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Ensuring appropriate conduct and culture in the financial services industry - New trends in the financial sector

Improving Conduct and Culture in the Financial Sector

By Bowen Sharon Y. - Commissioner, U.S. Commodity Futures Trading Commission (CFTC)


In order to improve conduct and culture within the financial sector, we need: (1) clear rules on conduct; and (2) robust enforcement against malfeasants who violate those rules. We are fortunate at the Commodity Futures Trading Commission (CFTC) that we have many tools at our disposal to influence and monitor the conduct of participants in our derivatives markets. For instance, we have some conduct requirements for our registrants, including mitigation of conflicts of interests. We also have both failure to supervise regulations and “control person liability,” which allows us to hold some supervisors responsible for the misbehavior of their subordinates even if they were unaware of such misbehavior.

Yet we need to do more. First, we need to finalize governance rules for our clearinghouses and trading platforms. In 2010 and 2011, the CFTC proposed rules on governance that included multiple requirements to mitigate conflicts of interests in Boards and ensure that senior management is held accountable for the regulatory oversight of their firms. The time has come to finalize these rules because we cannot hold the market to standards that we have not defined for them.

The Fair and Effective Markets Review (FEMR) also had some great suggestions to improve conduct, including developing common cross-jurisdictional conduct standards for market participants. Whether through regulation or industry initiative, we can develop common standards of what honest, transparent business-dealing looks like. Of course, these standards would have to be no less rigorous than the conduct rules that exist today for U.S. firms – we do not want to move backwards.

Whether through regulation or industry initiative, we can develop common standards of what honest, transparent business-dealing looks like.

The FEMR also made excellent recommendations to avoid the recycling of bad actors from one jurisdiction to another. It is all too easy today for a malfeasant in one asset class or jurisdiction to move to another without detection. We need to develop means to prevent that from happening, such as having a global database of the disciplinary history of financial professionals, across jurisdictions.

But conduct rules are of little use if they are not aggressively enforced. We have an incredible enforcement staff at the CFTC. With our constrained budget, our staff has successfully brought cases that have redefined our market, including imposing over $4.6 billion in penalties in benchmark rigging cases. But in order to fully police this market, our staff needs higher penalties, and we, as an agency, need far more funding.

We know that a culture of bad conduct puts our institutions and financial markets at risk. So we need to continue to make changes to achieve our goals as soon as we can. And I am hopeful that the current efforts of several international bodies on conduct – International Organization of Securities Commissions, Financial Stability Board, and Bank for International Settlements – can bring greater consistency, and improve best practices across jurisdictions.