The FCA has published a multifirm review examining best execution by wholesale banks in UK listed cash equities. Eight major banks were assessed against obligations under COBS 11.2A and related governance, monitoring, and conflict-of-interest rules. The review follows the FCA’s 2014 thematic work and reflects changes in market structure, including the growth of systematic internalisers (SIs) and algorithmic trading.
Why This Matters
Best execution is central to investor protection, market integrity, and confidence in UK equity markets. Firms must take “all sufficient steps” to achieve the best possible outcome for clients, considering price, costs, speed, likelihood of execution and settlement, and size. Weaknesses in governance, monitoring, or execution analysis can create unfair outcomes and increase regulatory risk. Whilst the review related to the activities of wholesale banks, the outcomes may affect other firms and their execution practices.
Scope of the Review
The FCA focused on:
- Wholesale banks executing UK-listed cash equities on behalf of clients;
- Situations where portfolio management is delegated to MiFID investment managers;
- Execution across multiple venues, including internalisation, lit markets, and dark pools; and
- Governance, monitoring, and management information (MI) supporting execution oversight.
The review also noted that best execution principles apply across different market structures, and firms must demonstrate they are delivering good outcomes in normal and stressed conditions.
Key Findings
The FCA observed improvements since 2014, with firms generally showing a better understanding of their obligations. However, variation remains in governance, monitoring, and the application of MI.
Good Practice Observed
- Robust governance: Compliance functions empowered to challenge execution outcomes, with direct reporting lines into senior management or execution committees.
- Comprehensive MI: Regular monitoring of price, cost, speed, settlement likelihood, and order size, with clear dashboards and trend analysis to identify potential issues.
- Proactive outlier investigation: Firms reviewed trades outside benchmarks or thresholds and implemented corrective actions, demonstrating continuous improvement.
- Scenario and market-condition testing: Some banks stress-tested execution frameworks across less liquid stocks and volatile conditions, showing readiness to maintain best execution under stress.
Poor Practice Observed
- Limited second-line oversight: Some compliance teams lacked authority or tools to challenge portfolio managers effectively.
- High-level or overly complex MI: In certain cases, MI failed to provide actionable insights for senior management, limiting the ability to spot execution issues.
- Narrow monitoring focus: One bank monitored price only, ignoring other critical factors such as speed or settlement probability.
- Insufficient coverage across market conditions: A few firms did not consider how best execution frameworks performed in illiquid or stressed markets, weakening their ability to demonstrate compliance consistently.
Points for Firms to Consider
- Governance: Ensure compliance has authority, access to relevant MI, and clear reporting lines to challenge execution outcomes.
- Monitoring and MI: Capture multiple execution factors and present them in a way that is actionable and digestible for senior management.
- Stress Testing: Apply frameworks across normal and stressed markets to demonstrate robust execution practices under a variety of scenarios.
- Internalisation and Delegation: Clearly document how internalised trades and delegated portfolio management meet best execution obligations.
- Continuous Improvement: Investigate outliers, analyse trends, and implement corrective actions systematically.
Next Steps
The FCA has provided individual feedback to the firms reviewed and may consult on rule changes in 2026, including clarification on internalisation, algorithmic execution, and scope. Firms should review their best execution frameworks, governance, and monitoring tools now to address potential gaps.
How Complyport Can Help?
Complyport assists firms in embedding best execution compliance through:
- Framework Review and Gap Analysis: Assess your current governance, MI, and monitoring against FCA expectations.
- Policies and Documentation: Update execution policies, escalation procedures, and compliance manuals.
- Monitoring and Stress Testing: Advise on MI dashboards, outlier analysis, and stress-testing methodologies.
- Training and Advisory Support: Deliver targeted sessions for Compliance, Risk, Portfolio Management, and Senior Management, with ongoing guidance to maintain high standards.
Contact Us: Discuss how your firm can strengthen its best execution framework with Complyport and ensure readiness for FCA scrutiny.
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