FX Global Code: do you know what you’re signing up to?


Although the FX Global Code isn’t mandatory, many firms have already signed up. Increasingly it’s looking like becoming the industry norm. In the UK, the FCA has highlighted the code as a way to show compliance with proper standards of market conduct, so potentially an easy boost to a firm’s reputation. But the obligations it brings can be harder than you think. And control failings for those who’ve signed up could have the opposite effect on their industry standing.

Until now, some firms have taken the view that there is no great urgency to implement the FX Global Code. However, even if your firm hasn’t yet signed up, it’s probably now only a matter of time before it does, especially given its links to the FCA’s Senior Managers and Certification Regime (SM&CR). And signing up sets the expectation that you have either fully implemented the Code, or will soon do so.

What’s involved in implementing the FX Global Code?

The Code brings obligations whether you’re on the buy or the sell-side of FX deals, though inevitably the obligations are heavier on the sell-side. If you have kept pace with MAR, MIFID II and the other market conduct codes published over the last two years, it’s likely you’ll already have policies and procedures in place to cover some aspects of the Code, but other aspects will be new to you, or represent a raised bar. For example:

  • Best execution – if you’re on the sell-side and you are acting as an agent, you need to make sure you’re providing the best possible outcomes to your clients, and are transparent as to how you achieve this.
  • Record keeping – applicable to both buy and sell-side – firms must ensure they have adequate recordkeeping and audit trail frameworks to capture records of: orders and transaction; communications with other market participants; and any other relevant information that enables firms to carry out effective monitoring of compliance.
  • Mark-up – if you are on the sell-side, you will need to disclose whether you apply Mark-up, and put in place front office policies and procedures to ensure your practises are consistent with client cost and charges disclosures. If you are on the buy-side, you may not have a direct obligation arising from the Code relating to mark-up, but you may want to understand whether mark-up is applied to your transactions by the sell-side, and the factors that contribute to its determination.
  • Last look – the appropriateness of last look functionality, and the way in which it is applied, remains a topic of significant debate. The Code applies additional obligations to the sell-side, who are required to be transparent regarding any use of last look. Firms must set up policies and procedures to ensure they don’t conduct any trading activity which uses the client’s information during the last look window, unless a specific exemption applies. For the buy-side, it will be important to understand whether Last Look is applied to your transactions and how – including your rejection rate as a result of last look.
  • Compliance with the code – all firms will need to put in place an effective governance structure, including clear lines of accountability, within the FX business and have broader mechanisms to provide oversight and controls within the firm.
  • Conflicts of interest and confidential information – both sell-side and buy-side have to ensure they have adequate policies and procedures to identify and manage conflicts of interests within the FX business. They are also required to provide guidance on how to handle and control confidential information.

This is a principle-based code rather than a set of rules, and it’s up to each business how to apply it proportionately. However, it’s important that you’re able to show what measures you’ve put in place in response to the Code, to satisfy the regulators of your intention to comply.

Benefits of implementation

The FCA’s consultation on recognising industry codes, including the FX Code, reinforce a consistent message – they 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.

We don’t know yet if the FX Code will be formally recognised by the FCA, but if you are working towards compliance with the Code, you are already underway in demonstrating appropriate standards in relation to your FX business.

Furthermore, as the Code becomes more widely adopted by the industry, there is a risk that non-signatories will be left behind. Although the market codes have arguably not yet entered the public consciousness, they may well become a ‘kite mark’ of good practice for savvy investors.

How Bovill can help

Similar to a new regulation, the FX global code represents a raised bar for how many firms conduct their FX business. To get to grips with the challenge ahead, undertaking a gap analysis is a logical first step – to understand best practice, and see how far your current policies measure up to the principles.

Bovill’s Markets team work closely with firms on both the buy and sell-side to understand the implications of new market conduct standards. We can help you to identify the areas where more work is needed, and help you to remediate any gaps found.

How well do you know the FX Global Code?

The FX Global Code is increasingly looking like becoming the industry norm. But do those who sign it always know what they’ve signed up to?

Find out whether you know your way round the FX Global Code with our five minute quiz.

Bovill Briefing – Market Conduct update and the FX Global Code

In our October briefing, the Markets team will provide an update on the latest trends in Market Conduct regulation and practice. This will include an update on the implementation of MAR and trends in market surveillance, a review of recent enforcement cases, and a focus on the FX Global Code.

Register here

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