British Regulators Launch “Fair and Effective Markets Review”

British regulators announced the launch of a consultation document to solicit views on fixed income, currency and commodity (“FICC”) markets. The consultation document is part of the Fair and Effective Markets Review (“FEMR”), which is led by Deputy Governor of the Bank of England Minouche Shafik, CEO of the Financial Conduct Authority (“FCA”) Martin Wheatley, and U.K. Treasury Director General of Financial Services Charles Roxburgh.

The document begins with an overview of a number of major trading and manipulation violations in FICC markets, including the manipulation of benchmarks in interest rates and foreign-exchange markets. The document uses a six-part framework to assess the most critical sources of vulnerability and identify potential solutions from the perspectives of structure and conduct:

  • structure: market microstructure, competition and market discipline, and benchmarks; and
  • conduct: standards of market practices, responsibilities, governance and incentives, and surveillance and penalties.

In a speech before the London School of Economics, Ms. Shafik announced the launch of the consultation document. According to Ms. Shafik, the primary aim of the FEMR is to “take stock” of the FICC markets and ensure that everything is being done to make them fair and efficient.

Two of the questions asked in the consultation document are these: whether some markets lack sufficient competition, and whether speedier electronic trading might benefit investors in certain thinly traded assets. Areas of concern discussed in the document include the following: (i) the way in which new issues of bonds are allocated between investors, (ii) the distinction between legitimate trading activity and market manipulation, and (iii) the lack of common standards for assessing whether a client is sufficiently sophisticated to invest in certain products.

Regarding governance and incentives, the document poses these questions: whether more can be done to improve the manner in which individuals are appraised and promoted, and whether firms need better safeguards against inappropriate staff moves and influence. Additionally, the document asks whether the competition between banks in the main wholesale markets is insufficient.

Responses to the consultation document are due by January 30, 2015 and should be sent by email to

Lofchie Comment: The tone of the review strongly suggests that market participants should expect more regulation, although the report does concede some of the potential negative effects of heavy and expensive regulation, including decreased liquidity.

See: FEMR Consultation Document; Ms. Shafik’s Speech; Bank of England Press Release; London School of Economics Press Release.