The Foreign Exchange Working Group (FXWG), operating under the auspices of the Bank for International Settlements, has published a final version of its “FX Global Code” (the “Code”), a code of conduct for foreign exchange markets. (This version incorporates Part 1 of the Code that was published in May 2016.) The Code was developed to provide a common set of guidelines to promote the integrity and effective functioning of wholesale foreign exchange markets. The Code does not, however, impose legal or regulatory obligations on “Market Participants,” a term that encompasses most entities (including trading platforms) active in wholesale foreign exchange. The Code will be collectively owned and maintained by the Global Foreign Exchange Committee, a new global association of regional FX committees.

The Code is organized around six leading principles:

  • Ethics: Market Participants are expected to behave in an ethical and professional manner to promote the fairness and integrity of the FX Market.
  • Governance: Market Participants are expected to have a sound and effective governance framework to provide for clear responsibility for and comprehensive oversight of their FX Market activity and to promote responsible engagement in the FX Market.
  • 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.
  • Information Sharing: Market Participants are expected to be clear and accurate in their communications and to protect confidential information while promoting effective communication that supports a robust, fair, open, liquid and appropriately transparent FX Market.
  • Risk Management and Compliance: Market Participants are expected to promote and maintain a robust control and a compliance environment to effectively identify, manage and report on the risks associated with their engagement in the FX Market.
  • 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.

There are no novel elements in the Code, but it does contain a useful annex of specific, illustrative examples of conduct that is either consistent or inconsistent with the Code.

The FXWG has developed a blueprint for achieving widespread adoption of the Code that relies heavily on central banks leading by example and encouraging Market Participants and FX trade associations to adhere to the Code by making public Statements of Commitment. The blueprint anticipates that most Market Participants will adhere to the Code in the next 6 to 12 months.

The text of the Code is available here.

The website of the new Global Foreign Exchange Committee is available here.