management transactions for new bond issues is nearly final, and an earlier draft standard on fx stop - loss orders has been absorbed into the fx global code. in each case, potential conflicts of interest are mapped to high - level principles designed to mitigate them. for reference price transactions, emphasis is placed on transparency with clients on mechanics and potential conflicts, and on mitigating the risk that the wider transactions of dealers could be market moving. the draft standard on risk management for new bond issuances sets out principles to mitigate risks around selection and formation of reference rates. the fmsb ’ s statements of good practice, such as for surveillance of fx markets, provide more detailed guidance and worked examples to help set expectations. the fmsb is also scanning the horizon for future misconduct risks, including through its innovative behavioural cluster analysis. rightly, given rapid changes in underlying market structure, this process has prioritised work on vulnerabilities arising from fast automated markets. will these standards and codes make a difference? we know from history that codes are of little use if nobody reads, follows or enforces them. why should the fmsb ’ s efforts be expected to help reverse the tide of ethical drift? indeed, given the long history of misconduct, aren ’ t such efforts akin to king canute rebuking the waves? i ’ m more optimistic that the tide will turn because the fmsb is part of a much broader effort by uk authorities and market participants. together, we have created a comprehensive and mutually reinforcing set of measures that strengthen the hard and soft market infrastructure. the resulting incentives give fmsb standards moral force and practical consequence. first, in the fmsb ’ s core work, the best in the market are taking responsibility for identifying and codifying best practice, in a way that complements and reinforces existing regulation. the fmsb now convenes senior participants from fifty global issuers, underwriters, asset managers, exchanges, custodians and investment banks. the breadth and engagement of the membership gives its standards credibility and creates peer pressure within the industry to promote adherence. canute, king of denmark, england and norway, 995 - 1035, reputedly set his throne by the sea shore and commanded the incoming tide to halt and not wet his feet and robes. yet " continuing to rise as usual [ the tide ] dashed over his feet and legs without respect to his royal person. then the king leapt backwards, saying : '

is distinct from, but related to, the capital position of banks that i mentioned at the start. there are now three planks to the capital framework : a risk - based assessment which may be based either around firms ’ internal models or a standardised approach ; a measurement of leverage ; and stress tests. together these approaches provide firms and us with the tools to do two things : to add up overall capital requirements ; and as diagnostic tools to allow the probing and analysis of strengths and weaknesses of firms ’ positions. i cannot emphasise enough that good judgemental supervision which is forward - looking employs diagnostic tools. none of these tools will provide the “ right ” answer, they are not tablets of stone. they enable assessment and challenge, by managements, boards and supervisors. the idea that we could rely on one of these tools alone, which you can read in some books, is, let me be blunt, naive. good supervision looks at things from different angles in order to build up pictures. in the same vein, i do not agree with those who say that we should disallow firms ’ internal models. that amounts to saying we are not interested in how firms ’ manage their own risks and that somehow we have better models to use. but, we don ’ t rely exclusively on firms ’ models, and we challenge them hard ; and we throw them out when we don ’ t like them, and we have done that. good prudential supervisors are bold enough to do that. the lesson is look at models, but do it properly, and to do that is not a simple job. toward the end of the year, we will publish the results of our first round of simultaneous across major uk banks stress tests, which will follow the publication by the european banking authority of its stress tests in just over a week from now. our stress tests are a real step in the direction towards the full use of such tests as one of the three pillars of the capital framework. this is a major development compared to the cumbersome and slow process of stress testing one bank after another that we developed during and after the height of the crisis. we will be using these tests to assess whether firms have capital positions and capital plans looking forwards which will provide re - assurance that they will be safe and sound under stressed conditions, as the name suggests. if they don ’ t – and you should take no inference on the results from what i say here – we will ask them to look again at their plans