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And Another Thing…

I have not had a tremendous amount of dealings with the body and readers will (as always!) feel free to correct me if I am wrong, but news that the Financial Stability Board is being tasked with investigating and recommending a framework for FX fixings is nothing but good news to me.

Yes, it could mean more regulatory oversight of FX markets which is rarely welcome, but what do we expect when the market is under such a (admittedly as yet unproven) cloud?

One reason why I see this as positive is that the FSB has good resources and more importantly it is a global body with global representation. I stress the global nature of the body because, quite frankly, the last thing financial markets need is yet another solution foisted upon it unilaterally by a US regulatory body that is either driven by a domestic political agenda or is, unfortunately, ill-informed.

By taking a global approach to the issue, all opinions will be heard and, hopefully, a sensible solution will be the outcome. Sources familiar with the matter tell me the work undertaken by the group will look at the structure of the Fixing process, what can be done to improve and be ready around August. The fact that it will have nothing to do with the ongoing investigations into malpractice is good news because it means the emotion can be taken out of the issue – the ambition is an improved market structure.

Discussion, the sharing of ideas and a fair, balanced approach are the ingredients for a sensible framework and hopefully this will be the outcome on this occasion. Equally, although there are fears of regulatory oversight, it need not come to that, because previous FSB work has often focused on the creation of principles and best practices.

Of course if these practices or principles are abused there is only one outcome. More regulation. The FX industry can do a great job of putting its own house in order, but on this occasion, following so closely upon the loosely related Libor scandal, it has to be realistic and understand that the regulators are going to want a say. The bottom line is the Fix is a flawed, indeed broken, mechanism and it needs repairing.

We may not like the outcome, but my instincts tell me that whatever that outcome is, it will have been reached through a fair and encompassing process. And all things considered, that can only be a good thing.

Colin_lambert@profit-loss.com    Twitter @lamboPnL

Profit & Loss

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