The FX market has been rattled by fines for currency rigging. Photo / 123RF
The FX market has been rattled by fines for currency rigging. Photo / 123RF
The architects of a new code of conduct that aims to clean up the global foreign exchange markets have conceded it will do little to stop currency traders who are intent on breaking the rules and manipulating the $5 trillion-a-day industry.
A new 81-page set of guidelines designed to restore public trust in currency trading was unveiled today, setting out 55 so-called principles that market participants should adhere to improve conduct around the world.
The first principle is that currency market players "should strive for the highest ethical standards", while others include tackling conflicts of interest and having pay policies linked to good conduct.
Guy Debelle, deputy governor of the Reserve Bank of Australia who was among the central bankers and financial services executives who spent two years developing the code, said they had opted for a principles-based system rather than firm rules because "rules are much easier to arbitrage than principles".
But David Puth, another of the code's authors who is chief executive of currency settlement firm CLS Group, also acknowledged that no set of principles, let alone laws, will be able to "prevent someone who chooses to do something dishonourable or illegal".
The launch of the guidelines, which have been drawn up in consultation with some of the biggest players in the industry and co-ordinated by the Bank for International Settlements, comes a day after French bank BNP Paribas agreed to pay $350m to settle an investigation by the New York Department of Financial Services into currency manipulation.
Seven banks paid out more than $10b in total between 2014 and 2015 over claims they had misused information and rigged currency benchmarks, fines that served to fracture confidence in the market.
"All of us recognise the need to restore the public's faith in the foreign exchange market," Debelle said. "There were a number of issues around, say, the benchmark fixings which involved inappropriate sharing of information, that is something we directly address in the code."
While they are essentially voluntary, the big central banks that have helped put together the standards will make it mandatory for their market counterparties to sign up to the guidelines. Chris Salmon, the Bank of England's executive director for markets, will chair a committee that will help to roll out and manage the code, while the New York Federal Reserve Bank also had a hand in crafting the standards.
However, despite the heavyweight backing for the code, Puth cautioned that "if someone is truly out to do something inappropriate then they'll continue to do so". He said: "I think we've spelled out very clearly what we think good behaviour is, I think virtually all of the market operates that way but we're not going to be able to stop bad behaviour simply by putting out a set of principles."
The Global Code is not law or binding regulatory rules but regulators will expect FX firms to comply with it as if it was.
It is hoped the firms operating in the currency market that adhere to the code will help to enforce it by withdrawing business from other companies that do not follow its standards. National regulators are expected to pile on further pressure.
City watchdog the Financial Conduct Authority (FCA) said today that the new standards will be linked to the senior managers' regime, a tough set of rules governing the conduct of top bosses that were introduced last year.
Bradley Rice, a lawyer at Ashurst, said that regulatory backing gave the code more teeth. "The Global Code is not law or binding regulatory rules but regulators will expect FX firms to comply with it as if it was," he said. "The FCA and other regulators have already taken significant enforcement action for misconduct in the global FX markets.
"It would be a 'brave' firm that ignored this code and failed to show it has considered it. "
