The FX Global Code: The EU Shows Support

When the FX Global Code was released in London in May 2017, it offered up a common set of principles across ethics, governance, execution, information sharing, risk management and compliance, and confirmation and settlement. To quote its wording precisely here, the aim of the code was established to “promote a robust, fair, liquid, open, and appropriately transparent market, in which a diverse set of Market Participants, supported by resilient infrastructure, are able to confidently and effectively transact at competitive prices that reflect available market information and in a manner that conforms to acceptable standards of behaviour.” Or, to put this objective into more easily understood laymen’s terms, the code was designed to restore the trust and credibility back into the FX market after the scandals of 2013 and 2014. This period of scandals was so egregious that it resulted in £1.4 billion in FCA fines and fostered the launch of the FCA FX Remediation Programme.

While the code sets itself down as “voluntary,” adherence to its principles is growing. If you take a look at some of the trends surrounding its adoption, it’s not surprising why so many are supporting it best practices:

• Major Central Banks have confirmed they will link trading to adherence with the code;
• FX Exchange Committees in North America, Europe and APAC have linked membership to adherence;
• Threat of Competitive Advantage – If you were a fund manager transacting billions in currencies each year, would you trade with someone who hadn’t signed up to compliance, information sharing or have fair execution rules?

Initially, take up of the code was slow, but remember that Europe was dealing with the impact of two major regulations over the last two years – MAR and MiFID II – and compliance resources were finite and limited to prioritizing those first. 

However, after only one year from its debut, the situation looks remarkably different – more than 100 companies have signed a statement of commitment to the code. Depending on which metric you rely on, either all or a majority of the top 10 Global FX participants and a large percentage of regional players in Europe, APAC and the Americas have signed up to adopt the Global Code. By any measure, this is impressive support.

Of course, these participants will need the correct procedures, training, systems and resources in place to adhere to the code’s directives. In some ways, the hard work is just beginning. However, the good news for EU-based banks is that none of this is revolutionary – MAR and MiFID II covers many of those same principles addressed in the code, including market abuse, insider dealing and communication surveillance. Even the monitoring of behavioural anomalies shouldn’t create too much anguish for those adopting the code’s principles.

While we have moved through a painful time period in terms of regulatory change in Europe over the past year, we do see ourselves at a positive juncture in the FX community. The good news is that we have moved to a better place in FX and in other compliance-related activities. Perhaps ironically, the massive focus on MIFIDII and MAR have created a stronger foundation for FX Global Code compliance. This is certain to have a positive impact among FX market participants.