The FX Global Code is a common set of conduct standards for the FX market issued by the Bank of International Settlements.
The FX Global Code is a common set of conduct standards for the FX market issued by the Bank of International Settlements, supported by central banks and market participants from 16 global jurisdictions. The purpose of the FX Code is to address the lack of clearly defined industry standards identified during the FX trading concerns uncovered in 2013.
The Central Bank, as a member of the Eurosystem, and the broader ESCB, has endorsed the implementation of the Code in Ireland. It will implement the Code itself throughout all FX related activities, and expects an equivalent level of commitment from its regular FX counterparties. The Central Bank’s expectation is that FX market participants in the Irish jurisdiction will evolve their practices in such a way that they are consistent with the principles of the Code and will demonstrate their commitment by issuing the voluntary statement.
Several scandals, which have surfaced since the 2008 global financial crisis, revealed significant malpractice around rigging of the foreign exchange benchmark rates and market manipulation. These activities damaged the reputation of FX markets, by undermining the transparency of market-based exchange rates that provide benchmarking capabilities and support fair and efficient economic functions. Regulators have punished implicated financial firms severely - six banks were fined $5.6bn over rigging FX markets.
The new Code, published by the Foreign Exchange Working Group (FXWG) of the Bank of International Settlements (BIS), seeks to restore public trust and confidence in the FX market. It was jointly developed by central banks and market participants. Reserve Bank of Australia Deputy Governor, Guy Debelle, who headed the FXWG said:
“All of us recognise the need to restore the public’s faith in the foreign exchange market. We share the view that the global code plays an important role in assisting that process and also in helping improve market functioning.”
The FX Global Code is a common set of guidelines, which provide fair practice recommendations and revolve around six leading principles and 55 supporting principles. Aiming at enhancing the overall integrity and effective functioning of the FX Market, the Code reflects high ethical standards and sets good practice guidelines for market participants in support of fair and efficient markets.
The Code is expected to apply to a wide range of FX market participants, including sell-side and buy-side firms, non-bank liquidity providers, operators of e-trading platforms, as well as firms providing brokerage, execution and settlement services for FX.
The FX Global Code is voluntary and non-enforceable. Its principles will be promoted and maintained by a ‘Global Foreign Exchange Committee’, formed of public and private sector representatives and representing a Global association of FX Committees.
The six areas of principal focus by the FX Global Code are:
Essentially, the Code supplements local laws, rules and regulations. Firms will still be expected to:
Firms are specifically encouraged to publish a voluntary ‘Statement of Commitment’ confirming their resolution to conduct business in compliance with its principles. Areas of particular consideration under the Code’s provisions are:
It is expected that most firms will adopt the new Code. However, sufficient consideration must be given to some challenging questions before firms can sign up, including: