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Dear CEO | Release Date: 28th January 2020

To read a longer summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Short Summary

The FCA’s letter to CEOs within the benchmark’s portfolio outlines expectations and supervisory strategies due to the growing influence and regulatory scope of benchmark administrators. The FCA highlights three main risks: the potential for consumers to receive poor quality benchmarks, market disruptions from inadequate benchmark management, and consumers facing excessive fees due to limited competition and complex licensing arrangements.

Key areas of FCA focus include:

Quality of Benchmarks: Firms must maintain strong governance and controls to ensure benchmarks are reliable. The FCA will review firms’ governance frameworks and conduct on-site evaluations to ensure compliance with regulatory standards.

Operational Resilience: Given the reliance on third-party services, firms are expected to manage these arrangements diligently to avoid operational disruptions that could impact markets.

Management of Conflicts of Interest: Firms should effectively manage conflicts of interest to prevent them from affecting the fairness and quality of benchmarks.

Fee Structures: The FCA is concerned about the potential for excessive fees driven by high switching costs and complex licensing, urging transparency and fairness in pricing.

Actions for Affected Firms:

Firms should rigorously assess and update their operational controls, governance, and conflict of interest policies to comply with FCA standards. They must prepare for thorough FCA evaluations and adjust operations as necessary in response to Brexit and the upcoming cessation of LIBOR. The FCA emphasises the importance of transparency in practices and fee structures to ensure fair consumer treatment and market integrity.

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