CISI response to the Bank of England's Fair and Effective Markets Review

by Lora Benson | Jun 15, 2015

Like many others, we have carefully considered the recommendations in the Report for changing conduct and market practices in the Fixed Income, Foreign Currency and Commodities markets.

The clear intention is to ‘draw a line’ on the anti-banker rhetoric of politicians and of the media, and of the huge regulatory fines on firms, over the past six years: but this is not a free lunch for bankers and financial services – far from it – the baton has been firmly passed to firms and to individuals to prevent the recent bad conduct in the FICC markets. It is now up to them to show they accept that responsibility. They have been given a last chance before intrusive regulation.

The CISI is a professional body which covers capital markets (including FICC which account for thousands of those taking its qualifications). It is also a leading voice in promoting ethics and ‘speaking up’ in the sector, as the FEMR Report recognized. We are therefore confining our comment to these aspects, leaving the recommendations on market practices and corporate governance for others.

The CISI welcomes the Report, and its blueprint for culture change in FICC. It is a thoughtful piece, and we are particularly pleased by the amount of discussion the team had with the sector (including the CISI) especially the Market Practitioner Panel, before deciding its recommendations.

Of particular note among the recommendations are those relating to minimum training and qualifications. Ever since the Financial Services Authority abolished mandatory requirements for capital markets staff in 2007, some professional firms have stopped asking their staff to take these on a voluntary basis.

The divide between these and those that have continued is the sharper since we have required individuals taking our qualifications pass an ethical test, IntegrityMatters, before they can do so. This goes a long way to meet the interesting criticism in the Report that existing qualifications tend to focus on professional competence or conduct standards (but not both).

Qualifications and training cannot prevent poor conduct but they remove any excuse the individual may have for not knowing that it is wrong.

We also like the emphasis on individual responsibility for conduct. However effective the training and procedures of a firm,  individuals must be accountable for their own actions – not just the firms’ shareholders. The firm and society expects this. We therefore welcome the proposal to extend elements of the bank Senior Management Regime to FICC staff. The CISI only has individual members and these must adopt ‘The Lord George Principles’ of Conduct to remain as one  - which have a remarkable resemblance to those principles promoted by the Report.

 Finally we would like to draw readers’ attention to the proposals on non-financial factors in remuneration structures. Weighting these factors – good and bad – through some such method as the ‘balanced scorecard’ should send the right and an effective message to all staff.

Simon Culhane, Chartered FCSI and CISI CEO, said “This is an impressive assessment of the causes of present problems in FICC. Its conclusions on how to address ‘ethical drift’ in individuals and firms in the future is thorough, taking account of much ‘best practice’ in the industry and professional bodies such as the CISI. We will be carefully considering how we can support individuals and firms to implement the conduct recommendations”.