Not if - it’s the clarity of content that counts for FX Disclosures!
The Global FX Committee released the minutes of their last meeting, papers on Cover & Deal, Disclosures and a survey on Valentine’s Day. It makes for interesting reading for the FX market and luckily, on the 90th anniversary of the Valentine’s Day Massacre no bullets were fired!
The good news in the survey was that adoption rates have increased and more Statements of Commitment (SoC) have been filed on the Public Registries. From the respondents 55% had formally adopted the FX Global Code (FXGC) up from 11% in the 2017 survey. Of this number 30% of sellside firms had not signed up which has taken a bit of the gloss off the headline number. The outreach programme will helpfully rectify this as more awareness spreads alongside more customers asking their banks if they have signed a SoC.
For those UK firms who have not signed up this is likely to be a temporary state of affairs as the FCA expect authorised firms and their senior management to consider any relevant market codes in determining the ‘proper standard of market conduct’ (Principle 5), including for unregulated activities. As part of the SM&CR regime, this gives real teeth to the FXGC. We can also expect that in due course the FCA will shortly formally recognise the FXGC following the announcement and consultation (CP 18/39) that they intend to recognise appropriate industry codes.
The Disclosures report makes for interesting reading as it contains some very practical advice on how to approach this aspect of the FXGC in a transparent manner. My personal view is that if a firm draws up a detailed Conduct/Execution Policy (for internal or external use) and makes its traders fully aware of the importance of following it to the letter and spirit it makes adherence to the FXGC that much easier. In terms of client disclosure, it forms the template and, if kept dynamic with regular review and updates, it flows nicely into regularly updating your clients. It also frames an active dialogue with clients, which is beneficial to both parties and avoids misunderstandings at a later date that can result in disputes, litigation or worse.
The disclosure report describes eight characteristics to help market participants develop and review FX disclosures and lays out the work ahead on understanding the challenges related to disclosures in the context of anonymous platform trading. For those working on current disclosures the report can be accessed here https://www.globalfxc.org/docs/the_role_of_disclosure_and_transparency.pdf
In other news, it was good to see that European Union policy makers agreed to give an extra two years to the financial industry to complete an overhaul of key regional and foreign financial benchmarks to protect them from potential manipulation. This will allow Eonia and Euribor to be used by firms based in the bloc until the end of 2021, which is in line with the FCA stance on Libor. More on this later in the series!
Next week we will start taking a deep dive into Cover & Deal alongside other topical matters.