In Total Control?

Brian Sims BA (Hons) Hon FSyI: Editor of Risk UK

Brian Sims BA (Hons) Hon FSyI: Editor of Risk UK

Robust financial benchmarks play a significant role in the global economy and impact a multitude of monetary instruments and contracts used by companies, Governments and consumers. It’s somewhat worrying, then, that the Financial Conduct Authority’s (FCA) thematic review of oversight and controls around such benchmarks suggests companies still have much to do to identify the full range of their benchmarking activities and improve risk management.

The FCA conducted its thorough review between August 2014 and June this year in order to derive an early assessment of the extent to which financial world businesses have learned the lessons from previous failures around benchmark activities and, importantly, taken the appropriate action in response.

Apparently, some progress has been made on improving oversight and controls around benchmarks. However, application of the lessons learned from the LIBOR, Forex and Gold cases to other benchmarks is said to be somewhat “uneven” across the financial services sector and “often lacks the urgency required” given the severity of recently-publicised failings in the system.

Within its detailed report entitled ‘Financial Benchmarks: Thematic Review of Oversight and Controls’, the FCA outlines that companies are failing to identify a wide enough scope of benchmark activities by dint of interpreting the International Organisation of Securities Commissions’ (IOSCO) definition too narrowly. Also, it appears that some firms simply haven’t made sufficient effort to properly identify the conflicts of interest that could arise from their defined benchmark activities.

Tracey McDermott (director of supervision for investment, wholesale and specialists at the FCA) commented: “Companies should have in place systems designed to manage the risks posed by benchmark activities and address those weaknesses that have previously been identified. We fully recognise this is a significant task and that businesses have made some improvements, but the consistency of implementation and speed at which these changes are taking place is disappointing.”

Following the review, the FCA has adopted the stance that companies need to continue to strengthen governance and oversight of benchmark activity, identify and manage conflicts of interest, fully pinpoint their benchmark procedures across all business areas, establish oversight and controls for any in-house benchmarks where they’ve not already done so and also implement appropriate training programmes.

In response to the FCA’s study, Simon Hunt (PwC’s UK banking and capital markets leader) stated: “Identification of a complete population of benchmarks subject to the IOSCO definition is indeed a significant challenge with which firms have been grappling for some time. Those companies that have introduced centralised governance and an oversight body for these benchmarks have been able to markedly strengthen their control infrastructures and understand and manage the risks that they face as organisations.”

Good news, then, but it would seem that the financial services sector does indeed have some way to go in ensuring consistency around the quality of control infrastructures being established.

About the Author
Brian Sims BA (Hons) Hon FSyI, Editor, Risk UK (Pro-Activ Publications) Beginning his career in professional journalism at The Builder Group in March 1992, Brian was appointed Editor of Security Management Today in November 2000 having spent eight years in engineering journalism across two titles: Building Services Journal and Light & Lighting. In 2005, Brian received the BSIA Chairman’s Award for Promoting The Security Industry and, a year later, the Skills for Security Special Award for an Outstanding Contribution to the Security Business Sector. In 2008, Brian was The Security Institute’s nomination for the Association of Security Consultants’ highly prestigious Imbert Prize and, in 2013, was a nominated finalist for the Institute's George van Schalkwyk Award. An Honorary Fellow of The Security Institute, Brian serves as a Judge for the BSIA’s Security Personnel of the Year Awards and the Securitas Good Customer Award. Between 2008 and 2014, Brian pioneered the use of digital media across the security sector, including webinars and Audio Shows. Brian’s actively involved in 50-plus security groups on LinkedIn and hosts the popular Risk UK Twitter site. Brian is a frequent speaker on the conference circuit. He has organised and chaired conference programmes for both IFSEC International and ASIS International and has been published in the national media. Brian was appointed Editor of Risk UK at Pro-Activ Publications in July 2014 and as Editor of The Paper (Pro-Activ Publications' dedicated business newspaper for security professionals) in September 2015. Brian was appointed Editor of Risk Xtra at Pro-Activ Publications in May 2018.

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