Financial Services Regulation

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Unravelled: FX global code update

4 October 2017

Written by Partner Carolyn Oddie and Lawyer Elise Rutherfurd

The FX Global Code was launched in Australia earlier this year and applies to 'market participants', including most financial institutions, bank asset managers, brokers and E-trading platforms. The Code sets out 55 best practice principles and, although compliance is voluntary, it is expected that these principles will become the standard for the FX market industry.


In May 2015, the Bank of International Settlements (BIS) commissioned a working group to establish a global FX code of conduct, and mechanisms to promote adherence. The intention is to promote a 'robust, fair, liquid, open and appropriately transparent market'.

The idea for the Code coincided with the conclusion of the investigations into a widespread agreement by multiple banks to manipulate the Libor. This investigation ultimately resulted in regulators in the United States, the UK, and the European Union issuing fines of more than $9 billion. It also followed bid rigging and price fixing allegations in the FX markets involving a number of large global banks that ended up settling for $5.6 billion. Australia was not immune from these events: a number of Australian banks were also investigated by the ACCC for attempted cartel conduct in the Forex trading market, which resulted in Federal Court fines of $12 million.

The FX Global Code

The Global FX Committee (GFXC) published the FX Global Code (the Code) on 25 May 2017. The Code was launched in Australia by Guy Debelle, the deputy governor of the Reserve Bank of Australia (the RBA). It applies to 'market participants', including most financial institutions, bank asset managers, brokers and E-trading platforms. The Code sets out 55 best practice principles that can be categorised under six leading principles.

Snapshot of the six leading principles

The Code is centred around six leading principles. For each of the principles, the code sets out the expected conduct as well as helpful examples. The leading principles are set out below.

  • Ethics: Market participants are expected to behave in an ethical and professional manner to promote the fairness and integrity of the FX market.
  • Governance: Market participants are expected to have a sound and effective governance framework to provide for clear responsibility for and comprehensive oversight of their FX market activity and to promote responsible engagement in the FX market.
  • Execution: Market participants are expected to exercise care when negotiating and executing transactions in order to promote a robust, fair, open, liquid, and appropriately transparent FX market.
  • Information sharing: Market participants are expected to be clear and accurate in their communications and to protect confidential information to promote effective communication that supports a robust, fair, open, liquid, and appropriately transparent FX market.
  • Risk management and compliance: Market participants are expected to promote and maintain a robust control and compliance environment to effectively identify, manage, and report on the risks associated with their engagement in the FX market.
  • Confirmation and settlement processes: Market participants are expected to put in place robust, efficient, transparent, and risk-mitigating post-trade processes to promote the predictable, smooth, and timely settlement of transactions in the FX market.

Each of these leading principles has a set of detailed recommendations. For example, market participants should:

  • eliminate or (if not reasonably possible) effectively manage actual, potential or perceived conflicts of interests;
  • have remuneration and promotional structures that encourage compliance with ethical and professional conduct expectations;
  • not disclose confidential information, internally or externally, without valid reason;
  • have frameworks for risk management and compliance, including processes to independently review adherence to the risk management functions.

Although compliance with the Code is voluntary, the GFXC has established a strategy to achieve widespread adoption of the code. This strategy includes Foreign Exchange Committees making compliance with the Code a condition of membership. In addition, the BIS central banks have signalled their commitment to follow the Code, and that they expect their counterparties to do so as well. Annex 3 of the Code includes a Statement of Commitment, which market participants are encouraged to sign. As Guy Debelle noted in his opening remarks, 'firms are more likely to adhere to the Code if they believe that their peers are doing so too.' It is likely that as more market participants declare their commitment to the Code that these principles of best practice become the standard for the FX market industry.

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