Last week, a speech by Martin Wheatley, CEO designate of the Financial Conduct Authority (FCA) – one of two new bodies that will replace UK regulator the Financial Services Authority from next year – set the tone for a more intrusive approach.
Wheatley –- known for his tough line on insider trading during his six-year tenure at the helm of Hong Kong’s Securities and Futures Commission (SFC) – took to the stand at the Markets and Clients Assets Conference in London to emphasise that no corner of the wholesale markets would escape oversight.
Rather than looking to load more rules and regulations on an already over-burdened financial industry, the tone of Wheatley’s speech suggested a tougher enforcement of existing rules. The result is likely to be difficult and probing examinations for financial institutions that encompass the fair treatment of counterparties, including the establishment of a level playing field, and the overall conduct of wholesale market participants.
“You can expect the FCA to be a robust regulator of financial markets,” he said. “Firms should expect to deal with FCA in areas that regulators have not historically looked at. This may be in parts of securities markets where participants have traditionally believed the regulator will let them get on with it – either because they believe we are not interested, or because they believe they are big enough and sophisticated enough to look after themselves.”
This particular comment may have been a nod towards an impending crackdown on unbundled execution and research costs, after a recent FSA report found that only a limited number of firms were compliant with conflict of interest rules.
Wheatley also took aim at regulated investment exchanges, stating the FCA’s new supervisory powers in this area would foster a more rapid approach for dealing with those that fall out of line with market integrity standards that are vital to maintaining consumer confidence.
“The legislation allows simplified procedures for directing or removing recognition, powers to require the appointment of skilled persons and the ability for the FCA to levy financial penalties and issue public censures,” he said.
Any doubters as to Wheatley’s intent need only to look at his transformation of the SFC into a no-nonsense enforcer. Under Wheatley’s leadership, the Hong Kong watchdog secured its first criminal convictions for insider dealing, including that of Du Jun, a former Morgan Stanley trader who was sentenced to seven years in prison in 2009. He also sought to tackle market manipulation that may have been initiated outside of Hong Kong and led the way with cross-border action, including an attempt to freeze the assets of New York-based hedge fund Tiger Asia after it was accused of insider dealing of China Construction Bank shares.
In addition to getting to grips with the onslaught of post-crisis regulation, financial institutions better be sure they observe both the spirit and letter of existing laws.