an impact these recommendations may have in practice until we see how they will be implemented.

What is apparent is that a number of the recommendations rely (or will rely) on existing or future codes of conduct, guidelines and examples of good and poor practice. The subjective and dynamic nature of such an approach will mean that firms will face challenges when updating their internal FICC policies and procedures to ensure that they meet prevailing expectations.

Click here to access a summary of the Final Report prepared by Allen & Overy which first appeared in the July 2015 edition of PLC Magazine and is published with the permission of the publishers.  Also available here is a more detailed overview of Allen & Overy’s views on the key points and recommendations that were made in the Final Report that we consider will be of most interest to clients, including commentary from our Regulatory, Litigation, Employment and Competition Teams.