FSA proposes new regime for professional market participants

The proposals reflect the FSAs commitment to develop a regulatory approach that is proportionate to the risks and requirements of the business being undertaken. At the same time, the FSA seeks to maintain those standards that have helped to ensure that the UKs wholesale financial markets are an attractive place to do business.

The FSAs proposals in its draft Inter-Professional Code (IPC) set out how the FSA proposes that firms should conduct their dealing and arranging business with professional market counterparties. It builds on the successful example of the London Code of Conduct, which currently applies to a limited range of firms, principally dealing in foreign exchange, bullion and money markets. The new IPC will include the bulk of activity between authorised firms and cover a wider range of markets, including investment business in securities, foreign exchange, money markets and commodities. It sets out high-level guidance to firms on how they should comply with FSA requirements, including the FSAs Principles for Businesses. In the FSAs earlier consultation, firms indicated their preference for greater articulation of the Principles in this area.

Professional counterparties are deemed to be best able to look after their own interests, and thus require less protection from the regulator. The IPC will apply to firms dealings with market counterparties, while the Conduct of Business Sourcebook will apply to firms dealings with their private and intermediate customers.

David Strachan, Head of Market Conduct and Infrastructure, said,

The IPC sets out our expectations of how firms should conduct themselves in their dealings with other market counterparties. By providing clarity in this area, the IPC should contribute to the continued competitiveness of the UK markets, allow firms to get on with their business without any unnecessary regulatory intervention, and underpin the high standards of conduct expected here.

We hope that both market participants and consumer groups will welcome the approach set out in this paper. We have worked closely with the industry in developing the IPC and are grateful for the assistance provided by the market practitioner group.

The IPC is mainly in the form of guidance on the FSA Principles, rather than rules. The key provisions of the IPC include those aimed at:

• preventing a firm from improperly undertaking transactions at non-market rates;
• providing flexibility on how firms may meet record-keeping requirements; and,
• excluding the conduct of business requirements, such as suitability, best execution and detailed customer agreements, that apply to dealings with customers.

The FSA seeks feedback on the draft IPC. The consultation period is open until 31 July 2000. Once in final form, the IPC will take effect in 2001, after the FSA receives its full range of powers set out in the Financial Services and Markets Bill currently before parliament.

Notes for editors

1. The Financial Services Authority is the independent body established by parliament to regulate the financial services industry and protect consumers.

2. The draft IPC is issued as Consultation Paper 47, available on the FSA website under publications.

3. The IPC is dependent upon the outcome of Consultation Paper 43, which proposed how different types of counterparty should be classified. CP43 proposed that all authorised firms should be treated as market counterparties.