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What is the FX Global Code and how will it affect treasury?

The complete FX global code and its adherence mechanisms are due to be released this month – so how will the new code affect corporate treasurers?

Almost exactly a year ago, the Bank for International Settlements (BIS) published the first phase of the global code of conduct for global FX markets, aimed at raising standards and promoting fairness and efficiency in currency markets. (We wrote about it here: FX global code of conduct to promote standards and efficiency)

When the code was first announced last year, the Reserve Bank of Australia's Guy Debelle explained why the FX global code is needed: “the foreign exchange (FX) industry has suffered from a lack of trust in its functioning. This lack of trust has been evident both between participants in the market, but at least as importantly, between the public and the market. The market needs to rebuild that trust, so that participants and the public have much greater confidence that the market is functioning appropriately.”

Six principles for the FX Global Code

It's clear therefore that the code will mainly affect how financial institutions conduct themselves in FX markets and how they behave towards their clients. It has been under development for a year and we're currently waiting for the complete code to be published, but when it was announced a year ago, it outlined the following six main principles:

  1. Ethics: market participants are expected to behave in an ethical and professional manner to promote the fairness and integrity of the FX market.
  2. Governance: market participants are expected to have robust and clear policies, procedures, and organisational structure in place to promote responsible engagement in the FX market.
  3. Information sharing: market participants are expected to be clear and accurate in their communications and to protect confidential information to promote effective communication that supports a robust, fair, open, liquid and appropriately transparent FX market.
  4. Execution: market participants are expected to exercise care when negotiating and executing transactions in order to promote a robust, fair, open, liquid, and appropriately transparent FX market.
  5. Risk management and compliance: market participants are expected to promote and maintain a robust control and compliance environment to effectively identify, measure, monitor, manage, and report on the risks associated with their engagement in the FX market.
  6. Confirmation and settlement processes: market participants are expected to put in place robust, efficient, transparent, and risk-mitigating post-trade processes to promote the predictable, smooth, and timely settlement of transactions in the FX market.

What's in it for corporate treasury?

Corporate treasurers may not feel as though this directly affects them but they are likely to benefit from greater clarity of policies and procedures in the FX market, from clearer communications and from improved management and reporting on risks associated with FX market participation. Thomson Reuters's Neill Penney writes in this blog: “The main consideration for corporate treasurers will be the extent to which their company publicly supports the code. How important do you regard reinforcing good conduct in the industry?”

He adds that there could be opportunities for treasury to enhance their use of analytical tools to conduct transaction cost analysis for all deals.


CTMfile take: Are you aware of the FX Global Code that is due to be published this month? Do you support it and do you expect it to have any impact on your treasury's FX transactions?


This item appears in the following sections:
FX Management
Buying & Selling FX
Risk Management
FX Hedging & Risk Management

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Comments

By Paul Stheeman on 18th May 2017:

Whereas this code is mainly directed at banks, nothing should prevent corporates from adhering to it either. A FX trade is a deal between two equal partners. The main difference is that one (usually the bank) is the market-maker and the client the market-taker. But that does not influence the importance that both sides behave professionally and transparently. To achieve this, corporates should ensure that they have sufficiently well-trained Treasury dealers with insight and knowledge in the mechanics of the FX markets and the necessary technical support.

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