Insight & Analysis

FX code of conduct gets green light

Published: May 2017

The Foreign Exchange Working Group agree on new standards that will impact the US$5trn foreign exchange market.

A new set of guidelines that will guide behaviour and best practice in the global FX markets have been released by the Foreign Exchange Working Group (FXWG) under the supervision of the Bank for International Settlements (BIS).

The new guidelines come after a swath of scandals in the FX market – most notably in 2013 when it was revealed that currency dealers had been rigging the foreign exchange benchmark rates.

According to the FXWG, the guidelines are a set of “global principles of good practice in the foreign exchange market” and that the code has been “developed to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market”.

A closer look at the code

As Treasury Insights reported earlier in the year when the draft was still under construction the 78-page code is organised around six key pillars with respective leading principles as follows:

  1. Ethics:

    Market participants are expected to behave in an ethical and professional manner to promote the fairness and integrity of the FX market.

  2. Governance:

    Market participants are expected to have robust and clear policies, procedures, and organisational structure in place to promote responsible engagement in the FX market.

  3. Information sharing:

    Market participants are expected to be clear and accurate in their communications and to protect confidential information to promote effective communication that supports a robust, fair, open, liquid and appropriately transparent FX market.

  4. Execution:

    Market participants are expected to exercise care when negotiating and executing transactions in order to promote a robust, fair, open, liquid, and appropriately transparent FX market.

  5. Risk management and compliance:

    Market participants are expected to promote and maintain a robust control and compliance environment to effectively identify, measure, monitor, manage and report on the risks associated with their engagement in the FX market.

  6. Confirmation and settlement processes:

    Market participants are expected to put in place robust, efficient, transparent and risk-mitigating post-trade processes to promote the predictable, smooth and timely settlement of transactions in the FX market.

Neill Penney, Managing Director, Trading at Thomson Reuters commenting on the code in a recent webinar said: “The code is not regulation, but it defines conduct expected by regulators and regulators intend widespread adoption. This is the industry’s last chance to write its own rule book.”

Broad support

Of course, the code will only be successful if market participants adhere to it. And according to the results of a poll in the same webinar treasurers are in support of the code. Indeed, 79% of those treasurers in attendance said that they believe it is important that the corporate treasury community is seen to publicly support the code through adherence.

Elsewhere, the European Association of Corporate Treasurers has also publicly supported the newly released code. In a statement, the EACT said “The EACT welcomes today’s publication of the Global Code of Conduct for the Foreign Exchange Market. We strongly support the Code and its objective of strengthening the integrity and the effectiveness of the FX market, which is essential to corporate treasurers. We support adherence to the Code by the FX market and intent to promote the Code to our members, by encouraging them to evolve their companies’ FX practices to be consistent with the principles of the Code.”

Outside of the treasury community, the code has been welcomed by the world’s central banks. These include central banks in Asia with the Hong Kong Monetary Authority, the Reserve Bank of Australia, the Monetary Authority of Singapore, and the Reserve Bank of India all that they strongly support the principles of good practices within the code and will be engaging local market participants to promote adherence to it.

What should you do?

Although most of the code speaks to the banking industry. It would be prudent for corporate treasurers to become familiar with the code and its spirit.

Treasury, as discussed in a previous Insight, might also wish to take this opportunity to drive best practice across its FX activities by using analytics to conduct transaction cost analysis to help ensure best execution.

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