By Huw Jones
LONDON (Reuters) – Britain’s Financial Conduct Authority said on Wednesday there were still “many laggards” among wholesale brokers who were failing to prevent poor conduct such as inadequate checks on external hires.
The FCA said there have been some improvements in governance and compliance at larger brokers, but wholesale broking firms generally continue to be behind the financial sector in stopping poor conduct and improving culture.
Brokers are firms that trade currencies, stocks, and other financial securities and products on behalf of clients.
“Our exercise on broker hiring practices also raised concerns around the quality of brokers’ fit and proper assessments and firms’ surprising willingness to hire individuals who had not demonstrated good standards of conduct at their previous firms,” the FCA said in a letter to CEOs.
Brokers should “embrace” the Senior Managers and Certification Regime which requires regulatory references when hiring new staff from another company, the FCA added.
Britain’s finance ministry is due to launch a review of the regime with bankers hoping the rules will be scaled back.
The FCA told brokers to improve their ability to cope with markets shocks after some firms struggled to meet calls for extra collateral from clearing houses when energy prices soared last year.
“During these periods, we found that some firms’ liquidity risk management and stress testing was not fit for the current market environment,” the FCA said.
Firms should look beyond recent historical precedent when modelling stresses, it said.
As the annual bonus season looms, the FCA said it continued to see brokers receiving lower salaries with large cash bonuses based on the value and volume of trades they do for clients.
This may lead brokers to focus on achieving short-term financial targets at the expense of client interests, it said.
The FCA said its supervisors will focus this year on ensuring brokers have mechanisms in place to “claw back” a bonus if misconduct subsequently emerges.
“By end-February 2023, we expect all CEOs to have discussed this letter with their fellow directors and/or Board and to have agreed actions and/or next steps,” the FCA said.
(Reporting by Huw Jones; Editing by Alexander Smith)
