David Woolcock 23-Dec-2019 09:00:00 6 min read

Winding down for Christmas with little to celebrate behind the doors of the Advent Calendar


The festive season has taken over and it is reflected in the post UK election newsfeeds for financial markets. We are moving forward into the 2020s, and people are making predictions about the new decade. But, we should not expect the exuberance, irrational or otherwise, of the Roaring Twenties a century ago!  

Before Big Ben rings in the new year and we have all overindulged at the Christmas table there are some items of note still lurking behind the doors of our financial Advent calendar. This starts with the latest from the Australian Securities & Investments Commission (ASIC) report on “Wholesale FX Practices in Australia” which though specific to the local market probably reflect the state of play more generally. It certainly gave further evidence to the areas around the FX Global Code identified in my previous Advent blog - https://blog.eurobase.com/financial-advent-calendar 

The participants reviewed for the report were major local and international banks and covered seven key areas, (https://download.asic.gov.au/media/5417669/rep652-published-18-december-2019.pdf for the full report), including interesting observations on last look practices which emphasises the importance of the Global FX Committee continuing its work into this controversial practice. My blog in March covered some aspects of this https://blog.eurobase.com/fx-disclosures-deal-and-cover. Given the size and sophistication of the banks reviewed by ASIC it is disappointing to see in the key findings that “Use of last look by market participants is sometimes not disclosed to the client or is difficult to understand, and is sometimes only used to benefit the participant and not the client”. Not sure that Santa will be leaving presents for those that were given that end of term report! 

The other finding that stuck out like a sore thumb was the failings concerning FX mark-ups. As noted in the report, “Some participants have opaque and inconsistent practices and monitoring of mark-ups charged to clients”. FX mark-ups have generated some debate in Central bank and regulatory circles for some time now. One of the most controversial aspects has been whether mark-ups should be disclosed to the client in the interest of transparency. As many FX businesses move to the agency style execution offering this debate is going to continue to re-surface. It is one of the reasons that we have, at Eurobase, such a comprehensive set of functionalities for mark-ups to cover all eventualities out of the box, including monitoring and flagging exceptions in real-time. 

The other dominant recurring theme that has popped up in the Advent calendar is that of the transition from IBORs to a Risk-Free Rate (RFR) with multiple regulators providing further guidance. To do justice to this subject would require a whole whitepaper given the complexity of the debate that has developed this year, (see my previous blogs such as https://blog.eurobase.com/frtb-engines-are-being-stoked & https://blog.eurobase.com/banks-saying-farewell-to-libor-could-lead-to-some-uncomfortable-judgements), alongside the ramping up of regulatory attention. 

What did catch the eye in the Advent calendar was a joint report from AFME and Simmons & Simmons entitled “LIBOR Transition: Managing the Conduct and Compliance Risks” in which it was noted “Against this backdrop, firms should ensure that their conduct risk framework can provide for the identification and management of the risks arising from LIBOR transition. Also, firms should consider and incorporate a range of conduct risks, together with the relevant mitigating actions to address these risks, into their LIBOR transition plans. A failure to manage conduct risk could lead to poor outcomes for clients and an increased potential for litigation against firms by clients and other market participants as well as sanctions from regulators and competition authorities”. 

In particular, it was noted “The process of implementing a firm’s LIBOR transition project will vary depending on the nature and size of each institution.  Broadly, for many firms it will include: (i) identifying and assessing exposure to legacy LIBOR contracts and impacted business areas; (ii) conducting client impact and risk assessments; and (iii) identifying, assessing and implementing LIBOR transition method(s) (for example, amending or replacing existing contracts to either include robust fallback provisions or replacing LIBOR with RFRs or an alternative rate)”. Many have not yet considered the full extent of the Management Information (MI) required to navigate this ice rink safely and many may slip up if measures are not urgently taken.  

At Eurobase, we have seen through 2018 and continually during 2019 the trends of FI’s procuring a holistic solution that encompasses Treasury, Sales Desk, eTrading, Payments and Regulatory Compliance. Within this platform we have extensive reporting functionality that will prove invaluable to our clients as they navigate their transition project. This will be invaluable in answering the question posed in the report – “Which individual(s) or team(s) will be responsible for compiling the relevant MI? What process is in place to record how MI is being scrutinised and, if needed, challenged?” 

On that note, I will leave you to the rest of the festivities with my thanks for following us in 2019 and I look forward to continuing to inform in the next decade! On behalf of the whole team, we wish you a Merry Christmas and Happy New Year. 


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.