Wholesale markets topline outcomes and metrics

Metric WFV1-M01: Maintain the proportion of firms confident that the FCA’s oversight ensures relevant financial markets function well

Data source and description

This metric is sourced from the FCA and Practitioner Panel survey. The data for this metric is available annually and we monitor the results and report the metric annually. Find out more about the FCA and Practitioner Panel survey[4] and where we have used the survey within our metrics.

How the metric has been calculated

The metric is the proportion of Wholesale markets respondents that responded ‘very or fairly confident’ to Q3 ‘How confident are you that the FCA’s oversight of the industry delivers on the following statutory objectives?’ – ‘Ensuring relevant financial markets function well’.

The metric is based on responses from those firms categorised as being in the 2 sectors related to Wholesale markets. In 2021, these were 333 wholesale financial markets firms and 392 investment management firms. In 2023/24 these were 509 wholesale financial markets firms and 757 investment management firms.

We use data from 2021 as our baseline and compare the latest survey results (the 2023/24 survey) with the baseline year. Note that the previously published 2021 data was incorrect by 1 percentage point.

Interpretation of the metric values

This metric is an indicator of firms’ confidence in our delivery of the strategic objective to ensure relevant financial markets function well. The metric does not perfectly align with this outcome since it focuses on broader confidence in the FCA rather than market participants’ ability to make well informed assessments of value and risks due to transparency. This metric is a clear proxy measure.

With a baseline confidence rating of 94%, improvements to this outcome metric are challenging. Our expectation, for this metric, has been for us to maintain the outcome at or near this level. We consider that maintaining the observed value for this metric over time would be a positive indicator for our desired outcome that market participants are able to make well informed assessments of value and risks due to appropriate transparency.

Metric WFV1-M02: Reduction in the number of FCA market oversight actions for potential failure of listed companies to disclose properly

Data source and description

The data for this metric is extracted from FCA’s case management system. The data is available to us daily and we report the metric annually.

This metric shows the number of enquiries initiated by the FCA’s Primary Market Oversight department (PMO) into possible failures by issuers to meet their market disclosure obligations. Issuers have legal and regulatory obligations to make fast and accurate public disclosures of the information that investors need to make well-informed investment decisions. These enquiries include such activities as contacting firms for information, desk-based analysis, sending letters of education and concern and referring to the FCA’s Enforcement division. The metric indicates such activity and also market outcomes in that proper disclosure allows investors to make well-informed decisions.

PMO’s casework on disclosure is always grounded on a suspicion of possible failure and PMO does not reach judgments that issuers have failed, or breached rules. Unless issuers agree that they have breached, PMO (like the rest of the FCA) can only say that rules breaches have occurred (ie failure) after Enforcement investigation and decisions by the FCA’s Regulatory Decisions Committee. So PMO casework (actions) are about possible failure rather than actual failure.

How the metric has been calculated

The value is the total number of enquiries opened by the Primary Market Oversight department into possible failures by issuers to meet their market disclosure obligations, as recorded on the FCA’s case management systems.

Previous values

We use data from 2021 as our baseline and include the 2020 data below for comparison:

Interpretation of the metric values

All things being equal, we consider that a decrease in the observed value for this metric over time would be a positive indicator of our desired outcome that market participants are able to make well-informed assessments of value and risk due to appropriate transparency. However, the actual metric value will be influenced by other factors. These might include strategic and operational considerations within PMO which influence enquiry-opening decisions and may lead to an increase or decrease in enquiries (and a corresponding increase or decrease in the use of other tools to combat disclosure failure such as guidance and thematic work). These might also include improved processes at firms to identify and report appropriate declarations. Broader FCA developments may also impact, such as changes in reporting policies (broadening the range of cases captured in our systems) or approaches to data capture in our case management systems.

Potential improvements to the metric

This metric is only 1 measure trying to cover broad, complex and varied market activities in scope of the fair value outcome. We may in the future choose to look to alternative or additional internal and external data sources to determine the accuracy and timeliness of issuer disclosures and, therefore, fair value. Over time we will seek to broaden out the metrics, perhaps away from enquiry-based activity metrics, to reflect the wider range of market activities. For example, we may explore increasing the breadth of asset classes covered and/or carry out research to understand the perceptions of market participants.

Metric WCO1-M01: Monitoring the number of firm failures

Data source and description

This metric is sourced from FCA data. We identify firms that have entered insolvency processes through our supervisory activities, and where we are notified by the firms themselves and/or the insolvency practitioners appointed. The data for this metric is available daily and we report it annually.

How the metric has been calculated

The metric is the total number of FCA regulated firms that have entered an insolvency process in the calendar year. This does not include firms that have entered schemes of arrangement or company/partnership voluntary arrangements (compromises with creditors) or firms that have entered members’ voluntary liquidation (typically a solvent process).

This metric aggregates the number of failed firms operating in Wholesale markets, with their primary portfolio aligned to Wholesale Financial Markets or Investment Management.

Previous years

We use data from 2021 as our baseline and include the 2020 data below for comparison:

Interpretation of the metric values

This metric provides an indicator of the number of firm failures occurring in the financial services market. We regulate nearly 50,000 solo-regulated firms, for which we are the prudential regulator. In line with our statutory customer protection and market integrity objectives and our competition duty, the regulatory framework aims to mitigate harm while firms are a going concern, ahead of any firm failure. The firms where we are the prudential regulator are not systemic and should be able to fail as orderly entrants and exits are part of a well-functioning market.

We expect this metric to be particularly affected by wider economic circumstances. For example, during difficult economic conditions, more firms are likely to fail. Firm failures are a normal part of business, but can harm consumers, the effectiveness of markets, and overall confidence in the UK’s financial system. We seek to ensure that firms have sufficient financial resilience to enable them to exit the market through a solvent wind-down and avoid failure. We also seek to mitigate harm in failure as far as possible where firms do enter an insolvency process. We want to minimise harm to consumers and disruption to markets where possible. We do this by making sure that firms have proper measures in place to keep customer money safe.

We will monitor the results arising from this metric to inform progress for our outcome that markets are resilient from firm failures. We will consider the number of firm failures, for example, by portfolio, including identifying material increases or decreases. However, it should be noted that in some cases we use the powers available to us to place firms into an insolvency process to mitigate ongoing and potential future harm to consumers.

Metric WCO2-M01: Maintain the proportion of firms confident that the FCA’s oversight protects and enhances the integrity of the UK financial system

Data source and description

This metric is sourced from the FCA and Practitioner Panel survey. The data for this metric is reported annually.

Find out more about the FCA and Practitioner Panel survey[4] and where we have used the survey within our metrics.

How the metric has been calculated

The metric is the proportion of firms, identified in the Wholesale markets categories, that responded ‘very or fairly confident’ to Q3 ‘How confident are you that the FCA’s oversight of the industry delivers on the following statutory objectives?’ – ‘Protecting and enhancing the integrity of the UK financial system’.

The metric is based on responses from those firms categorised as being in the 2 sectors related to Wholesale markets. In 2021, these were 333 wholesale financial markets firms and 392 investment management firms. In 2023/24 these were 509 wholesale financial markets firms and 757 investment management firms.

We use data from 2021 as our baseline and compare the latest survey results (the 2023/24 survey) with the baseline year. Note that the previously published 2021 data was incorrect by 1 percentage point.

Interpretation of the metric values

This metric is an indicator of firms’ confidence in the FCA’s delivery of the strategic objective to protect market integrity, which is one important factor that will influence overall confidence in Markets. 

With a baseline confidence rating of nearly 9 out of 10, potential improvements to this outcome are challenging. Our expectation for this metric, has been for us to maintain the outcome at or near this level. We consider that maintaining the observed value for this metric over time would be a positive indicator for our desired outcome that markets are clean with low levels of market abuse, financial crime and regulatory misconduct.

Metric WCO2-M02: Increase in market cleanliness – decrease in the values of our market cleanliness statistics

Data source and description

This metric is sourced from FCA market cleanliness statistics that consist of 3 separate measures. The underlying data are sourced from a combination of FCA transaction data and prices from data vendors. We gather and publish market cleanliness statistics on abnormal price movements and trading activity that occur prior to potential price sensitive announcements in UK equity markets. It is difficult and potentially misleading to draw meaningful conclusions from year-to-year changes, but we would expect the measures to trend down over time, all things being equal. The data for this metric is available daily and we will report the metric annually.

How the metric has been calculated

We analyse data to produce a suite of market cleanliness statistics on abnormal price movements or trading prior to potential market sensitive announcements in UK equity markets:

1. Market Cleanliness (MC) – proportion of corporate takeover announcements in each year for which we observed an abnormal movement in share prices before the announcement.
2. Abnormal Trading Volume (ATV) - percentage of unexpected price sensitive announcements in each year for which we observed abnormal increases in trading volumes ahead of potentially price sensitive announcements in equity instruments and some equity derivatives.
3. Potentially Anomalous Trading Ratio (PATR) - percentage of trading activity that is potentially anomalous ahead of a potentially price sensitive announcement in each year.

Note: these metrics cover UK equity markets only.

We have taken 2018, 2019, 2020 and 2021 data as our baselines.

Interpretation of the metric values

These metrics provide an indicator of potential market abuse in equity markets but have limits as measures of broader market cleanliness. They cover UK equity markets only and so are not a complete indicator of cleanliness and market confidence across all markets.

We monitor trends in the 3 measures to aid our understanding of market cleanliness. Interpretation of the data is not straightforward due to factors unrelated to market abuse that can affect behaviour in markets. For example, price movements before takeover announcements that appear abnormal may simply reflect market conditions. Other factors can influence the market cleanliness statistic, such as financial analysts or the media correctly assessing likely takeover targets or significant legitimate trades that occur before an announcement.

Similarly, the existence of announcements where we have found statistically significant increases in volumes does not mean that market abuse occurred before each of those announcements, as volumes can fluctuate for a variety of reasons, but it is a potential indicator that market abuse may have occurred.

Finally, metrics are also focused on insider dealing and so do not allow any conclusions to be drawn on the levels of unlawful disclosure or market manipulation that may be taking place in the wholesale markets. Any attempts to extrapolate an indicative trend to financial crime and regulatory misconduct should also be discouraged.

Subject to these points we will continue to monitor the trend in these statistics. All things being equal, we consider that a downward trend in the values observed for each of these metrics over time would be a positive indicator for our desired market cleanliness outcome however we should not expect any of these metrics to reach ‘zero’.

Potential improvements to the metric

Once we have a long enough time series, we will explore including a smoothed version of each of the measures, such as a Moving Average, to address the volatility in the series and enable better interpretation.

Links to further information

For further information on the measures and how they can be interpreted:

Market cleanliness statistics[9]

Abnormal Trading Volume Ratio[10]

Potentially Anomalous Trading Ratio[11]

Metric WCO2-M03: Increase in proportion of applications rejected, withdrawn or refused by the FCA under Money Laundering Regulations (MLRs) or for financial crime reasons

Data source and description

This metric is sourced from FCA authorisations data. We gather data on the rate at which applications for regulatory approval by firms are refused, withdrawn and rejected (known as RWR). MLR registrations are currently reported to HM Treasury annually. The data for this metric is available daily and we report it annually.

We have responsibility for supervising the anti-money laundering controls of businesses that offer certain services such as payments, leasing and types of commercial lending. Firms offering these services need to register with us as an Annex I financial institution[10].

We also include the RWR rate for cryptoasset applications under MLR as this area is a particular focus for the FCA.

How the metric has been calculated

We analyse the reasons why applications for authorisation by firms are unsuccessful to produce the RWR. This metric covers the following:

• Rejections – submissions rejected due to extremely poor quality and the fee returned to the firm on the basis it does not amount to an ‘application’
• Withdrawals – where we influence a firm not to continue with the application following our engagement and scrutiny of the application
• Refusals – where we recommend refusal of the application, and this is agreed by the relevant decision maker and a Decision Notice is issued

Interpretation of the metric values

This metric is an indicator of the strength of our Gateway in minimising financial crime within the regulatory perimeter. It shows whether we are authorising firms that have high standards for minimising financial crime at the outset and being assertive in rejecting those that don’t.

We consider that an increase in the observed value for this metric over time would be a positive indicator for our desired outcome that we are effectively minimising financial crime. This metric needs to be considered alongside the other financial crime confidence metrics because if, over time, financial crime falls we would not expect to have a continuing increase in the number of applications rejected, withdrawn or refused. 

In addition, RWR may change for reasons not linked directly to our assertiveness. For example, our engagement with compliance consultants and the Association of Professional Compliance Consultants may improve application quality, leading to fewer unsuccessful applications.

Metric WAC1-M01: Reduction in the number of operational incidents

Data source and description

This metric is compiled from supervisory data that records notifications made to us by firms. Under principle 11 firms must deal with us in an open and cooperative way and disclose to us anything that we would expect notice of. This includes any matter which could affect the firm’s ability to provide adequate services to its customers[12] and which could result in serious detriment to a customer[18] of the firm.[13] The metric captures the total number of these notifications that relate to the operational resilience of a firm. The data for this metric is available daily and we report it annually.

How the metric has been calculated

The metric is calculated by adding the number of operational incidents that are reported to us.

Consumer: We aggregate the number of operational incidents for firms that are aligned primarily to ‘consumer’ sectors. These are: Retail Banking, Retail Lending, Insurance and Consumer Investments.

Wholesale markets: We aggregate the number of operational incidents for firms that are aligned primarily to ‘wholesale markets’ sectors. These are: Wholesale Financial Markets and Investment Management.

Previous years: We use data from 2021 as our baseline and include the 2020 data below for comparison:

Interpretation of the metric values

Ensuring the UK financial sector is operationally resilient is important for maintaining both market access and the confidence of consumers, firms, and others reliant on the smooth functioning of wholesale markets. Operational incidents can cause harm to market participants, pose a risk to market integrity, and could in extremis threaten the viability of individual firms or cause instability in the financial system.

Operational incidents (including technology and cyber) reported reflect a range of events from reduced service availability to confidential data loss. In aggregate, these incidents can have an impact on market access and/or the confidence of those reliant on the smooth functioning of wholesale markets.

For instance, operational incidents such as IT outages may reduce access and operational incidents that are publicly disclosed, due to a potential or observed impact on market functioning, overlap with other criteria such as transparency, price discovery, which drive overall market confidence. Although not all operational incidents reported to us by firms are disclosed either publicly or to the impacted market participants, the aggregate number and trend is an indicator of the overall risk to overall market access and the confidence of those reliant on the smooth functioning of such markets.

Potential improvements to the metric

Future work on the completeness and granularity of incident reporting is expected to improve the data, this project is in its early stages but is expected to deliver changes over the next 2 years which will provide a better measure of operational resiliency and the impact of operational incidents within the financial sector.

We will aim to develop our ability to monitor the size and scale of operational incidents and the firms affected, which will give insight into the level of disruption or harm they cause to consumers or businesses.

Links to further information

More on the relevant FCA rules that underpin this metric[14].