UK Regulator Recognises FX Global Code

Following a consultation process, the UK’s Financial Conduct Authority (FCA) has formally recognised two financial market codes of conduct, the FX Global Code and the UK Money Markets Code.

To support and encourage the development and use of best practice industry codes of conduct, the FCA created a process to formally recognise those codes covering certain unregulated activities. Importantly in the UK, the codes must promote behaviour that is consistent with meeting its Senior Managers and Certification Regime (SM&CR).

The FCA says it received 11 responses to its consultation paper in December 2018 from market participants and trade bodies and that none raised any concerns with recognising the codes. The FCA says that on the FX Global Code, one industry body said that it had no objections to recognition and agreed that the code clearly illustrated examples of good practice. Another industry body expressed its support for recognition and said that it considered the code to be a significant advancement over the UK’s Non-Investment Products (NIPS) code, and an important component of that country’s Fair and Effective Markets Review.

On the UK Money Markets Code, one bank said recognition would promote industry support for code adoption, creating a fair, transparent and effective money market.

The codes will be recognised for three years, which the FCA says it can extend if appropriate and if its think the codes are still relevant. “Our recognition of these codes is as they stand at the current date,” it states. “If we think that the codes no longer represent proper standards of market conduct, we will withdraw recognition before the end of the three-year period. Our SM&CR rules do not change because of the recognition of these codes.

“By conducting themselves in line with these codes’ provisions, where applicable, individuals and firms may be assured that this will tend to indicate compliance with their obligation to observe proper standards of market conduct,” it continues. “We do not intend to supervise firms or individuals directly against these codes in unregulated markets. Our role is to make sure that firms meet their governance, and systems and control obligations, including under the SM&CR. We expect firms and individuals to consider both the spirit and letter of code provisions to make sure they fully meet ‘proper standards of market conduct’. Compliance with codes may be one way to show evidence they are compliant with our overall governance requirements.”

The FCA adds it will not take action based solely on a breach of provisions in market codes (recognised or not), but they may be used as evidence and relied upon in determining what proper standards are, or were believed to be, at the relevant time. “Recognition of a market code does not change our enforcement approach,” it says. “It is not a new basis for enforcement, and does not enhance our ability to take enforcement action.”

The recognition could be significant for the FX Code’s adoption as it provides firms and their staff with a framework that illustrates how the FCA will view potential breaches of conduct in FX markets. It may also, given the FCA’s role in supervising and regulating investment markets help provide momentum for the Global FX Committee’s efforts to increase buy side adoption of the Code, especially amongst asset managers.

Colin Lambert

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