LME fine highlights importance of 'escalation to management'
21st March, 2025|Gregory Rosenvinge
The London Metal Exchange’s fine for failures that contributed to the 2022 nickel crisis highlights the need for firms to ensure junior staff have a “clear route” for escalating problems to senior management, a law firm has suggested.
Speaking after the Financial Conduct Authority (FCA) on Thursday fined the LME £9.2 million for failing to ensure its systems and controls could deal with the extreme market conditions that led to the nickel closure in 2022, a partner at law firm Blackfords LLP said the action casts a spotlight on escalation.
“We've seen an unprecedented increase in FCA enforcement action and criminal prosecutions in the past few years and this most recent decision in particular highlights the significance of ensuring that staff are adequately trained to identify regulatory pitfalls, and that there is a clear route of escalation to senior management when those matters arise,” Jennifer Richardson told FOW.
“This is consistent with the expansion of both legislation and regulatory regimes which we have witnessed over the past 24 months, to ensure that businesses are held to account for the mistakes of employees.”
The FCA said inadequacies in the Hong Kong Exchanges and Clearing-owned (HKEX) metal exchange’s processes for “escalating unusual or hazardous market conditions” were exposed on March 8 when the LME nickel price more than doubled overnight, forcing the LME to close the market.
The UK financial regulator said “only relatively junior trading operations staff” were on duty in the early hours of March 8 and the extreme price rises in the Asian trading hours were “not escalated to senior LME managers”.
The LME issued a statement on Thursday acknowledging the regulator’s conclusions. “It accepts that, in March 2022, once the effects of large over-the-counter (OTC) positions had spilled over onto the LME’s nickel market, the LME price rose more quickly than would have been the case if certain LME systems and controls had acted as a better line of defence to the effects on the LME's market of the OTC disorder.”
Separately, the British Supreme Court said on Thursday it has refused an application by Elliot Associates, a hedge fund, to appeal against the dismissal in October last year of Elliot's case against the LME for its decision to close the nickel market.
