Get ready to hear a lot more about the FX Global Code (FXGC) at conferences and perhaps also from bankers, as the Global Foreign Exchange Committee (GFXC) looks to promote an effort aimed at introducing an ethics code into the mostly unregulated foreign-exchange (FX) market.
The complete code was published in May 2017, after one group comprising central banks from 16 jurisdictions and another group of market participants constructed a code over a two-year period. The FX market is global and largely unregulated, and has produced a string of scandals, including recent ones involving manipulation of FX benchmarks
The code then aims to supplement local laws, rules and regulations by identifying global good practices and processes in areas including ethics, governance, execution and sharing information. So far interest in the code has exceeded expectations, according to Adrian Boehler, co-chair of the GFXC and global co-head of FX local markets and commodity derivatives at BNP Paribas. He added that more-than-expected 460 institutions have submitted “statements of commitment,” (SoCs) in which the companies commit to following the code’s 55 principles—found at www.globalfx.org. Each market participant will ultimately decide which principles are most relevant to its own activity.
Corporates are likely to hear more about the code in the coming year, in part because they make up only a handful of the SoC signers, which today are mostly banks followed by institutional investors. The GFXC plans to launch a media campaign as well as conduct outreach to appropriate organizations to raise awareness across all market-participant segments.
“We’ll be targeting trade associations and industry groups,” Mr. Boehler said, adding that the European Association of Corporate Treasurers recently initiated its own public register to warehouse and display SoCs. “As a central repository for corporate SoCs, that’s a very important development.”
The handful of corporate signatories so far include Airbus, Air Liquid Finance, RTL Group SA, Financière Rémy Cointreau S.A and Shell. So far there are no US corporate names, in part because the GFXC, formed in 2017 to exchange views on trends and developments in the global FX markets and promote the code, is just beginning its outreach to organizations in North America.
One of its biggest challenges to signing up corporates will likely be persuading typically understaffed and under-resourced corporate treasury executives to spend the necessary time to map their current policies and procedures and FX infrastructure to the principles of the code. They’re already struggling with resources for things like know your customer rules.
“The larger the company, the greater the likelihood that its processes are well documented, and so it probably has done its homework to a large extent,” said Claas Carsten Kohl, head of treasury reporting and middle office at Airbus and a member of the Market Participants Group (MPG), which helped develop the code, adding that was clearly the case for Airbus.
Mr. Kohl said the MPG’s discussions with market participants made it clear they wanted the principles to be proportional to their FX activities, fitting the largest and smallest companies. He noted that while many principles may not apply directly to some corporates, adhering to them will nevertheless provide treasury executives with the opportunity to better understand a bank’s role in the market—whether it is trading on an agency basis or on a principle-to-principle basis—and how it prices transactions.
He added that transacting with banks that also adhere to the code will help corporates better understand what their counterparties are doing with their information and trades, the risks they are taking, and why they take certain actions in the market. He further noted that treasurers can only expect their counterparties to credibly adhere to this ethical behavior if they are committed to do the same.