To give these measures teeth, key elements of the Senior Managers Regime should be extended to all firms active in wholesale FICC markets, including dealers and asset managers. That means all senior managers would have clearly defined responsibilities and would be answerable for training, certifying and monitoring the material risk takers they supervise. The FCA should oversee compliance, redeploying resources to focus on Senior Persons. In turn, these individuals would be on the hook for promoting compliance within their organisations. Incentives will be aligned. For the best in the industry, this won’t be new. This is just how you run your business. But for others, who free ride on your reputations: the Age of Irresponsibility is over. Third, regulators should extend the coverage of market abuse regulation to include every major fixed income and currency market. And criminal sanctions should be updated, with market abuse rules similarly extended and maximum prison terms lengthened. Finally we need global standards for global markets. I welcome the FICC Markets Standards Board’s intent to be as global as possible in its membership and influence. All major Central Banks and market participants have begun working on developing a new single Global Code for FX. I would encourage IOSCO to consider complementing these efforts with a similar initiative to cover FICC markets as a whole when they meet in London next week. The FSB will engage with these processes and work to improve the alignment between remuneration and conduct risk across the globe.
This inherent risk can only be managed if all market actors, public and private, recognise their responsibilities for the system as a whole. The City has a special responsibility given London’s pre-eminent position in global markets, which is why it has already brought so many ideas and such energy to advance financial reform. 2 Financial reform is re-building real markets Reform is strengthening the resilience of major banks. Their capital requirements have increased ten-fold and their liquid assets are up four-fold. These banks’ trading assets are down by a third and intra-bank exposures by two-thirds. Reform is ending the scourge of Too Big To Fail. The combination of eliminating the implicit public subsidy and increased capitalisation will correct the distortions caused by the structural under-pricing of risk on banks’ balance sheets. And by making a further shift to market-based finance inevitable, it is increasing choice and competition – real market forces. Reform is also improving risk transfer by untangling the complex web of derivatives that meant failures like Lehman triggered chaos; and by creating simple, transparent and comparable securitisation markets. This reform agenda has increased the effectiveness of FICC markets and reinforced their social licence. 1  See Haddow, A, Hare, C, Hooley, J and Shakir, T (2013) “Macroeconomic uncertainty: what is it, how can we measure it and why does it matter?”, Bank of England Quarterly Bulletin, Q2. See also Bloom, N, et al (2014), “Really uncertain business cycles”, mimeo.