FCA Sees “Encouraging” Reform from LME After Nickel Debacle

While it continues to face lawsuits over its actions in March 2022 to suspend nickel trading, the London Metal Exchange has been given some support by the UK’s regulator, with the Financial Conduct Authority (FCA) issuing a statement saying it was ”encouraged” the exchange’s efforts to improve transparency and its processes.

The FCA observes that commodity markets around the world have experienced volatility and difficult liquidity conditions making the continued evolution of exchange controls an important but challenging priority across the sector. It adds that since the suspension the FCA has made clear its expectation that the LME should consider carefully how the events of March 2022 should shape its future approach on market structure, including the role of transparency in facilitating effective risk management.

“The LME has implemented changes to its control framework and committed to a wider package of market reform, informed by the recommendations of an external review LME and LME Clear jointly commissioned,” the FCA says in the statement. “The FCA is encouraged by the LME’s focus on increasing the transparency of OTC trading to support robust risk management in its on-exchange trading. The oversight exercised by the LME board to drive the effective and timely execution of this programme is being monitored closely by the FCA. The proposed changes to the LME board will enlarge the skills and experience available to it. The FCA will also work closely with the Bank of England as the programme progresses.”

It is not all good news for the LME, however, for in the statement, the FCA says it has reviewed the events surrounding the suspension of the nickel market and has opened an enforcement investigation into some of the LME’s conduct and systems and controls in place in the period between 1 January 2022 and the time of suspension on 8 March 2022.

“The nature of global commodity markets means that having a strong role in international regulatory discussions is key,” the regulator concludes. “The FCA is working closely with other regulatory partners, supervisors, and global standard-setting bodies to strengthen international standards for commodity derivatives markets.”