How conduct agenda is reshaping financial services

Author: Lizzie Meager | Published: 23 Feb 2017
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Regulators’ focus on conduct and controls in the years that followed the crisis has completely reshaped the day-to-day workings of financial institutions, according to speakers at an industry event in London today.

Panellists at the Association for Financial Markets in Europe’s European Market Liquidity conference reflected on the effectiveness of actions taken by the regulators in recent years.

"More rules don’t do anything to rebuild trust. They’re hard to write for complex, fast-moving industries, and they encourage regulatory arbitrage and a tick-box mentality," said Mark Yallop, chair of the FICC Markets Standards Board (FMSB) and Prudential Regulation Authority board member. "A much better approach is to challenge the industry to show it can become trustworthy again."

That’s the aim of the FMSB, a market-led initiative chaired by Yallop that sets behavioural standards and guidelines for the financial services industry.


  • Speakers at an industry event in London today said that regulators’ focus on conduct and controls has been helpful in rebuilding trust and improving behaviour;
  • Even the SMR, which not many welcomed when first introduced, has been incredibly positive;
  • Conduct rules are unlikely to impact liquidity in the same way regulation does but do make traders less willing to exercise their own discretion;
  • Technology also helps boost conduct by making trades more easily traceable, but regulation and surveillance does struggle to keep up with innovation.

Panellists also praised the UK’s senior managers’ regime that became effective last March. It introduces personal liability for senior managers at banks and building societies.

"I confess, I rolled my eyes when I first saw the email inviting me to training, thinking: 'there’s an hour of my life I won’t get back’. But the overall impact has not been nearly as negative as the sceptics said," said BNY Mellon’s head of fixed income electronic markets Dom Holland. "I realise it was the right time to pull the leash and remind everyone why we need to focus on this."

The FMSB is looking at internal surveillance and the tools available to support that, as well as escalation – who should do it and when, and how to make it something that comes naturally to those in the market, explained Sally Dewar, international head of regulatory affairs at JP Morgan.

"We have to be realistic. We can’t catch every bad apple"

The electrification of markets has been helpful in boosting conduct by providing more transparency than ever before. It enables the lifecycle of a product to be far more easily tracked.

"We have to be realistic. We can’t catch every bad apple, people will always be tempted to do things and they do need to be found and punished," said Yallop. "But through better use of technology, things are changing in extraordinary ways."

There can be unintended consequences of electrification, though. "There will be a bifurcation of the things that can’t move towards technology, that will become less loved and less liquid," said Holland. Concentration in a smaller market sector also drives innovation, as seen with the development of algorithms in high frequency trading.

"It’s very hard to keep surveillance ahead of innovation because innovation will always be pushing the boundaries," he added.

As for the conduct agenda’s impact on liquidity, speakers believe this is minimal. As highlighted in the Bank for International Settlements’ report on the sterling crash, an over-reluctance among traders to exercise their own discretion could have a small impact.

"Clients actually say they appreciate that the focus on conduct and controls has demystified the way these markets operate, which helps build trust and is actually positive for liquidity," said Nat Tyce, co-head of macro trading at Barclays.

But regulation, in particular capital requirements and the leverage ratio, have obviously had a more significant, material effect on liquidity.

"Liquidity has always been transient and actually perhaps cheaper capital in the past has create a false idea of what liquidity really was. The model is really evolving," added Holland.

See also

FCA believes conduct is top of bank’s agendas
Why did the FCA really drop its bank culture study?
How to comply with the UK’s new whistleblower rules