UK: FCA Finds Firms Still Failing To Manage Benchmark Risks

The Financial Conduct Authority (FCA) has found that firms are still failing to manage benchmark risks.

The regulator's thematic review of oversight and controls of financial benchmarks finds firms still have to do further work to identify the full range of their benchmark activities and improve their management of the associated risks.

The FCA added that application of the lessons learned from the Libor, Forex and Gold cases to other benchmarks had been uneven across the industry and often lacked the urgency required given the severity of recent failings.

Firms were found to be failing to identify a wide enough scope of benchmark activities by interpreting the Internation Organisation of Securities Commissions (IOSCO) definition too narrowly.  In addition, some firms had not made sufficient effort to properly identify the conflicts of interest that could arise from their businesses and benchmark activities.

Following the review the FCA has said that firms need to: continue to strengthen governance and oversight of benchmark activity; continue to identify and manage conflicts of interest; fully identify their benchmark activities across all business areas; establish oversight and controls for any in-house benchmarks where they have not done so; and implement appropriate training programmes.

Acting Chief Executive and Director of supervision Tracey McDermott said: 'We have seen widespread historic misconduct in relation to benchmarks. It is now critical that firms act to restore trust and confidence in the system. Firms should have in place systems to manage the risks posed by benchmark activities and to address the weaknesses that have previously been identified.'

She added that the 'consistency of implementation and speed at which these changes have been taking place is disappointing. Firms should take our findings on board and consider further steps to improve their oversight'.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.