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UK FCA calls on dark pools to manage conflicts of interest

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UK FCA calls on dark pools to manage conflicts of interest

The U.K. Financial Conduct Authority said dark pooloperators need to provide clear detail as to the design and operation of a darkpool and do more to identify and manage conflicts of interest.

In its survey of the country's equity marketplace, the watchdogfocused on dark pools and broker crossing networks by studying promotionalactivity and the identification and management of conflicts of interest by darkpool operators. In its report, the FCA noted that, overall, "userswelcomed the additional liquidity, lower risk of information leakage and thepotentially beneficial impact on pricing and costs that dark poolsoffered."

The FCA found that although operators were mindful of thepublic concern and did not fail to comply with regulatory requirements, therewere some areas where improvement was needed.

The FCA said operators should improve the monitoring oftheir pools and noted that is important also that users "conduct adequatedue diligence to thoroughly understand the operating model of a pool."

The regulator also called on users and operators to considerthe new MiFID II rules and the impact on existing and planned business models.The FCA also said that much financial regulation currently applicable in theU.K. derives from EU legislation and until any changes are made to Britain'sposition in the EU, firms "must continue to abide by their obligationsunder U.K. law, including those derived from EU law and continue withimplementation plans for legislation that is still to come into effect."