The FCA’s investigation comes in light of ‘public interest’. Credit: Janno Nivergall from Pixabay.

The UK’s Financial Conduct Authority (FCA) has launched an enforcement investigation into the London Metal Exchange’s (LME) decision to suspend nickel trading in 2022.

The financial watchdog will examine some of the 146-year-old LME’s conduct and systems and controls between 1 January and 8 March 2022, the date of the suspension.

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LME cancelled nickel orders last March as prices surged by over 250% in mere hours, exceeding $100,000 a tonne.

It was triggered by supply concerns arising from the Russia-Ukraine conflict and marked the exchange’s first trading suspension since 1988.

According to the FCA, the investigation comes in light of ‘public interest’.

The regulator said it is working with other regulatory partners, supervisors, and international standard-setting bodies to bolster standards for commodity derivatives markets.

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In response, the LME said it is taking steps to strengthen over-the-counter (OTC) market transparency and support risk management in its on-exchange trading.

It stated: “The LME will cooperate fully with this process and will continue to take the appropriate steps to ensure the long-term health, efficiency and resilience of its market.”

Law firm Kingsley Napley legal director James Alleyne was quoted by Reuters as saying: “That the FCA has decided to investigate means it considers there are circumstances suggesting that LME may have committed serious misconduct. Such a finding would certainly have significant cost and reputational implications for the LME.”

In a separate announcement, the Bank of England said that its review of the trading suspension indicated multiple shortcomings tied to governance and risk management at LME’s clearing house, LME Clear.

The bank would launch an independent monitor to report potential remedial measures.