The Bank of England has called for investors to sign up to the voluntary principles of good practice in currencies markets, stressing to asset managers that from the end of next year, adhering to the standards will help to demonstrate the standards of the Senior Managers Regime.
Top level staff at asset managers regulated by the Financial Conduct Authority will be subject to the new rules from December 2019, meaning that chief executives and other key staff will be personally accountable for any potential wrongdoing in their companies, Andrew Hauser, executive director for markets at the Bank of England told an audience of asset managers at an event on Thursday.
Signing up to the 55 principles will help demonstrate adherence to ‘proper standards of market conduct,’ a key requirement under SMR, Mr Hauser said. “That is a significant positive benefit to signing up to the Code – and to ensure firms are able to take full advantage of that, the Global Code has been submitted to the FCA for formal recognition,” Mr Hauser said.
The FX Global Code of Conduct was created by 16 central banks and private-sector representatives from the currency industry in response to the FX benchmarking scandal in 2013. The original effort was coordinated by the Bank for International Settlements and the final document was published in 2017. While the Code is not binding, the Senior Managers Regime is seen as the best tool for enforcement.
Since its publication, the Global Code has garnered over 600 signatures. But the majority of adopters are large global banks, trading platforms and brokers while investors and companies have lagged in numbers. Major central banks, including the European Central Bank made it compulsory for its FX trading partners to sign up to the code, and adherence was also made a prerequisite for joining central bank FX Committees.
While all 30 of the world’s largest banks have signed up to the code, only 11 of the largest asset managers representing $17tn of assets under management have done so. Mr Hauser said that by adopting the code, the buy-side community gets a bigger voice in shaping industry practices rather than leaving banks and brokers as driving forces.
“It is worth remembering too the cost of not supporting the Code: the heightened risk of returning to the doubt, uncertainty and collapse in trust in the operation of the FX and other core wholesale markets that we saw a decade ago, and the more restrictive regulation that would inevitably follow,” Mr Hauser said.
The speech detailed some of the most-frequently encountered objections from investors to the Code, including dissatisfaction with allowing the continued use of the trading practice called last look, which allows banks to cancel trades in the very last moment.