The FCA has published Thematic Review 15/11: Financial Benchmarks: Thematic review of oversight and controls (TR15/11).
In TR15/11 the FCA presents the findings from its thematic review of firms’ oversight and controls in relation to financial benchmarks. The review covered firms’ systems and controls arrangements around benchmark activities such as: (i) governance, accountability, oversight and control; (ii) monitoring and surveillance arrangements; and (iii) identification and management of the potential conflicts of interest arising in day-to-day activities, as well as the design and management of benchmarks. Furthermore, the FCA also discussed the firms’ understanding and implementation of the International Organization of Securities Commissions (IOSCO) Principles for Financial Benchmarks.
Findings in TR15/11 include:
- all firms had made changes to their approach to benchmark activities, however there were a number of areas where firms needed to take further action in order to manage the risks of their benchmark activities appropriately;
- no firm had fully implemented changes across all benchmark activities;
- progress has been uneven. The progress firms had made in improving their oversight and controls for contributing data, designing, managing, administering or trading around benchmarks varied. While some had made significant changes to their approach, others were still at an early stage in the process. There was, however, evidence to suggest that previous enforcement fines levied by the FCA and other authorities have been effective in instigating change at firms. Senior management had taken steps to focus on conduct issues and undertake reviews to identify and develop controls to manage conflicts of interest that arise in relation to benchmark activities;
- change has lacked urgency. Overall, the progress to improve oversight and controls around benchmark activities across most firms and within individual firms appeared slow;
- inconsistent benchmark identification and follow-up. There was inconsistency in how firms determined the range of benchmark activities within the firm; and
- identifying and managing conflicts of interest. Narrow interpretations of the IOSCO definition of benchmarks as well as stand-alone structures led to firms not applying the lessons learnt from one benchmark to another.
Based on the findings, the FCA sets out the following six key messages:
- firms need to ensure that they identify all of the activities that constitute a benchmark activity or that could affect a benchmark;
- firms’ senior management need to act quickly to improve any outstanding gaps in their approaches to benchmark activities;
- firms need to strengthen their governance and oversight of benchmark activities;
- firms need to continue to identify, raise awareness of and manage conflicts of interest in relation to benchmark activities;
- firms should ensure they establish robust controls and oversight for any in-house benchmarks being used; and
- when exiting benchmark activities, it is essential that firms give due consideration to the wider impact of their actions.
View TR15/11: Financial Benchmarks: Thematic Review of Oversight and Controls, 29 July 2015