February 1, 2018
The final text of the FX Global Code (“The Code”) was published on 25 May 2017 and is the product of a two-year collaboration between the Foreign Exchange Working Group (FXWG) and the Market Participants Group (MPG).
The FX Global Code establishes ‘six leading principles’ of good practice to be adopted by FX Market Participants, inclusive of 55 sub-principles across the following topics:
The Code is intended as a common set of guidelines for global application. By adopting a principles-based approach, the Code encourages Market Participants to ‘think’ about whether or not their actions are consistent with the principles. The principles require firms to be proactive in assessing how the Code applies to them individually and consequently to decide how to reflect the principles in their own procedure manuals.
The aim of the FX Global Code is “to promote a robust, fair, liquid, open, and appropriately transparent market, in which a diverse set of Market Participants, supported by resilient infrastructure, are able to confidently and effectively transact at competitive prices that reflect available market information and in a manner that conforms to acceptable standards of behaviour.”
The Code is intended as guidance and was developed to uphold the integrity and effective functioning of the wholesale FX Market. FX Market participants are encouraged to actively engage with the Code, become familiar with its principles and adopt it in practice.
The complete Code was published 25 May 2017 alongside a separate report setting out a blueprint for adoption. Since it is not a regulation, there is no set implementation date. However, the Code places responsibility on market participants to take the appropriate steps to assess and adopt the Code into its practices and culture. The expectation is that firms will only need six months to a year in order to adjust their practices to be in line with the principles in the Code.
The Code does not have the effect of replacing existing national law and Market Participants should continue to comply with the laws, rules and regulations applicable to them and the FX Market in the jurisdiction in which they do business.
Compliance with the Code does not provide a legal defence to a violation of applicable national law and, since it is intended as global guidance, local meaning of terms in any one jurisdiction should not be applied to its interpretation. In this way, Market Participant must ensure that their internal policies and procedures comply with their national laws whilst using the Code as an “essential reference” when conducting business in the FX Market and when developing and reviewing internal procedures.
A number of international regulators from the U.K., Australia, France and China have already endorsed the Code and have expressed support for its adoption by market participants. Specifically, the Financial Conduct Authority (FCA) has communicated its expectation that senior managers, other relevant persons and certified persons should be able to demonstrate compliance with the standards communicated in the Code.
In the U.K., the FX Global Code supersedes and substantially updates the existing Non-Investment Products (NIPs) Code for participants in FX markets. Regulators will therefore expect firms operating in FX markets to comply with the Code and adherence with its principles will demonstrate best practice.
A ‘statement of commitment’ form, annexed to the Code, can be used publically or bilaterally when trading in the FX market, to signal support for the Code and an intention to adhere. Pershing is reviewing this to determine whether it will commit to the Code.
Best Execution is a significant theme underlying the Code and coincides with the general drive to improve best execution in the financial services industry. Best Execution is one of the pillars of the MiFID II regime.