Much-anticipated FX Global Code of Conduct published

Posted: 25 May 2017 | | No comments yet

The long-awaited FX Global Code of Conduct has been published by the Bank of International Settlements…

Much-anticipated FX Global Code of Conduct published

The much-anticipated FX Global Code of Conduct, a single set of global principles of good practice for the FX market, has officially launched (May 25).

The new rules have been developed by the Foreign Exchange Working Group (FXWG), a working group set up by the Bank of International Settlements (BIS) in 2015, in the wake of numerous scandals concerning the wholesale FX market between 2013 and 2014. While the FX Global Code isn’t strictly regulation, numerous organisations have voiced their support for it, urging market participants to abide by the new rule set.

With this in mind, the BIS has provided a draft Statement of Commitment for firms to publicly demonstrate that they are adhering to the code’s principles, as the bank believes that more firms to adhere to the code if they see their peers doing so.

Six primary principles

The FXWG explains that there are six primary principles that the FX Global Code is seeking to improve upon:

  1. Ethics
  2. Governance
  3. Information sharing
  4. Execution
  5. Risk Management and compliance
  6. Confirmation and settlement processes

SWIFT has announced its full support of the FX Global Code, assuring it’s customers that their FX market activities are fully aligned with the code’s principles. Commenting on the launch, Stephen Lindsay, Head of Standards at SWIFT said: “SWIFT welcomes and strongly supports the launch of the FX Global Code as we believe it will strengthen the integrity and effectiveness of the wholesale foreign exchange market. SWIFT has been a core part of the FX market for many years now and the services we provide are fully aligned with the intentions of the FX Global Code. We are very pleased to help support compliance with the code.”

Both buy-side and sell-side participants must now play their part

Also commenting, Thomson Reuters Neill Penney, Managing Director, Trading, explained: “Thomson Reuters fully supports the FX Global Code of Conduct and welcomes this cross-industry initiative for us to work together to uphold fair and efficient FX markets.”

“Thomson Reuters continues to be fully committed to defining clear rules and increasing transparency across our own transaction platforms but the code will only succeed if all participants take a much more proactive approach to conduct – both buy-side and sell-side participants must now play their part.”

Meanwhile, KPMG’s Karim Haji explained that “setting global standard for the largest financial market in the world is welcome progress”:

Today marks an important milestone in its efforts to rebuild trust.

“The FX market has an estimated $5.1 trillion daily trading volume, its strength is integral to the global financial system and today marks an important milestone in its efforts to rebuild trust.

“Many banks have made substantial progress in improving their systems and controls in response to FX trading misconduct but there are still areas needing further attention. For example, how do you identify and effectively mitigate conduct risk in electronic trading with features like last look which allows dealers to reject client orders at their sole discretion? Or, how do you ensure there is no conflict of interest when a desk handles both house and client orders? There are further ongoing initiatives to address such issues, like the work of the Fixed Income, Currencies and Commodities (FICC) Markets Standards Board, which I’m sure the market is watching with great interest.”

Source: KPMG

Last year, FX-MM’s editor, Peter Garnham, wrote that “everybody has an interest in promoting the integrity and effective functioning of the FX market“, and today’s reaction proves exactly that. The way the industry has worked together, and in conjunction with central banks, shows the desire to right the previous wrongs of the FX market, and make lasting strides forward.

As Harpal Sandhu, Founder and CEO of Integral, explains:

“The FX Global Code could very well be the regulatory catalyst for growth across global currency markets.

“We’ve seen this kind of effect of transparency on other industries, such as the cellular phone market, which now delivers greater pricing choice for consumers. This is because ultimately, transparency will lead to the democratisation of FX which, in the long-term, benefits everyone by creating better liquidity.”

The introduction of the code represents a real milestone for the FX market, and with the initial reaction to it being largely positive, it represents the market’s best opportunity to date to bring earn back the trust of both market participants and the public.

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