The Financial Conduct Authority in the UK revealed in its annual business plan today that it will be taking a look at how investment banks deal with conflicts of interests between their obligations to clients and their own trading positions. Moreover, the British regulator is also said to go over the banks' measures on preventing accidental sharing or disclosure of confidential information to be used against each other.
On the FCA's website, the regulator said, "We will increase the intensity with which we supervise wholesale conduct to ensure transactions between more sophisticated market participants do not have a harmful impact on market integrity. (That will include) firm-specific assessments of investment banks, trading firms and asset managers."
The statement of the FCA, which is a spin off of the Financial Services Authority, a unit of the Bank of England, followed the subsequent reviews by regulators all over the world on the possible rigging of benchmark rates by traders. The benchmark rates in question, the WM/Reuters rates, are a foreign-exchange benchmark being used by companies and investors.
Bloomberg said that FCA's interest in the banks' measures on confidential client information handling was spurred from the concern that the lack or the inadequacy of tighter regulations could have led to traders conspiring with each other to manipulate benchmark rates. In a separate risk report published by the regulator today, FCA said that investment banks could not have been observing the requirements needed to keep client information confidential and apart from trading desks or prevent them to be passed to clients at inappropriate times.
Aside from confidentiality measures of investment banks, Bloomberg said that the FCA will be looking into several transactions that could have been used fraudulently or deals that caused market abuse. One would be whether customers who have life insurance policies issued since the 1970s were treated unfairly. Another would be the misuse of in-house funds by wealth management firms.
