The global FICC Market Standards Board (FMSB) is 2  The UK accounts for 40% of both global FX volumes and trades in OTC interest rate derivatives, and two-thirds of trading in international bonds. More international banking activity is booked in London than anywhere else. And finance is one of the largest sectors of the UK economy. Around 400,000 people are employed in financial services in London alone, 1.1 million across the country as whole. Their enterprise contributes £ billion to our national income, £ billion to our exports and £ billion to the Exchequer, equivalent to two-thirds of the NHS budget. 3 This is set out in more detail in the FEMR Progress Report being published today at: https://www.bankofengland.co.uk/markets/fairand-effective-markets 3  All speeches are available online at www.bankofengland.co.uk/speeches  3  establishing readily understood standards for their markets. And the global FX Committees have published the FX Global Code, the first globally consistent code of conduct for FX markets. But codes are of little use if nobody reads, follows or enforces them. This is where the UK’s Senior Managers Regime (SMR) comes in. 4  Senior Managers Regime The SMR gives teeth to voluntary codes by incentivising firms to develop, adopt and embed them. It is very welcome that the FCA is currently consulting on proposals to recognise industry codes publicly under the SMR. By requiring identification of the most senior decision-makers, the SMR re-establishes the link between seniority and accountability, strengthens individual accountability, and reinforces collective responsibility.

As FEMR recognised, while fines and sanctions have roles in deterring misconduct, they will not, on their own, bring about the cultural change needed. We must move from an excessive reliance on punitive ex post fines of firms to greater emphasis on more compelling ex ante incentives for individuals, and ultimately a more solid grounding in improved firm culture. This starts with reducing opportunities for bad behaviour, for example, by overhauling the regulation of key benchmarks in FICC markets. It requires compensation rules that align risk and reward. In the UK, a significant proportion of variable compensation now must be deferred for a period of seven years. To address the ‘rolling bad apples’ problem, mechanisms are now in place here to ensure that when individuals move on their history will be known to those who consider hiring them. Firms will be required to share information on breaches of individual conduct rules, their fitness and propriety assessments and outcomes around subsequent disciplinary proceedings. These measures are all very constructive but they are not yet sufficient. That’s why the Bank of England supports initiatives that ensure firms and their employees take greater responsibility – individually and collectively – for their own conduct. UK authorities have used their convening powers to encourage market participants to establish standards of market practice that are well understood, widely followed and, crucially, that keep pace with market developments. Industry has responded. The Banking Standards Board is promoting higher standards of conduct and competence across the UK banking system.