This is the unambiguous title of a speech given yesterday by Andrew Hauser, Executive Director, Markets at the Bank of England. Mr Hauser highlights the rapid increase in the number of firms committing to follow the FX Global Code, from 100 firms in April 2018 to 605 last month. However, he reports that take up from the buy-side is slower, only 11 of the largest 30 asset managers have signed up. Therefore, in his speech, Mr Hauser encourages asset managers to commit to the Code, aiming to identify what are the perceived obstacles to managers and how they may be addressed.
Among other things, Mr Hauser emphasises that:
- proportionality in the application of the Code is a key principle and the steps taken to comply with it should reflect the size and complexity of the relevant FX market activities;
- the Code is a living document which can be strengthened or clarified where necessary - an area of interest to the buy-side recently updated includes clarifying that trading should not take place if it uses information from a client's trade request during the last look window. Signing up to the Code will give the buy-side a stronger voice in the development of the Code and the FX market as a whole;
- becoming a signatory to the Code gives a clear signal to the sell-side about the standard of services the buy-side expects for itself and its customers;
- the mark of quality signified by committing to the Code could give a buy-side firm a competitive edge; and
- as the Code has been submitted to the FCA for formal recognition, compliance with it will help to demonstrate that senior managers are observing proper standards of market conduct. Mr Hauser highlights how this will become increasingly important under the senior managers regime (SMR) which applies to the buy-side from 9 December 2019.
The FX Global Code was first launched in 2017 setting out 55 principles of good practice in the FX market. Committing to the Code by firms is voluntary. However, the reference by Mr Hauser to compliance with the Code as evidencing a market norm in the context of the SMR can only weigh in favour of firms signing up to it.
"But it is worth remembering too the cost of not supporting the Code: the heightened risk of returning to the doubt, uncertainty and collapse in trust in the operation of the FX and other core wholesale markets that we saw a decade ago, and the more restrictive regulation that would inevitably follow. The Code offers the opportunity for the market collectively to recognise its responsibilities in a fair, balanced and cost effective way in the interests of the users of the capital markets: your customers."