ASIC Calls for More Focused Spot FX Training

The Australian Securities and Investments Commission (ASIC)
has released a report to coincide with the FX Global Code of Conduct which
seeks to redress shortcomings in behaviour as well as to outline good practice
on spot FX desks in the Australian market.

The report, which was compiled following an investigation
into local banks’ practices and led to fines against the top five Australian banks,
says, “We observed a lack of appropriate training and guidance, particularly in
relation to handling confidential information, considering client interests and
conflicts of interest, and executing stop loss and fix orders. Training
sessions were rarely specific or tailored to the role of employees operating in
the spot FX market. We also observed that employees frequently engaged in
practices which were learned from their peers without question or challenge.”

ASIC adds that it considers
good practice involves market participants providing their employees with
specific, tailored and practical training and guidance about expected standards
of behaviour. It should also highlight avenues for seeking further guidance,
require supervisors to model the expected standards of behaviour, and monitor
that this occurs in practice, as well as holding those supervisors to account
where their behaviour falls short of those standards.

A third element of good
practice, the regulator says, is fostering an environment that allows employees
to challenge inappropriate practices.

ASIC also says that its investigators observed that
performance targets were often vague, with no guidance about how the targets
were expected to be achieved. “We also observed management recognition and
praise being given in circumstances where the outcome may have been achieved
through inappropriate behaviour,” it states.

To redress this, it says that ensuring
that performance targets are clear, specific and achievable, and that
appropriate weight is given to the consideration of conduct in assessing
whether and how performance targets have been met is vital. Equally, it repeats
that supervisors should be aware that their conduct may influence their
employees’ behaviour.

Following the
fines handed down to the five banks
– ANZ, CBA, Macquarie Bank, NAB and
Westpac – which totalled AUD 13 million, ASIC says, “We observed very few
instances in which the misconduct we identified had been detected or escalated
within the institution, and there was generally little attempt by individuals
involved to conceal their misconduct. This indicates to us that the individual
either believed that the conduct was acceptable (for example, because it was
common practice), or they did not consider that engaging in such conduct
carried any significant negative consequences.

“We consider that good practice
involves market participants holding supervisors responsible for proactively
monitoring, detecting and escalating inappropriate conduct; having in place
robust surveillance systems which are supported by compliance staff who have an
operational understanding of the business to enable effective detection and
investigation; capturing and retaining adequate records to facilitate
identification and investigation of potential misconduct; and imposing
appropriate sanctions for misconduct which are highly visible to all
employees,” ASIC adds.

Throughout the report ASIC
references the appropriate section of the Global Code, the release of which it –
like many other regional authorities, has welmcomed. ASIC commissioner Cathie
Armour, says, “Conduct in the wholesale spot FX businesses of some of
Australia’s largest financial institutions has fallen short of our
expectations. We have taken enforcement action where we have come across this
poor behaviour. Our focus for the future is making sure this doesn’t happen
again. Market participants need to make sure they have the appropriate systems
and controls in place to prevent, detect and address inappropriate conduct
within their organisation.”

Although there is no direct
requirement for local firms to adopt the Code’s standards, ASIC clearly sees it
as a good framework for eradicating misconduct in FX markets. In doing so it is
joining the UK’s Financial Conduct Authority (FCA), which last week also welcomed
the Code’s release and recommended that adherence to it be included in the
requirements under its Senior Managers and Certification Regime (SMCR). “We
expect firms, senior managers, certified individuals and other relevant persons
to take responsibility for and be able to demonstrate their own adherence with
standards of market conduct,” the FCA says. “Our supervision of the SMCR rules
supports this.”

Twitter @lamboPnL

Twitter @Profit_and_Loss

Colin Lambert

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