The Global Code: Back to the Future

When I joined a US investment bank in London as a graduate trainee in 1969, it was explained to me that they did not actually have a graduate programme nor were they particularly interested in the economics and politics that I had spent three years studying.

I had been hired because I had a sound education and they believed, after several interviews, that I had the qualities of honesty and integrity that they insisted on for all employees, at all levels of job function and experience. Failing the bank in these essential qualifications for the job would result in my dismissal. My contract and probationary period further underlined the pre-eminence of the culture of good conduct that was expected of me in all that I might in future years do for the bank.

After an introductory few weeks in various departments, I found myself in the high-octane world of the dealing room on the FX desk at a time when the Bretton Woods fixed exchange rate regime was starting to crack. Like most traders of my generation I was invited for a beer after work on the first Friday that I had been on the desk by the chief dealer, a tribal leader type figure ensuring discipline and security for his staff in a division of the bank that few would trespass into. Our ‘chat room’ was the Kings Arms, known as the ‘Boneyard’ because it was situated next to St Botolph’s cemetery.

It was then that he said he would be pleased to have me in the dealing room and that I would have to observe the dealer’s code of ‘my word is my bond’, ‘once a dealer always a dealer’ and ‘the customer is king’. I knew precisely where I stood on the honesty and integrity front.

It is easy to deride the mantras that we observed and took seriously as being rather quaint, belonging to a past era, and the fading echo of my generation grumbling that things ain’t what they used to be. But after the financial market scandals of recent time, it is obvious that the modernisation, innovation and incomprehensible advances in technology that have been of such value to our markets have done no favours for the conduct and behaviour of market participants and their employers. Those dealing room mantras combined with a clear direction from the top of the bank created the DNA that programmed good behaviour through the unwritten codes that we observed.

The success of the Global Code of Conduct published in May 2017 will only be truly observable when individuals and institutions alike feel the responsibility for observing the Code running instinctively through their everyday work. This will not be an easy task as the shocking breakdown in the culture of integrity was the responsibility of both individuals and institutions. The rebuilding and mutual appreciation of the benefits that integrity and reputation bring to individuals, institutions’ earnings and share price, the markets and society as a whole will take longer than its sad erosion. That will be the real output of the Code.

The FSB’s 2014 recommendations for the reform of FX benchmarks (WM/R Fix) included references to the need to
address the issues of behaviour and conduct in the FX market. It led directly to the, eight-page, ‘Global Preamble’ published in March 2015, the end product of which has been the, 78-page Global Code of Conduct. The first paragraph in the global preamble of the, 4 ½ page, high-level objectives for the Code states: “FX market participants should adopt high standards of conduct in their actions and communications, both internally and externally. FX market participants are also expected to conduct their business with due skill, care and diligence, and to act in good faith.”

This is the foundation stone that I recognise from the mantras that were imbued in me all those years ago.

As a member of the Bank of England’s FX Joint Standing Committee (JSC), I was very pleased to have had the opportunity to work on the Code from the outset at the beginning of 2016. At the Profit & Loss conference in London in April 2017, Chris Salmon, executive director of the Bank of England and chairman of the JSC, described the way in which buy side, sell side, intermediaries and platform providers had pulled together to agree the final text of the paragraphs that make up the Code.

Sub groups worked in detail on the operational, legal and governance issues that had to be agreed, and much of the chemistry and tensions that accompany such work took place in these groups. The exorcising of strong views and the willingness to compromise has been an essential part of the process and the ultimate strength of the final product.

We can all point to elements of the Code that we might wish to change. For my part, I would have preferred a shorter document and a stronger reference in the Foreword to the Global Preamble’s objectives. I felt that more emphasis should have been put on implementation, and I have never been in love with Illustrative Examples, although other committee members were convinced of their value. But these are picky points that reflect my own prejudices and over time, there may be changes to what is a living document. The publication in May marked the end of the beginning, and nobody has any illusions as to how important it is to make the Code work for the market place as a whole.

In the next phase, I have three hopes or wishes for its use and development. First, that market participants sign the Statement of Commitment as soon as possible and at the highest practical level in the institution. Ideally, for banks, reference should be made to the Statement of Commitment in the Pillar 3 disclosures required under Basel III. I also hope that the Statement will be used, albeit with different wording, at individual employee level in trading operations. This would empower my second hope that the Code will be implemented internally on a firm-wide basis and that observance of the Code becomes part of the way in which trading room staff are hired, fired and remunerated. This requires trading management to work closely with HR, compliance and audit divisions and be clearly visible to the executive committee, board and the firm’s supervisors. All of those functions are stakeholders in the Code.

My third hope relates to Last Look and Principle 17. Much has been written and argued about in respect of Last Look, notably in the columns of Profit & Loss, which has aired the debate fully. In our heart of hearts we all know what it means and above all, where its use and misuse touch the edges of integrity. It is up to market participants and their clients to agree where those edges are and to evidence them in the terms and conditions of their relationship. A perpetual debate about the wording of Last Look in Principle 17 introduces the danger of it hijacking the Code as a whole, and diluting its more fundamental messages.

The future welfare of the market is critically linked to the use and observance of the Code. When it is truly embedded, I am sure that what we will see will be the ethic and ethos that I would recognise from my early time in the dealing room. I may be hankering after a bygone era and, probably, more innocent times, which I know will never come back, but integrity in financial markets has always been the first qualification and a necessary condition for being a participant at any level.


David Clark has worked in currency and capital markets for 48 years and has been a Non-Executive Director of banks and brokers active in the markets. He is currently a NED of the TPIcap, SEF’s and Thomson Reuters Benchmark Services Ltd, where he chairs the WM/Reuters Oversight Committee. He is a member of the Bank of England’s FX JSC and SONIA Advisory Committee and has been a Senior Advisor to the FSA. He chairs the WMBA and is an Hon. President of ACI.

Galen Stops

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