ENSURING FIRMS CONTINUE TO MEET OUR STANDARDS
We will consider the full range of mitigation options before deciding what to do, including policy, competition, enforcement and other interventions, in addition to or instead of a wholly supervision-based response.
If we identify sector risks, we will carry out cross-firm issue and product work. This is where firms will experience a more intrusive approach, with specialist supervisors spending more time on a single issue and delving deeper into information, including but not limited to files, recordings of calls from customers, and mystery shopping in firms’ high street branches and offices. We will look for the root causes of issues that we find, rather than just focusing on the effect they have.
Wholesale conduct supervision
Our focus on achieving a better deal for consumers and sound, stable and resilient markets provides the opportunity to adjust our approach to wholesale conduct, between counterparties and professionals – whether in the securities, banking or insurance markets.
We do not believe there is a clear divide between ‘retail’ and ‘wholesale’ markets. Our approach will recognise that activities in retail and wholesale markets are connected and that risks caused by poor conduct can be transmitted between them. What may start with institutional or wholesale relationships often affects retail consumers, and this interaction is relevant to both our consumer protection and market integrity objectives. So good wholesale conduct relies on effective policing of market abuse, but consumers also need to be protected against activities which exploit differences in expertise or market power.
Our approach will recognise that activities in retail and wholesale markets are connected and that risks caused by poor conduct can be transmitted between them.
Poor wholesale conduct is not a victimless act simply because it takes place between sophisticated market participants, and it is not limited to criminal behaviour such as fraud or market abuse. It also captures a wide range of activities that exploit differences in expertise or market power to undermine trust in the integrity of markets or cause harm to retail consumers.
Misconduct in wholesale markets can have a much wider impact on the integrity of, and trust in, markets than a narrow interpretation of the principle of ‘caveat emptor’(15) may suggest. To enhance trust and confidence in the integrity of markets, we will take a more assertive and interventionist approach to risks caused by wholesale activities and, if necessary, will act to protect a wider range of client relationships than at present. For example, the poor behaviour by banks, recently revealed in relation to the part they play in setting benchmark rates, has had a widespread impact on trust in the Libor-setting process, even though this has limited direct impact on retail relationships.
Our approach in this area means that we will:
• See wholesale conduct as covering a range of activities and relationships in the banking, insurance and securities markets.
• Seek to ensure that wholesale markets are sound, stable, orderly and resilient and that consumers, whether retail or wholesale, enjoy an appropriate degree of protection from risks arising from their exposure, either directly or indirectly, to wholesale activities.
15 ‘Caveat emptor’ is used in this context to describe the extent to which sophisticated market participants can be expected to safeguard their own interests. 31
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