My colleague James Proudman, the Executive Director for UK Deposit Takers at the Prudential Regulation Authority, will talk later about the role of supervision in influencing conduct at the firm level. Governance and Accountability  As cases of misconduct were uncovered, too many senior managers pled ignorance about the unethical practices that were taking place on their trading floors. In response, the UK introduced the Senior Managers 8  9  Regime (SMR) , Certification Regime and a set of Conduct Rules . At its heart, the SMR aims to improve governance and culture within financial institutions by ensuring clear allocation of responsibilities and lines of accountability amongst the most senior individuals in firms. The Certification Regime requires firms to assess and certify the fitness and propriety of employees deemed capable of causing ‘significant harm to the firm or its customers’ every year. If misconduct does occur, the SMR includes stronger powers for regulators to hold individuals to account. It includes a statutory ‘duty of responsibility’ that requires all Senior Managers to take reasonable steps to prevent regulatory breaches in areas for which they are responsible. If a regulatory breach does occur, the regulator can impose sanctions on the individual, including financial penalties and suspension. The regime includes two prescribed responsibilities relating to culture - overseeing the development of the firm’s culture and ensuring the adoption of the firm’s culture in the management of the firm. These prescribed responsibilities would typically be allocated to the Chairman and CEO respectively.

The UK authorities have announced a work programme to scan the horizon for potential market or private sector co-ordination failures that may be damaging the fairness or effectiveness of FICC markets. 15  The authorities will seek to catalyse reforms to insure that market structures that are vulnerable to manipulation and misconduct do not develop over time. Conclusion  The examples above show how the UK has put in place a set of reforms to improve standards and ethics in financial markets. We have not tried to regulate culture, but we have used a combination of hard law and soft law to raise expectations and norms. It will take time to move from ‘ethical drift’ to ‘ethical lift’. Better regulation is part of the solution, but so is a more effective partnership between the official and private sectors to improve market practices and conduct norms. 14 15  The FX Global Code: May 2016 Update can be found at: https://www.bis.org/mktc/fxwg/gc_may16.pdf See FEMR Implementation Report at: http://www.bankofengland.co.uk/markets/Documents/femr/implementationreport.pdf 7  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  7  References Angeli, Marilena and Gitay, Shahzad (2015), ‘Bonus regulation: aligning reward with risk in the banking sector.’ Bank of England Quarterly Bulletin, 2015 Q4, Volume 55, No. 4, available at: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2015/q4.pdf. Bank of England, ‘Senior Managers Regime’, http://www.bankofengland.co.uk/about/Documents/smr.pdf Bank for International Settlements – the Foreign Exchange Working Group (2016), ‘The FX Global Code: May 2016 Update’, https://www.bis.org/mktc/fxwg/gc_may16.pdf Cullen, Jay (2016), ‘A Culture Beyond Repair? The Nexus between Ethics and Sanctions’, Just Financial Markets, Oxford University Press, ed. Herzog.