On May 26, 2016, the Bank for International Settlements (BIS) rolled out the first phase of its Foreign Exchange (FX) Global Code in New York. This marks a breakthrough for an industry that has been working to regain the public’s trust after recent allegations of misconduct and ongoing lawsuits.

The Global Code, developed with the help of Central banks and market participants themselves (The Foreign Exchange Working Group) – lays out a set of principles-based guidelines for the wholesale forex market on what is acceptable behavior for the industry. Its goal is to not only boost the standards of behavior among banks, traders, brokers and others, but to stave off tougher regulations by encouraging fairness, transparency and liquidity, all while protecting clients’ confidential information.1

Background

Established by the BIS Governors, the Foreign Exchange Working Group (FXWG) is focused on strengthening code of conduct standards and principles in foreign exchange markets. The aim of the FXWG is to settle the problem of conflicting regional codes of conduct for FX market participants, promising to draw the best from all the existing codes to create a single document that will be universally applicable.2

Central bankers and market participants saw the need to create a new code of conduct after the benchmark rigging scandal, which led to billions in regulatory fines and the threat of tougher laws if the industry refused to change the entrenched behavior deemed unacceptable.3

What this Means to the Foreign Exchange Markets

The new code is developed around six key principles: ethics, governance, information sharing, execution, risk management and confirmation and settlement. These are areas the industry has struggled with, or that are undergoing changes as the market evolves.4

The document addresses fundamental industry issues, such as methods of execution, the definition of principal versus agent, and how market participants can share information without breaching confidentiality while promoting liquidity. The goal is not only to boost the standards of behavior among banks, traders, brokers and others, but to stave off tougher regulations by encouraging adherence to the code’s principles.5

“The release of this comprehensive guidance…ahead of the implementation of the final code demonstrates the importance of transparency and market engagement throughout the process,” said Dan Marcus, chief executive of ParFX. “This ensures the wider market is actively involved and listened to, instils confidence and ensures that the code, when completed in 2017, will be representative of the needs, requirements and concerns of the individuals and organizations that play an active role in the global foreign exchange market’s operation, governance and structure. The process highlights how regulators and market participants can work together to tackle market issues and ensure everyone’s voice is heard.”6

The architects of the Global Code of Conduct have stated their intention to keep the book of principles updated, and this on an ongoing basis in order to reflect the market’s constant evolution. This is something the previous codes used by central banks had failed to do.7

The Global Code of Conduct will not impose regulatory or legal obligations on market participants, nor will it supersede current regulatory standards or expectations. There is at the moment an important body of law and regulation applicable to the FX activities of many market participants. This however varies significantly across jurisdictions.8

It will therefore be largely dependent on market participants themselves to choose to use it.  It is intended to supplement regulation and not replace it.

Key Client Take-aways

It will take time for some market participants to fully adopt the principles of the Global Code of Conduct into their internal practices. While it may be easy to incorporate aspects of the Global Code into an internal policy or process, effectively embedding change in areas such as culture, training, system development, monitoring and assurance, should take longer.

The FX Market features a diverse set of participants who engage in the market in different ways and across various FX products. The Global Code is written with this diversity in mind and is expected to apply to all FX market participants, including sell-side and buy-side entities, non-bank liquidity providers, operators of trading venues and platforms, and other entities providing brokerage, execution and settlement services. While there can be no “one-size fits all” approach, given the diversity of the market, the Global Code is intended to establish a common set of guidelines for responsible participation in the market.

Compliance with, and adherence to the Global Code is viewed by the FXWG as the industry’s last shot at getting things right, and restoring confidence in the global foreign exchange market.

References

  1. “New forex conduct code receives overwhelming support,” Risk.net, May 27, 2016. Access at: http://www.risk.net/risk/news/2459661/new-forex-conduct-code-receives-overwhelming-support.
  2. “FX Global Code – Public Update on Adherence,” Bank for International Settlements, May 16, 2016. Access at: https://www.bis.org/mktc/fxwg/am_may16.pdf.
  3. “Global code adoption expected by summer’s end,” FX-Week, May 6, 2016. Access at: http://www.fxweek.com/fx-week/news/2457176/global-code-adoption-expected-by-summers-end.
  4. “New forex conduct code receives overwhelming support,” Risk.net, May 27, 2016. Access at: http://www.risk.net/risk/news/2459661/new-forex-conduct-code-receives-overwhelming-support.
  5. “Global code adoption expected by summer’s end,” FX-Week, May 6, 2016. Access at: http://www.fxweek.com/fx-week/news/2457176/global-code-adoption-expected-by-summers-end. “New forex conduct code receives overwhelming support,” Risk.net, May 27, 2016. Access at: http://www.risk.net/risk/news/2459661/new-forex-conduct-code-receives-overwhelming-support.
  6. “New forex conduct code receives overwhelming support,” Risk.net, May 27, 2016. Access at: http://www.risk.net/risk/news/2459661/new-forex-conduct-code-receives-overwhelming-support.
  7. “Global Code architects pledge to keep principles updated,” FX-Week, May 27, 2016. Access at: http://www.fxweek.com/fx-week/news/2459704/global-code-architects-pledge-to-keep-principles-updated.
  8. “FX Global Code – Public Update on Adherence,” Bank for International Settlements, May 16, 2016. Access at: https://www.bis.org/mktc/fxwg/am_may16.pdf.

Newsletter Author: Samantha Regan, Mairi Bryan

Newsletter Contact Person: Nghi Pham

Visit www.accenture.com/RegulatoryCompliance for latest insights on regulatory remediation and compliance transformation.

Disclaimer

This blog is intended for general informational purposes only, does not take into account the reader’s specific circumstances, may not reflect the most current developments, and is not intended to provide advice on specific circumstances. Accenture disclaims, to the fullest extent permitted by applicable law, all liability for the accuracy and completeness of the information in this blog and for any acts or omissions made based on such information. Accenture does not provide legal, regulatory, audit or tax advice. Readers are responsible for obtaining such advice from their own legal counsel or other licensed professional.

About Accenture:

Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions—underpinned by the world’s largest delivery network—Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With more than 373,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Its home page is www.accenture.com.

Copyright © 2016 Accenture. All rights reserved.

Accenture, its logo, and High Performance Delivered are trademarks of Accenture. This document is produced by Accenture as general information on the subject. It is not intended to provide advice on your specific circumstances.

If you require advice or further details on any matters referred to, please contact your Accenture representative.

Submit a Comment

Your email address will not be published. Required fields are marked *