On November 3, the UK Financial Conduct Authority (FCA) published a consultation paper (CP17/37) on supervising adherence to proper standards of market conduct for unregulated markets and activities, including standards set out in industry-written codes of conduct.
In the introduction to CP17/37, the FCA states that firms and their staff should be clear about the FCA’s expectations of good conduct. However, the FCA understands that, for markets and activities not covered by regulatory rules and FCA Principles, its expectations may not be clear. CP17/37 is aimed at helping to resolve this issue.
The FCA proposes a general approach to supervising and enforcing the Senior Managers & Certification Regime (SM&CR) rules for authorized firms’ unregulated activities, including those covered by industry-written codes of conduct (for further information on the SM&CR, please see the Corporate & Financial Weekly Digest of July 28, 2017). The FCA expects firms and their senior management to consider market codes in determining the “proper standard of market conduct” as part of the SM&CR requirements and obligations, including in market sectors where the FCA does not have a framework of its own rules. The FCA will supervise adherence to those SM&CR rules and may take enforcement action in cases of serious and egregious misconduct leading to harm or potential harm.
The FCA also proposes that it should publicly recognize particular industry codes of conduct that, in its view, set out proper standards of market conduct for unregulated markets and activities. This proposed approach means it would review and assess industry codes against new criteria and would then publicly state that it considers a particular code is a helpful explanation of the proper standard of market conduct for a particular market or activity. The FCA intends that this approach should encourage participants to adhere to that code. However, the FCA does not intend to give any such codes binding regulatory status, and industry codes will remain voluntary.
The FCA also discusses extending the application of Principle 5 of the FCA’s Principles for Businesses (which requires firms to observe proper standards of market conduct) to unregulated activities. The FCA considers that this would help ensure its expectations of firms are clear.
Comments can be made on the proposals in CP17/37 until February 5, 2018. The FCA expects to publish a policy statement in the second quarter of 2018.
CP17/37 is available here.