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Strengthening Principles & Code of Conduct Standards in FX Markets

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FCA FX Remediation Programme: Next Steps

Next Steps for the FX Market: The FCA has published opinion on how firms should respond to their findings on the FX Remediation Programme.

Comment from the FCA:

“We now expect firms who were not involved in the remediation programme to carefully consider the details of the programme set out below, and to implement remediation plans that are appropriate for their FX business.”

FCA Announcement July 2016: ‘FX Remediation Programme: Our Next Steps’

28 July 2016

FX Remediation Programme Findings: UK FX Market Next Steps

Back in 2014 the Financial Conduct Authority (FCA) launched a remediation programme to ensure firms in the UK Foreign Exchange sector addressed root cause for well publicised failings in addition to driving up standards across the UK FX Market.

The FCA have now published how firms should respond to their findings as well as the next steps for the regulator.

Forex Market Scandals

When the FX Remediation Programme was launched, the FCA had just imposed extremely large fines on six banks. The FX Market scandal had seen that ineffective controls at these banks had allowed G10 Spot FX Traders to put their own interests ahead of those of their clients, other participants within the market as well as the wider UK financial system.

These particular banks had failed to manage and mitigate obvious risks concerning confidentiality, conflicts of interest as well as trading conduct. Combined, these failings allowed opportunity for traders at these banks to behave unacceptably by:

The FX Remediation Programme

Thus, the FCA launched the FX Remediation Programme – an industry-wide programme – that aimed to ensure firms addressed the underlying causes of the publicised failings and create higher standards across the FX Market within the UK.

Over 30 firms (representing just under three quarters of the UK FX market) took part in the programme that required senior management to take responsibility for bringing about and verifying the necessary changes had been made.

Those firms that took part were requested to undertake detailed reviews of their firm’s culture and governance arrangements, as well as their policies, procedures, systems and controls and assess whether they “were appropriate and adequate to manage the risks in their business.” Aspects of a firm’s FX business that were considered included:

Of particular focus of the FX remediation programme was the potential for unacceptable behaviour, misconduct by traders, client confidentiality breaches and failings related to the management of conflicts of interest.

Specific risks that participating firms were asked to look into included:

UK FX Market: Participating Firms

Firms from across the UK FX Market participated. Made up of a diverse range of market participants, the UK FX market includes both large global banks and smaller regional banks. In addition, niche investment firms, hedge funds, proprietary trading firms, spread betting and CFD firms are all participants as are inter-dealer brokers and agency brokers.  The selected firms that participated in the FX Remediation Programme thus developed and implemented risk mitigation plans of an appropriate nature (size and complexity) to their business.

The FCA have now advised that the participating firms have now completed their work and the regulator is beginning to see “real improvements in their control environments, as well as in their culture and quality of their governance arrangements.”

FCA Details Positive Mitigation Steps:

From the findings of the FX Remediation Programme, the regulator observed a number of positive mitigation steps that had been taken by participating FX Firms:

UK FX Markets: Next Steps

Those firms within the UK FX Market that were not a part of the FX Remediation Programme (approximately 30% of the Market) are now expected, by the regulator, to carefully consider the details and findings of the programme, and whilst not all of the positive mitigation steps are applicable to all FX businesses, firms should look to implement remediation plans appropriate for their FX business.

In addition, the FCA reminds firms that they should “take account of future developments within the FX Market, including the publication of the FX Global Code of Conduct.

Senior Managers & Spot FX Firms take note:

The FCA expects that firms and responsible senior managers will ensure that staff adheres to appropriate standards of FX Market practice.

It should also be noted that whilst Spot FX is only subject to regulation in specific circumstances, (such as when Spot FX trading is an ancillary activity to regulated business or when spot FX manipulation impacts upon an FX derivative), the Fair and Effective Markets Review (FEMR) suggested that this might be reviewed in the future.

28.07.16 FCA FX Remediation Programme: Next Steps

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Comment from the FCA:

“This is just a first step and it is essential that all market participants, including firms that have already completed their remediation programme, build on these improvements to ensure that this systemically important market works well.”

FCA Announcement July 2016: ‘FX Remediation Programme: Our Next Steps’

Related Reading:

The Global Code

The Six Principles of the FX Global Code

  1. Ethics
  2. Governance
  3. Information Sharing
  4. Execution
  5. Risk Management & Compliance
  6. Confirmation & Settlement Processes
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