What the new FX Code means for Asian banks

What the new FX Code means for Asian banks

A new global code governing the foreign exchange (FX) market puts the onus on banks to commit to new standards. What should those trading FX do now?


Global push to define FX conduct standards

Global currency market (FX) trading is a $5.1 trillion-a-day business, but despite its size and global scope, the market has never had a consistent set of rules – until now. On 25 May 2017 it received a global set of conduct standards – the FX Global Code.

Firms are encouraged to publish a voluntary statement confirming they will conduct business in a manner consistent with the Code’s principles and we expect most large firms to adopt this – recognizing that clients and regulators expect them to. However, they still need to address some challenging questions before they can sign up:

  • Who will authorize the commitment for the firm? Will they sign on behalf of a specific business line, location or the whole firm?
  • Will firms and individuals feel at ease signing the commitment and adhering to its principles?
  • How do principles translate into practical policies and procedures, particularly in fast-evolving areas such as electronic trading and in the context of the business model where clear distinctions between market-making, principal and agency concepts are often blurred?

These questions will be particularly challenging and banks need to demonstrate they have solid, transparent procedures in place to comply with the code.

What does the Code say?

The Code itself is a common set of guidelines developed jointly by Central Banks and market participants from 16 global jurisdictions. The Code is built around six leading principles, including ethics, execution and information sharing and 55 supporting principles that set out good practices with the aim to enhance overall integrity and effective functioning of the FX market.

The Code is expected to apply to a wide range of firms that participate in the FX market. This includes both sell-side and buy-side firms, non-bank liquidity providers, operators of e-trading platforms, as well as firms that provide brokerage, execution and settlement services for FX.

Welcome response from Central Banks

The Monetary Authority of Singapore (MAS), along with the Bank of Korea (BOK), the Hong Kong Monetary Authority (HKMA), the Reserve Bank of Australia (RBA) and the Reserve Bank of India (RBI), issued a joint statement welcoming the publication of the FX Global Code, and encouraging all market participants to adhere to the principles of the Code and demonstrate their commitment through the Statement of Commitment, which is published as part of the Code.

The FX Global Code is the first truly global set of standards for all FX market participants setting the minimum benchmark for expected good market conduct and practices. Although the Code does not impose legal or regulatory obligations on market participants, nor does it substitute for regulation, its endorsement by central banks, representing the 15 largest currency areas, sends a clear message to the market. Whether formally or not, we expect regulators in the largest FX centers to use the Code as a benchmark to assess firms’ conduct.

Read more about the new FX Global Code

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