Recently, the gap between IBOR rates and the rates intended to replace them have widened. The new ‘Risk-Free Rates’ (RFRs) are, as the name suggests, (mostly) risk-free, whereas IBOR rates (by design) contain information about bank credit risk. In normal times, this spread is small, but in times of stress the gap between these two benchmarks widens.
As the coronavirus piles mounting pressure on businesses with sharply diminished activity levels and falling revenues, many are finding the pandemic is also impacting their FX hedge portfolio.
Without action, companies will be effectively running speculative FX positions at a time of high market volatility.
The FCA has recently completed a review of four key areas in the market abuse systems and controls employed at several market-making firms. The firms were positioned in the small and mid-cap equity market making space but their findings are relevant to most trading firms which undertake a broad range of activities, where conflicts of interest could arise.
Last year the focus of the UK financial services regulatory landscape shifted from high-profile fines levied by regulators on banks for Libor and FX rigging towards individuals’ conduct and their responsibility for abuses.
