Best practice for best execution

March 2026

In December 2025, FCA published the results of its review of eight wholesale banks active in UK listed cash equities dealing and execution. The review assessed banks against four categories: scoping of best execution obligations, strength of governance and oversight, robustness of monitoring and management information and, identification and management conflicts of interest when internalising client orders.

KPMG in the UK has distilled the key takeaways and our industry insights on best practice.

• Practices are overall stronger when compared to the FCA’s 2014 review but some areas for improvement remain particularly with regards to the quality of management information and second line of defence oversight. Across the 4 categories assessed the FCA concluded the following:
• Banks’ scoping of best execution obligations is sufficient however banks should ensure their frameworks are flexible to facilitate easy adaptation to market and client activity changes.
• Governance and oversight in place across the sampled banks is good overall, however the second line of defence must be empowered with the right tools and data in order to challenge outcomes rather than processes.
• Monitoring and MI is adequate across the banks sampled, however there are notable gaps in the monitoring of high-touch trades. All in-scope trade should be covered and related client order handling instructions should be monitored.
• A range of effective controls for identifying and managing conflicts of interest was found to be in place to ensure compliance with best execution obligations in SI executions.

The FCA found that all firms in its sample used the European Commission’s (‘EC’) four-fold cumulative test for assessing and evidencing whether they are meeting best execution obligations, albeit in different ways.

In contrast with its 2014 review, the regulator found that firms are no longer excluding orders that have an element of client specific instructions from the scope of best execution. However, client specific instructions were the most frequent reasons for trades falling outside of banks’ threshold for best execution.

Room for improvement was identified in quote-driven markets where the FCA found some banks were inflexible in their best execution frameworks.

Examples include applying the EC’s four-fold test only at a single point in time or infrequently, without considering market dynamics, convention and the changing nature of client behaviour.

The review found that all firms reassessed the application of best execution to their business at least annually with some reassessing on a quarterly basis. While the level of detail in these reviews varied, all firms did a high-level assessment of their trading activities against the factors included in the four-fold test at minimum.

The FCA emphasised that all firms should examine how and why they undertake these reviews against their execution outcomes, using a flexible framework which allows for easy adaptation to market and client activity changes.

Leading practice

Additional monitoring of client-specific instruction trades using custom-built algorithms to determine if a client may need to be educated about how their instructions may be impacted best execution.

The FCA emphasised that strong governance and a well-defined best execution framework are crucial for delivering best execution and managing potential conflicts of interest effectively.

The review found that firms had reasonable governance frameworks in place, which supported the delivery of best execution under senior management oversight. These frameworks included clear accountability, dedicated oversight committees, active challenge and scrutiny, challenge from compliance, framework testing, use of data and evidence and, for larger banks, working groups which focused on specific areas of execution such as algorithm performance.

Despite the overall positive findings in relation to governance and oversight, the FCA observed some weakness in second line oversight which had also been identified in its 2014 review. At most banks, Compliance typically focused on challenging processes rather than outcomes often due to not having the right tools such as access to relevant data like price feeds.

In addition, the FCA observed that many banks had not fully assessed how effectively their frameworks would operate under varying market conditions. The regulator emphasised that firms should ensure their arrangements are sufficiently tailored to all relevant asset classes

Leading practice

Changes made to execution arrangements, including a platform migration, as result of trend analysis on latency and hit rate performance. This led to significant improvements in execution outcomes.

Compliance independently verifying trader commentary for outlier trades, e.g. by using data from Bloomberg terminal.

Compliance independently monitoring execution outcomes using data such as daily price alert checks, comparing prices across venues, instances where a better price was available and trades executed away from prevailing best bid and offer. 

The FCA observed that most firms had well-established monitoring processes in place. However, some areas for improvement were identified including how monitoring results are reported to senior management.

The review found that banks’ real-time monitoring typically used alerts, thresholds or pre-defined rules to identify and stop orders being handled if monitoring suggested that best execution was not being met. Post-trade monitoring involved measuring execution outcomes delivered across different execution factors and tracking trends across different types of execution.

On reviewing the banks’ execution performance metrics between the top 80% and bottom 20% of revenue generating clients, the FCA was satisfied that there were no significant difference in overall outcomes

All the banks reviewed had both formal and informal complaints channels in place including data-driven performance reviews provided at specific interval which were highlighted as valuable feedback sources.

The FCA highlighted that some banks had challenges in monitoring and reporting MI for high-touch business, sometimes completely failing to implement monitoring for best execution resulting in no metrics or information being included in best execution committee packs.

The regulator emphasised the importance of having in place procedures which enable the monitoring of all in-scope trades and related client order handling instructions.

Leading Practice

Use of a composite metric to give a best execution score based on specific market conditions and multiple execution factors, which allows for benchmarking analysis to identify outliers and continuous refinement of the best execution framework.

Identifying key themes on best execution from client feedback and escalating this to the committees to allow for the evaluation of existing framework.

The review found that a range of controls were applied by systematic internaliser banks to ensure compliance with best execution obligations:

• Implementing Smart Order Router (SOR) logic and execution algorithms to objectively assess and deliver optimum outcomes
• Regular reviews of execution quality for internalised orders
• Real-time monitoring of execution quality across both SI and external venues
• Providing staff training and guidance on order execution practices.

Leading practice

Periodic review of SOR routing logics and execution algorithms

Monitoring execution quality in the SI by using metrics such as fill rate, mark out, latency and reversion.

KPMG has experience in assisting Financial Services firms in “best execution reviews” in both Equities and FICC markets. We are well placed to perform peer assessment based on our knowledge base, performing in-depth gap analysis and making recommendations on leading practices in best execution to satisfy regulatory requirements, while taking into account the scale and complexity of your business and product coverage.