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FCA finds oversights in benchmark oversight

On 29 July 2015, the FCA published the Financial Benchmarks: Thematic review of oversight and controls.

Based on a sample of 14 banks and broking firms, the review exposes the uneven development of internal processes in relation to benchmarks. Good, bad and ugly practices are presented for a wide range of benchmark-related activities[1]. The broad interpretation of the IOSCO definition of “benchmarks” and the coordinated approach favoured by the regulator underpin the six key messages below:

  • 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
  • When exiting benchmark activities, it is essential that firms give due consideration to the wider impact of their actions.

Only a few firms had a plan to address benchmark strategy, perhaps waiting for the transition from mostly soft principles on benchmarks to formal EU regulation. The FCA’s firm stance on benchmark oversight and controls should make this issue a priority for affected firms, regardless of delays at the EU level.

[1] Construed widely: “The FCA regards benchmark activities as including any activity that can affect a benchmark either directly or indirectly.”

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