The Fair and Effective Markets Review (the “Review”) was launched by the Chancellor of the Exchequer and the Governor of the Bank of England in June 2014 for two main reasons: to reinforce confidence in the wholesale Fixed Income, Currency and Commodities (“FICC”) markets in light of the misconduct issues which have been prevalent in recent years; and to influence the international debate on trading issues.

The Review begins by outlining the importance of the FICC markets, not least because they are a vital source of employment for many people. The loss of public trust in the markets following the financial crisis, led the Bank of England to launch a consultation in 2014 that involved interviews with close to 800 people. The findings of that consultation form the basis of the Review. It was intended that the Review would fulfil three main goals: i) provide analysis of the major causes of recent misconduct; ii) evaluate the impact of significant reforms already in progress; and iii) make recommendations to fill any remaining gaps in areas where reform is desirable.

The consultation

The consultation document posed four questions to respondents:

  1. What do ‘fair’ and ‘effective’ mean for FICC markets?

Following the consultation process, it was agreed that ‘fair’ markets should mean those that are clear, consistent, accessible to those which need access, transparent and confidence inspiring. ‘Effective’ markets are those which have a robust infrastructure and a good level of liquidity.

  1. Where was fairness and effectiveness deficient?

The consultation process found there were deficiencies in the market structure, and, amongst other issues, there were unmanaged conflicts of interest, incidents of collusion and undesirable levels of liquidity. In addition, market practice standards were unacceptable and the systems of internal governance and controls were inadequate. The consultation process also unearthed a belief that certain individuals in the profession felt that misconduct could go without being noticed and without being punished. These behaviours had become increasingly widespread and were seen as normal.

  1. What has already been done to put deficiencies right?

The Bank of England and the Treasury feel that some progress has been made, for example, the new reforms proposed via MiFID II. Transparency in some FICC markets has also improved and the greater powers the Financial Conduct Authority has been afforded to enforce against breaches of competition law, has reduced anti-competitive behaviours. In addition, the internal governance of firms in the industry has improved, not least due to the Prudential Regulation Authority’s new Senior Manager Rules regime. On a basic level, firms are much more alive to the fact that misconduct is more easily detected and will be punished.

  1. Where are the remaining gaps?

There is still some uncertainty on the final shape of MiFID II and there are remaining gaps in the coverage of regulation, particularly in global markets where more needs to be achieved to raise standards.

The Review

Following the results of the consultation process, the Bank of England and the Treasury has concluded that there are six key recommendations it believes are necessary to improve both the short-term and long-term conduct of FICC markets:

Short-term recommendations

  1. Raise standards, professionalism and accountability of individuals
    • develop a global standard for FICC markets;
    • establish new training standards for those that work in FICC markets;
    • create measures which prevent those with a poor conduct record switching between firms; and
    • extend criminal sanctions and increase prison sentences for market abuse.
  1. Improve the quality, clarity and market-wide understanding of FICC trading practices
    • create a new FICC Market Standards Board.
  1. Strengthen regulation of FICC markets in the United Kingdom
    • extend the UK regulatory framework for benchmarks to cover seven additional major FICC benchmarks;
    • create a new civil and criminal market abuse regime for spot foreign exchange;
    • ensure proper market conduct in FICC markets is managed according to the Senior Managers and Certification Regime;
    • extend the Senior Managers and Certification Regime; and
    • Make firms and traders more aware of competition law.
  1. Launch international action to raise standards in global FICC markets
    • agree a single global FX code and improve transparency around it;
    • look at ways to ensure benchmark administrators publish more consistent self-assessments against IOSCO Principles; and
    • look at ways to improve alignment between remuneration and conduct risk at a global level.

Long-term recommendations

  1. Promoting fairer FICC market structure while also enhancing effectiveness through:
    • improving transparency whilst maintaining the benefits of diverse trading models;
    • acting on anti-competitive structures; and
    • catalysing market-led reform held back by private sector co-ordination failures.
  1. Forward-looking conduct risk identification and mitigation through:
    • identification of conduct risks;
    • enhanced surveillance of trading patterns; and
    • forward-looking supervision of FICC markets.


The Bank of England and the Treasury emphasises the importance of these recommendations and note that both those individuals working in the industry and those that enforce regulation, must work collaboratively to improve the markets. It warns that if firms fail to work collaboratively, more restrictive regulation is inevitable.

To read the full final report, please go to:

Should you require any further advice or information on the above, Cleveland & Co, your external in-house counsel, are here to help.