< Back to insights hub

Article

With Great Power Comes Great Responsibility – The LME fined £9.2m in FCA Penalties17 April 2025

The Financial Conduct Authority (“FCA”) has imposed a financial penalty of £9,245,900 on the London Metal Exchange (“LME”) for failing to maintain adequate systems and controls to ensure orderly trading during severe market stress. This penalty follows a series of events in March 2022 that led to unprecedented volatility in the LME’s nickel market and a subsequent widely criticised, chaotic and equally unprecedented event that resulted in market participants losing billions of dollars in earnings.

The FCA’s actions against the LME underscore the critical need for commodity exchanges to have effective systems and controls to manage market volatility and ensure compliance with regulatory standards.

Background

The LME, one of the world’s largest commodities markets, experienced extreme price movements in its three-month nickel contract between 4 and 8 March 2022. The price of nickel more than trebled, causing significant disruption and threatening multiple defaults amongst LME members. In an incident that has been widely criticised since, purportedly in order to contain the aforesaid volatility, the LME unilaterally suspended trading from 08:15 hrs on 8 March to 08:00 hrs on 16 March 2022 and did not reopen in Asian trading hours until March 2023.

Key Findings

The key findings of the FCA were that:

< Back to insights hub

Key contacts

"Matthew Chamberlain, LME CEO has commented: “We take our responsibilities as a global market operator very seriously and acknowledge that we could have provided a better line of defence to the effects of the disorder in the OTC market, which had spilled over onto the LME market in March 2022."

  • inadequate systems and controls: the LME failed to maintain adequate systems and controls to manage extreme market volatility. The LME’s policies, controls, and training programmes were insufficient to handle the risks associated with severe price movements. This failure led to significant market disorder during the nickel price surge in March 2022;
  • suspension of price bands: during the period of extreme volatility, the LME’s Trading Operations team suspended the dynamic and static price bands, which were designed to mitigate risks from sudden price movements. This suspension allowed the nickel price to escalate rapidly, exacerbating market stress and contributing to the disorderly market conditions;
  • lack of escalation procedures: the LME’s process for managing unusual market conditions was inadequate. The Trading Operations team lacked training to recognise signs of market disorder and did not have clear guidelines for contacting senior management during overnight trading hours. This gap in procedures contributed to the failure to manage the extreme volatility effectively; and
  • failure to inform FCA: the LME provided inaccurate information to the FCA about the calibration and suspension of the price bands, delaying the FCA’s understanding of the events. Although the FCA does not allege deliberate misinformation, the lack of clarity within the LME hindered effective regulatory oversight.

Consequences and Actions

The FCA’s penalty reflects the seriousness of the LME’s failings, which posed significant risks to market orderliness and investor confidence. The LME has since taken steps to address these issues, including commissioning an independent review and implementing an Action Plan to enhance its volatility control mechanisms and real-time monitoring. Matthew Chamberlain, LME CEO has commented: “We take our responsibilities as a global market operator very seriously and acknowledge that we could have provided a better line of defence to the effects of the disorder in the OTC market, which had spilled over onto the LME market in March 2022. The LME swiftly implemented market enhancements and we are pleased to be able to move forward, stronger as a result. In parallel we fully recognise the important work the FCA continues to undertake in strengthening oversight of the OTC market”.

The FCA’s decision underscores the importance of robust systems and controls in maintaining market integrity, especially during periods of extreme stress. The LME’s experience serves as a cautionary tale for other trading venues to ensure compliance with regulatory standards and protect market participants from undue risks.

"The LME's experience serves as a cautionary tale for other trading venues to ensure compliance with regulatory standards and protect market participants from undue risks."

The FCA’s findings and actions against the LME have several implications for other commodity exchanges:

  • increased scrutiny: other exchanges may face heightened regulatory scrutiny to ensure they have robust systems and controls in place to manage extreme market volatility. Regulators might conduct more frequent and thorough inspections;
  • enhanced risk management: commodity exchanges will likely need to review and enhance their risk management frameworks, including implementing effective volatility control mechanisms and ensuring they have clear escalation procedures for unusual market conditions;
  • transparency and reporting: exchanges may be required to improve transparency and accuracy in their reporting to regulators. This includes providing timely and accurate information about market conditions and any measures taken to address volatility;
  • training and procedures: we will likely see a greater emphasis on training staff to recognise signs of market disorder and ensuring they have clear guidelines for escalating issues to senior management. This is crucial for maintaining orderly markets during periods of stress; and
  • reputation and trust: the LME’s experience serves as a cautionary tale, highlighting the importance of maintaining robust systems and controls to protect market integrity. Other exchanges will need to ensure they maintain high standards to preserve their reputation and the trust of market participants.

At WFW, the Singapore Dispute Resolution team acted as first responders in advising a sovereign backed international commodity trader based in Singapore on how to navigate the evolving situation – it was our view at the time that the LME would eventually be held accountable for its apparent failure in the appropriate management of market volatility.

If you are interested to hear more on this topic or related content, please do not hesitate to contact our team, the details of our team based in Singapore can be found here. 

< Back to insights hub

Key contacts

DOWNLOAD PDF

Share this Page

Follow us on