Bank of England governor Mark Carney has criticised ethical standards in the City of London as he set out plans to clamp down on market abuse.
In his Mansion House speech in London last night, Carney said the Bank’s Fair and Effective Markets Review, which was sparked by misconduct in fixed income, currency and commodity markets, found an “ethical drift” in standards in the City.
He said: “Unethical behaviour went unchecked, proliferated and eventually became the norm. Too many participants neither felt responsible for the system nor recognised the full impact of their actions. For too many, the City stopped at its gates, though its influence extended far beyond.”
Carney also backed the wide ranging recommendations of the FEMR, which include new criminal offences for traders with harsher prison terms.
He said the review identifies, among other issues, “market structures which presented specific opportunities for abuse, such as poor benchmark design, and which more generally were vulnerable to conflicts of interest, collusion, and thin markets.”
Carney also cited standards of acceptable market practice that “lacked teeth”, governance failures, “skewed” incentives and a lack of accountability as “root causes” of misconduct.
The FEMR recommends the expansion of the senior managers regime, previously agreed for banks, should be widened to include all firms active in FICC markets.
In addition, the FEMR calls for common standards of individual accountability, as well as handing firms greater responsibility for improving understanding of trading practices through a new market standards board.
Carney said: “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.”
The governor also admitted the Bank of England had shown its own faults, in particular during the financial crisis when “arcane” governance had blurred its accountability.
However, he added the Bank continues to modernise and will also seek to apply the core principles of the senior managers regime to its own senior staff.
He said: “It’s vital that we – public authorities and private market participants – work together to reverse the tide of ethical drift. This cannot be a one-off exercise. We need continuous engagement so that market infrastructure keeps pace with market innovation.”