UK: Mark Carney's Mansion House speech - ethical drift, social licence and markets

Dr Mark Carney, the Governor of the Bank of England, delivered a speech yesterday at the Mansion House in London titled 'Building real markets for the good of the people': see here (pdf). A few hours earlier, the final report and recommendations of the Fair and Effective Markets Review (FEMR) had been published. Here are some extracts from Dr Carney's speech, in which he endorsed the FEMR report:

Markets are not ends in themselves, but powerful means for prosperity and security for all. As such they need to retain the consent of society – a social licence – to be allowed to operate, innovate and grow. Repeated episodes of misconduct have called that social licence into question. ... Real markets are resilient, fair and effective. They maintain their social licence ...

We need a better balance between individual and firm accountability ... [I]ndividuals must be held to account ... [F]irms must take greater responsibility for the system by improving the quality, clarity and market-wide understanding of FICC trading practices ... [K]ey elements of the Senior Managers Regime should be extended to all firms active in wholesale FICC markets, including dealers and asset managers. That means all senior managers would have clearly defined responsibilities and would be answerable for training, certifying and monitoring the material risk takers they supervise ...

It’s vital that we – public authorities and private market participants – work together to reverse the tide of ethical drift. This cannot be a one-off exercise. We need continuous engagement so that market infrastructure keeps pace with market innovation."

UK: Fair and Effective Markets Review - final report published

The Fair and Effective Markets Review was set up by the Chancellor in June 2014 and given two objectives: [1] reinforcing confidence in the fairness and effectiveness of wholesale financial market activity conducted in the United Kingdom; [2] influencing the international debate on trading practices, including highlighting issues that can only be addressed through co-ordinated international action. The Review's final report and recommendations were published today: see here (pdf). A summary is available in the accompanying press release. Further information, including the terms of reference and responses to the earlier consultation paper, is available here.

UK: bank remuneration - a letter to the Governor and an Advocate General's opinion

The Chancellor, in a letter published yesterday and sent to the Governor of the Bank of England (Mark Carney), outlined his concerns regarding the growth in fixed elements of bank remuneration following the introduction of a bonus cap in Directive 2013/36/EU: see here (pdf). He explained that he would be asking the Fair and Effective Markets Review to consider the implications of the move towards increased levels of fixed remuneration.

The Chancellor also stated that the Government had decided not to pursue its case (reference C-507/13) before the Court of Justice of the European Union challenging the validity of the bonus cap. This decision follows the publication yesterday of the opinion of First Advocate General Jääskinen, in which he advised the court to reject all of the UK's pleas and to dismiss the action: see here. A summary of the opinion is available here (pdf).

UK: extending the regulation of financial benchmarks - consultation published

In June this year, the Government announced the formation of the Fair and Effective Markets Review. Yesterday, based on the review's first set of recommendations (available here, pdf), the Government launched a consultation on proposals to extend the regulatory regime recently introduced for LIBOR to other financial benchmarks: see here. Included with the consultation is a draft statutory instrument - The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. X) Order 2014 - a copy of which is available here (pdf).