In his speech, Mr Carney focuses on the importance of the UK’s markets in serving our economy and outlines how the markets create new opportunities for UK businesses and savers. Much of the activity in our economy is reliant upon the fixed income, currency and commodity markets (“FICC”) and the stability of these markets has become more important as the public’s financial future (ie. pensions) is dependent upon them.
The past failures of the FICC markets following the financial crisis need to be acknowledged and repairs made to improve them for the future. Failure to ensure that the markets adhered to the right standards and had good infrastructure, led to the UK suffering so heavily after the US subprime crisis. These failures have led to mistrust and uncertainty amongst the industry professionals themselves and the people who rely on them for their own financial stability: the UK public. Mr Carney states ‘markets are not ends in themselves, but powerful means for prosperity and security for all’ he goes on to say that the markets have let us down and ‘we all share responsibility for fixing them’.
So how do we fix the markets? Mr Carney believes that the key for sustainable prosperity is real markets which need:
- to be accountable for;
- to be transparent;
- to be professional;
- to be resilient to external shocks;
- to have a social conscious and responsibility to the public; and
- their stakeholders to be collectively responsible for them.
However, Mr Carney believes that for real markets to succeed, there needs to be effective financial reform and notes how the Fair and Effective Markets Review (published 10 June 2015) has successfully identified the causes of misconduct in FICC markets, and how these misconducts become accepted as part of every day life (ie. those involved in the FICC markets did not take responsibility for their actions because they did not have to). Work has begun to try and address these misconducts and find solutions, for example:
- from 2016, senior managers of financial institutions will be accountable for failures that occur in their areas of responsibility; and
- transparency in FICC markets is being enhanced.
In addition, Mr Carney sees the potential in the proposed FICC Market Standards Board to help firms and individuals adhere to their responsibilities by establishing common standards of market practice. Mr Carney also points out the importance of having global standards for global markets and notes that major central banks have begun work on a global code for FX. He encourages the International Organization of Securities Commissions to consider complementing these efforts with a similar initiative to cover FICC markets as a whole and notes that the Financial Stability Board wants to be involved in these processes too.
Finally, Mr Carney sets out the importance of the Bank of England’s duty in retaining the stability of the UK’s financial system and he notes that the Bank failed in this duty prior to the financial crisis. This failure was due to ‘arcane governance’, and the Bank now has to modernise. Changes are afoot; the Bank has been opened up and is more transparent. The old methods of working have been reformed and there is greater external oversight of its operations, for example, external members have powers to review the Bank’s performance. The senior managers regime, mentioned above, will be applied to its own senior staff and the public will have more oversight of issues and will be notified when things go wrong.
To further enhance the reform of the markets and modernisation of the Bank, the Bank will hold an open Forum on 11 November 2015 which will bring together stakeholders in FICC markets. The forum will, amongst other things, discuss the prospects for the real markets of the future, and everyone’s opinion is welcome. In advance of the Forum, the Bank has published a detailed paper that will encourage discussion and hopefully draw out some innovative ideas for the future of the markets.
‘An open and accountable bank’ welcomes input from all stakeholders, please email OpenForum@bankofengland.co.uk with your suggestions and comments.
For the full speech and more information on the open Forum, please see: http://www.bankofengland.co.uk/markets/Pages/openforum.asp
Should you require any further advice or information on the above, Cleveland & Co, your external in-house counsel, are here to help.
