In April 2022, the Financial Conduct Authority (FCA), the Prudential Regulation Authority (PRA), and the Bank of England issued a joint statement regarding the London Metal Exchange’s (LME) decision to suspend trading on its nickel market on 8 March 2022.
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. 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 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.
The FCA 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 FCA has confirmed an investigation in light of the public interest in these matters and will not make any further comment in line with normal policy.
The nature of global commodity markets means that having a strong role in international regulatory discussions is key. The FCA is working closely with other regulatory partners, supervisors, and global standard-setting bodies to strengthen international standards for commodity derivatives markets.
