As Strong as Any Law… What Non-Adherence to the Global Code Will Mean

The FX Global Code is in many ways as “strong as any rule,
any regulation or frankly any law could put in place”, David Puth, chair of the Market Participants
Group and CEO of CLS, claims.

Speaking to
Profit & Loss on the sidelines of
a press conference to launch the complete FX Global Code, Puth addressed the
key question of just how much teeth an essentially voluntary set of principles
can have.

“If someone wants to break the law, they will do so,” Puth
says. “Laws don’t stop that, rules don’t stop that, principles don’t stop that.
However, I think this global set of principles sets a standard that’s very high
and people will recognise very quickly if they are operating outside of these

According to Puth, the combination of both internal controls
and controls between counterparties will keep that behaviour from starting.

But at the same time, Puth warns that on its own it may not
prevent further misconduct issues from arising in the industry – yet believes
that the Code has set the standard very high from the outset.

Participants are being encouraged to publically commit to FX Global Code by
signing a “statement of commitment”. Asked about what the next steps would be
following non-adherence to the Code, the panel – hosted by the Bank of England –
pointed to the bilateral nature of the market and the potential damage to
individual firms not adhering, resulting in loss of business.

Guy Debelle,
chair of the BIS Foreign Exchange Working Group and Deputy Governor of the
Reserve Bank of Australia, explains that in the past such a threat from your
counterparty that they would take their business elsewhere was just not

if the market is functioning more effectively as a whole then it is a credible
threat,” he argues. “They can now say that, going forward, that they will take
their business elsewhere if their counterparty don’t address their

Potter, executive vice president, Federal Reserve Bank of New York, says that
in addition to this,
many of these firms will need to sign off with
compliance first that they are using the code in the right way. “The central
banks will also be looking at the membership of the foreign exchange committees
and in addition, if the firm is a counterparty of ours, then we will expect
them to adhere to the code,” he warns.

Puth adds that there has also never been a common set of
principles that truly applies across all jurisdictions. “That bilateral conversation
that takes place between counterparties is ultimately the point of first
defence,” he says, adding: “The power of what we’ve done, to have that many
regions around the globe coming together in partnership for a common set of
goals, is pretty exciting.”

Colin Lambert

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