Market standards can be effective if they:  -  Articulate clearly the market’s collective view of best practice, with worked practical examples to clarify grey areas;  -  Are grounded in, and are reinforced by, relevant regulatory frameworks and requirements;  -  Are kept current; and  -  Are given teeth by incentives that foster adoption and adherence. An Early Assessment of the FMSB’s work  So how is the FMSB doing in establishing common standards of market practice that are well understood, widely followed dynamically relevant? The FMSB is already making an important contribution. 7  “Hard infrastructure” refers to the way in which markets are organised. “Soft infrastructure” refers to the standards and norms, including regulation, market standards and codes, by which markets operate. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  Drawing on the expertise of its members, the FMSB has finalised standards that codify best practice with respect to: reference price transactions, commodity binary options, and new bond issues. A standard on risk management transactions for new bond issues is nearly final, and an earlier draft standard on FX stop-loss orders has been absorbed into the FX Global Code. In each case, potential conflicts of interest are mapped to high-level principles designed to mitigate them. For reference price transactions, emphasis is placed on transparency with clients on mechanics and potential conflicts, and on mitigating the risk that the wider transactions of dealers could be market moving.
And under the related Certification Regime, firms must also annually assess and certify the fitness and propriety of a wide range of risk-taking employees. To help meet all of these expectations, Senior Managers can draw on market standards in order to explain and promote good practice, assess their risk-takers, and build a strong culture. 9  See the BIS Press Release on the FX Global Code , available at: https://www.bis.org/press/p170525.htm. 6  All speeches are available online at www.bankofengland.co.uk/speeches  6  There are encouraging signs that the SMR is already beginning to make a difference. For firms, it is clarifying and improving governance, accountability and decision-making processes. Senior Managers are increasingly focusing on building cultures of risk awareness, openness and ethical behaviour. In the words of one chair “responsibility for culture has moved to the top of my agenda.”  10  For supervisors, the regime is helping identify weaknesses in governance and accountability, and to assess the fitness and propriety of senior managers and others in positions of responsibility, and whether the firm has an appropriate culture, and is encouraging the necessary changes. In the first instance, consistent or widespread shortcomings would have consequences for compensation. More persistent failings could increase the capital that must be set aside for operational risks, and in the extreme, could influence our judgements regarding the fitness and propriety of senior managers. Over time, market codes may become more firmly embedded still, something on which the FCA is currently consulting.