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Why Best Execution Matters: Reflections On The FCA’s Review
It has been a busy few months for UK regulatory financial communications, with the Financial Conduct Authority (FCA) issuing a steady stream of consultation papers, thematic reviews, and high‑profile speeches. Recent areas of focus have ranged from digital assets and motor finance compensation to enforcement action in the market abuse space.
The FCA’s 2025 review of wholesale banks focused on best execution,1 which remains a critical issue for both investors and compliance teams. This recent review is notable as it is the FCA’s first thematic assessment of the topic since 2014. In that earlier review,2 the FCA identified significant shortcomings across the market, including a lack of clarity around where best execution applied and weaknesses in how firms governed and controlled their obligations. Many firms appeared to rely on client behaviour - assuming dissatisfied clients would take their business elsewhere - rather than actively managing execution quality.
The 2014 review also highlighted practices such as the receipt of payment for order flow, which ran counter to the FCA’s stated expectations and was flagged as an area of ongoing supervisory interest.
Against this backdrop, this article considers the progress made since 2014, the market structure developments that have reshaped execution in the intervening years, and how Northern Trust approaches its best execution obligations.
Background On The 2014 Review
As mentioned, in the 2014 review, the FCA identified widespread shortcomings across the market. Of note, the review highlighted the implementation of the Markets in Financial Instruments Directive (MiFID II), which introduced new trading venue classifications, including regulated markets, multilateral trading facilities, and organised trading facilities. These were complemented by the systematic internaliser regime, designed to enhance transparency when firms execute client orders against their own capital.
These changes have contributed to a highly fragmented liquidity environment, particularly in the UK and EU, with a large number of venues and systematic internalisers in operation. This fragmentation has driven the increased use of algorithmic trading strategies and smart order routing, now a standard feature of wholesale execution.
The FCA identifies automation and algorithmic execution as a notable feature of the current market. While these developments add complexity, they also generate large volumes of structured data, enabling more sophisticated monitoring and analysis of execution quality.
Brexit has further shaped execution practices. Divergence between UK Wholesale Market Reforms and the EU Capital Markets framework has introduced differences in regulatory approach, including the UK’s removal of the share trading obligation, potentially expanding execution options for UK-based firms.
“As UK and EU market rules continue to diverge, execution decisions have become less about regulatory constraints and more about informed judgment. The removal of the share trading obligation gives UK firms more optionality - but it also places greater responsibility on how execution quality is monitored and explained to clients.”
Amy Thorne – Head of Integrated Trading Solutions EMEA, Northern Trust
Key Themes From The 2025 FCA Review
The FCA’s 2025 findings can be grouped into four core themes: the scope of best execution, governance and oversight, monitoring, and management of conflicts of interest.
Scope Of Best Execution
The FCA observed that firms have taken a more considered and holistic approach to best execution, moving away from broad exclusions. However, the review highlights ongoing challenges where firms internalise client flow - either through systematic internalisers or proprietary trading - without sufficient focus on execution outcomes.
A further area of focus is client-directed execution. While clients are entitled to specify execution instructions, the FCA expects firms to understand and assess the impact of those instructions on execution quality. Good practice includes having mechanisms to identify when client instructions may be detrimental to outcomes.
Northern Trust approach
Northern Trust works with clients to analyse trading activity and assess how execution instructions influence outcomes. Dedicated trade performance and analytics specialists support clients in understanding execution results and identifying opportunities for improvement.
“Understanding how execution instructions affect outcomes is a critical part of demonstrating best execution. By analysing trading activity at a detailed level, we can help clients see where instructions support their objectives and where small adjustments may improve execution quality over time.”
Victoria Bryan - Manager Trade Performance and Analytics, Northern Trust
Governance and oversight
Governance is a central pillar of the FCA’s review. While all firms reviewed had formal governance arrangements, the FCA noted significant variation in their effectiveness.
Positive practices included proactive identification of execution trends and clear feedback loops linking monitoring to remediation. By contrast, the FCA expressed concern about insufficient compliance challenge, limited scrutiny of execution data, and reliance on inappropriate metrics - such as client retention - to evidence compliance with best execution obligations.
Northern Trust approach
Best execution governance at Northern Trust is overseen through a dedicated Best Execution Oversight Working Group. Compliance plays an active role, supported by clear escalation rights, ensuring effective challenge and close collaboration between the first and second lines of defence. This structure supports informed decision-making and maintains a strong focus on client outcomes.
Monitoring And Client Feedback
Monitoring was a major focus of the FCA’s review, covering real-time versus post-trade controls, definitions of execution quality, and the effectiveness of testing frameworks. The FCA also emphasised the importance of meaningful client feedback loops.
Clients are encouraged to consider their access to execution data beyond standard transaction cost analysis reports, engagement with trading teams through performance reviews, and periodic due diligence discussions on execution frameworks and enhancements.
Northern Trust approach
Northern Trust’s monitoring framework is data led. Monthly service reviews with clients are supported by detailed trade performance analysis, assessing execution quality across strategies and identifying outliers. The analysis considers both trader performance and client behaviour, including the impact of timing, instructions, and post-trade price movements. This ongoing feedback supports continuous improvement in execution outcomes.
Managing Conflicts Of Interest
The FCA placed particular emphasis on conflicts of interest arising from the internalisation of order flow, reflecting the growth of the systematic internaliser regime. The review identified good practices where firms operated multiple business models, including real-time monitoring of order routing, venue selection controls, and regular review of execution venues.
The FCA also highlighted the importance of removing venues from execution panels where they fail to meet expected standards.
Northern Trust approach
Northern Trust operates exclusively as an agency broker, with no proprietary trading or systematic internaliser activity. Nonetheless, conflict management principles remain relevant. Execution providers are regularly assessed and ranked by strategy, considering execution quality, operational performance, market coverage, and qualitative risk indicators. Allocation decisions reflect these assessments.
Recent FCA communications have also reinforced the need to consider potential conflicts arising from nonexecution factors, such as gifts and entertainment. These considerations have been incorporated into Northern Trust’s execution oversight processes.
How Northern Trust Integrated Trading Solutions Approaches Best Execution
“Best execution today is demonstrated through consistent governance, robust data, and active oversight embedded in day‑to‑day trading decisions. As market structures evolve, firms need execution frameworks that can adapt while maintaining transparency and a clear focus on client outcomes.”
Amy Thorne – Head of Integrated Trading Solutions EMEA, Northern Trust
The FCA’s review reinforces a clear message: best execution is no longer evidenced by policy statements alone, but by how firms translate governance, data, and oversight into day‑to‑day execution outcomes. As market structure has become more complex - through increased automation, fragmented liquidity, and evolving client instruction models - the ability to demonstrate best execution depends on robust execution frameworks and meaningful engagement with clients.
Northern Trust’s Integrated Trading Solutions is designed with this environment in mind. Operating exclusively as an agency broker, Northern Trust focuses on providing clients with transparency into execution outcomes and the data needed to assess them. The model places emphasis on independent execution, data‑led monitoring, and structured governance - areas that closely align with the themes highlighted in the FCA’s review.
Central to this approach is the use of detailed trade performance analytics to evaluate execution quality across strategies, venues, and market conditions. These insights support ongoing dialogue with clients around execution decisions, the impact of order instructions, and opportunities to refine execution strategies over time. Governance and oversight are reinforced through dedicated forums that link execution data directly to challenge, escalation, and remediation where required.
In this way, Integrated Trading Solutions provides a practical framework for meeting regulatory expectations while supporting clients in navigating an increasingly complex execution landscape - where best execution is demonstrated not just at the point of trade, but through continuous measurement, review, and engagement.
Conclusion
The FCA’s 2025 review reflects clear progress since 2014, driven in part by regulatory change, technological advancement, and increased market transparency. At the same time, the review reinforces regulatory expectations around governance, data-driven monitoring, and active management of conflicts of interest.
As supervisory engagement continues, firms should expect best execution to remain a focal point of FCA discussions. With rapid developments in automation and artificial intelligence, future reviews may emerge more quickly than the decade-long gap between the last two. Firms that continue to invest in robust frameworks and transparent client engagement will be best placed to meet evolving expectations.
[1] Best execution in UK listed cash equities - wholesale banks. Published 12 December 2025.
[2] FCA Best Execution Review – Published 31st July 2014 - tr14-13.pdf
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Head of Integrated Trading Solutions, EMEA
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