I have the privilege to serve on the BIS FXWG Market Participants Group (MPG) that is crafting the Global Code of Conduct for FX. Interest in the Code is being expressed by market participates of all shapes and sizes alongside those being engaged in multiple roles across the Foreign Exchange industry. As recently stated by Guy Debelle, Deputy Governor of the Reserve Bank of Australia.
"We are on track to complete the Code so that it will be released in London in May. At the end of that process, for the Code to be effective and for it to achieve what we want it to achieve, it will need to be accepted and endorsed across the full spectrum of market participants. I ask you all as participants in the foreign exchange market to familiarise yourself with the principles of the Code and verify that your operations in the market align with them". Guy Debelle, Chair, BIS FXWG, TradeTech FX Asia, 22 March 2017.
The first part of the Global Code of Conduct was published in May 2016.
This first version of the The Global Code sets out global principles of good practice in the foreign exchange market to provide a common set of guidance to the market, including in areas where there is a degree of uncertainty about what sort of practices are acceptable, and what are not. It covers areas, in the first phase, such as ethics, information sharing, aspects of execution and confirmation and settlement. The second phase covers further aspects of execution including e-trading and platforms, prime brokerage, as well as governance, risk management and compliance.
The Global Code is a single Code for the entire FX industry and work is now taking place on commitment and adherence to it. This has been presaged by the BIS and, alongside market adherence mechanisms, market participants will probably need to take practical steps such as training their staff and putting in place appropriate policies and procedures. For my readers in the UK, it should come as no surprise that The Financial Conduct Authority (FCA) in the UK is considering how they might incorporate the Code in the Senior Managers Regime here.
The Global Code of Conduct for FX will also in the UK be augmented by the UK Money Market Code covering Securities Lending, Repo and Money Markets, which is due to be released shortly. Alongside the Global Code and complemented by the Precious Metals Code being prepared by the LBMA these three codes will replace the Non-Investment Products (NIPs) Code which had been drawn up by participants in the UK foreign exchange, money and bullion markets in conjunction with the Bank of England and FCA.
As has been noted elsewhere a lot of the trust problems the FX and Money Market industry has been suffering from in some part were occasioned by design faults in market infrastructure and structural weaknesses in poorly designed systems. Having a single Global Code of Conduct for buyside, sellside, platforms and others engaged in the wholesale market will go a long way to improving trust in an ethical, transparent and efficient FX market and other codes will do similar for other OTC Wholesale Markets. Providing firms with guidance on how to be adherent and what systems they will need in place to verify that they are adherent will be a subject I will return to in the year ahead, as well as updates on the other regulatory initiatives such as MiFID II, and how the broad regulatory and code of conduct regimes are all pushing in the same direction.