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David Woolcock 11-Jul-2017 16:24:52 8 min read

A timely review of the Treasury Management System against the required standard may yield some unexpected gaps!


Do you have systems in place to enable adherence to the Global Code for FX?

The Global Code of Conduct for FX (the Code) was released on the 25th of May 2017, to a good reception from diverse market participants and brought the curtain down on two years of work.As the chair of the FX Working Group, Guy Debelle deputy governor of the Reserve Bank of Australia (RBA), stated -

"There will be a period of time for market participants to adjust their practices where necessary to be in line with the principles in the Code, this period of time might potentially be as short as six months, but no more than 12 months for the vast majority of market participants."

Annex 3 contains a Statement of Commitment, which, amongst other representations, commits Market Participants to ensure appropriate steps have been taken to align activities with the principles of the Code. Although direct, explicit attestation is voluntary, Market Participants expect widespread adherence to the Code, not least because of possible (and already in some cases real) Central Bank and Regulatory pressures alongside potential measures from the market itself.

The UK Financial Conduct Authority stated that it will look to link the principles in the Code to the UK Senior Managers and Certification Regime, and will expect certified individuals to take responsibility for and demonstrate their own adherence. They have clearly said, “We expect firms to identify, assess and manage appropriately the risks that their business poses to the markets in which they operate and to preserve market integrity, whether or not those markets are regulated”.

So what does adherence look like?

Firstly, the good news, the Code is to be implemented, on a proportionate basis by market participants. Central Banks and regulators are looking for firms to firmly imbed the Code in their policies and show adherence by implementing measures such as training of staff and of adjusting policies in line with the Code. Alongside this, Market Participants are expected to have procedures that enable them to embed adherence into the running of their FX business. All market participants are expected to adopt it proportionally to their level of activity and complexity of operation.

Firms looking to comply with the Code will be looking at the principles in the Governance section that calls for “effective oversight of the Market Participant’s FX Market activity based on appropriate management information.” Many senior managers will be looking at their technology stack to ensure they have the required information available to assess the FX activity undertaken by their dealing room. This will doubtless include a dashboard type approach for the Risk & Compliance function, with appropriate alerts, to ensure that dealing activity with clients is compliant with the Execution Policy.

In an echo, and several can be heard throughout the text, to MiFID II Principle 36 in Risk & Compliance exhorts Market Participants to “keep a timely, consistent, and accurate record of their market activity to facilitate appropriate levels of transparency and auditability and have processes in place to prevent unauthorised transactions.”. Like MiFID II, this relates to both orders and transactions and Market Participants should be able to provide information regarding the actions taken in handling a specific transaction to a Client.

In promoting fairness and transparency towards clients by Banks, careful consideration needs to be given in the application of systemically arrived at Mark Up on trades. This must include documenting and publishing a set of disclosures that allows a Client to understand the calculation of a fair and reasonable Mark Up and identifies the determining factors used. Banks also should have processes to monitor whether their Mark Up practices are consistent with their policies and procedures, and with their disclosures to Clients. Mark Up should also be subject to oversight and escalation within the bank.

A further echo of MiFID II is found in the constant repetition in the Code of treating clients fairly and with transparency. This dovetails with the principles of MiFID II for best execution. Although spot can be in some instances unregulated those in the UK would do well to bear in mind a regulator such as the FCA has the power to fine firms in violation of its Principles for Businesses. This can be for failing to deliver best execution where

clients are relying on them to do so. In particular Principle 3 (risk management systems and controls) requires banks to take reasonable care to organise and control their affairs responsibly and effectively, including to “strive for best execution for the customer” when managing client orders

The Code has guidance for the departments responsible for the post trade activities and encourages straight-through automatic transmission of trade data from front office systems to operational systems. Particular care should be given to trade cancellations with appropriate segregation between operations and trading personnel. Certainly timely reporting on amendments and cancellations should be available to the appropriate management. Other good housekeeping recommendations are given such as use of SSI’s and the great care required (and appropriate escalation of) to such matters as Third Party payments and the like.

The Code finishes with helpful examples for all Market Participants showing what constitutes both acceptable and unacceptable behaviour. In assessing adherence to the Code, it should be borne in mind the overarching principles basis of the Code and its organisation around six leading principles:

1. Ethics

2. Governance

3. Execution

4. Information Sharing

5. Risk Management and Compliance

6. Confirmation and Settlement Processes

The trick to adherence is to make sure you know what steps you need to take that enable you to monitor that your relevant engagement in the FX market is compliant with the 55 Principles. Having undertaken the appropriate internal assessment you will be able to decide in which timeframe you can commit to adhere within. In conclusion, the Statement of Commitment is in Annex 3 and reads as follows:

[Name of institution] has reviewed the content of the FX Global Code (“Code”) and acknowledges that the Code represents a set of principles generally recognised as good practice in the wholesale foreign exchange market (“FX Market”).The Institution confirms that it acts as a Market Participant as defined by the Code, and is committed to conducting its FX Market activities (“Activities”) in a manner consistent with the principles of the Code. To this end, the Institution has taken appropriate steps, based on the size and complexity of its Activities, and the nature of its engagement in the FX Market, to align its Activities with the principles of the Code.


David Woolcock

David Woolcock is an independent consultant and Director, Business Consulting at Eurobase. In addition, David is Chair of the Committee for Professionalism at ACI – The Financial Markets Association as well as Vice-Chairing the ACI FX Committee. He is also a member of the Market Practitioners Group for the Bank of International Settlement's FXWG that wrote the FX Global Code.