The FCA has published its multi-firm review of wholesale banks and how they deliver best execution in UK listed cash equities.
Best execution is the obligation on firms to take all sufficient steps to get the best possible results for clients when executing orders. The FCA had carried out a thematic review in 2014 which identified a risk that best execution was not being consistently delivered, and since then market practices have developed further, with firms increasingly relying on execution algorithms and smart order routing technology.
The review considered 8 wholesale banks, assessing whether they had suitably scoped their best execution obligations, the strength of their governance and oversight, the robustness of their best execution monitoring and MI, and whether they were identifying and managing conflicts of interest appropriately when internalising client orders.
The FCA found stronger practices compared to its 2014 review, with banks generally having strong practices in assessing the scope of best execution, and no evidence of internalisation damaging client outcomes. Monitoring was able to identify good and poor outcome and there was evidence of action take to address examples of poor outcomes, but the quality of MI to support senior management oversight was variable. Some MI was comprehensive, but in other cases it was too high level or overly complex.
While there were good practices in governance and oversight, this was the least improved area since 2014, and specifically the FCA identified the need for improvement in challenge from the second line of defence.