FX Global Code: an introduction and recent developments

Introduction and summary

The FX Global Code[1] is a set of global principles of good practice for foreign exchange (“FX”) market participants. It provides a common set of guidelines to promote the integrity and effective functioning of the wholesale FX market. It was first published in complete form in 2017.

The Code was developed and is maintained collaboratively between central banks, the sell-side and buy-side private sector and FX infrastructure providers from 20 jurisdictions. Each member jurisdiction has an appointed representative on the Global Foreign Exchange Committee (“GFXC”)[2]. GFXC publishes the Code. The London Foreign Exchange Joint Standing Committee[3], which is chaired by the Bank of England, represents the UK on the GFXC.

Buy-side FX market participants have been encouraged to adhere to the Code as adoption by the buy-side market is considered to be disproportionately low at around 10% of adherents. Adoption by banks and other sell-side firms is widespread.

What are the Code’s principles of good practice in the FX market?

The Code is based on 6 leading principles. Under the Code, market participants should:

1. Behave in an ethical and professional manner in the FX market;
2. Have a sound and effective governance framework with respect to their FX market activity;
3. Exercise care when negotiating and executing FX transactions;
4. Be clear and accurate in their communications;
5. Promote and maintain a robust control and compliance environment to effectively address risks associated with their engagement in the FX market;
6. Put in place effective and appropriate post-trade processes.

The Code provides guidelines on how these principles can be met.

The Code has been prepared in the knowledge that market participants are a diverse set of entities who engage in the FX market in different ways across different jurisdictions.

The Code and financial regulation

The Code does not itself impose legal or regulatory obligations on market participants nor does it act as a substitute for regulation, but rather it is intended to serve as a supplement to any and all local laws, rules, and regulation by identifying global good practices and processes. 

In the UK, the Financial Conduct Authority (“FCA”) has recognised the Code under its code recognition scheme[4]. A Senior Manager, Certified Individual, or an employee of an FCA-authorised firm that is subject to the UK’s Senior Managers and Certification Regime must comply with individual conduct rules under COCON 2.1 of the FCA’s Handbook of Rules and Guidance, including Rule 5 (COCON 2.1.5R): “You must observe proper standards of market conduct”[5].

The FCA has stated that behaviour that is consistent with the Code will generally indicate that the relevant individual is meeting the required conduct requirements, though it is acknowledged that it may be possible to observe proper standards of market conduct in other ways[6].

Code amendment proposals open to review

The Code is currently subject to a comprehensive review. The GFXC is seeking feedback from industry stakeholders on proposals arising from its three-year review of the Code. 

The proposed amendments by GFXC include:

• To the Code[7]:

Settlement Risk

1. Procedures for market participants to reduce settlement risk (Principle 35 of the Code) which aim to: 

• introduce a risk waterfall approach by using a specified hierarchy of methods;
• promote a consistent use of agreed settlement methods (such as payment-versus-payment, bilateral or multilateral netting); 
• reaffirm the responsibility for reducing settlement risk; and
• strengthen market participants’ operations teams’ understanding of the settlement process, and monitoring or industry developments in settlement risk mitigation to adopt best practice;

1. Guidance that aims to make it clearer to market participants that FX settlement risk exposures should be treated consistently with other credit risk exposures to the same counterparty (Principle 50 of the Code);
2. Clarifications and strengthening of the language regarding the use of standard settlement instructions (Principle 51 of the Code);

Data

1. Clarifications that operators of FX E-Trading Platforms should make to their policies on sharing client data with third parties (Principle 9 of the Code); and
2. Expanded guidance on appropriate conduct and clear arrangements for market participants who initiate client FX orders in a principal role (including when the market participant is providing an auxiliary FX service to facilitate a securities or futures trade or FX hedging services) (Principle 10 of the Code).

• Amendments to the Liquidity Provider Disclosure Cover Sheet[8] and the Platform Disclosure Cover Sheet[9] with respect to disclosures on client interaction data.

Adherence

Buy-side and sell-side market participants can adopt the Code. Adoption of the Code is voluntary. Buy-side FX market participants have been encouraged in an open letter[10] from the BIS Markets Committee to the GFXC to promote a robust, fair, liquid, and appropriately transparent FX market[11].

GFXC has set out certain advantages to buy-side entities that adopt the Code:

1. Sending a positive signal to clients and external stakeholders by showing commitment to good practice;
2. Improving internal discipline by benchmarking internal practices against the Code’s principles;
3. Providing a forum for which buy-side market participants can exchange views and engage in a dialogue with other adhered market participants.

Market participants that have not adopted the Code but that are considering doing so have a series of steps[12] to consider before adherence, including: 

1. reviewing the Code;
2. identifying relevant FX activities and which of the Code’s principles are applicable; 
3. conducting a gap analysis between existing processes and procedures and the Code’s principles; 
4. reviewing FX oversight and control arrangements;
5. considering staff training to understand the Code’s principles; and 
6. when appropriate, make a Statement of Commitment[13] under which a market participant publicly adheres to the Code. 

The process of adopting and signing up the Code typically takes 3 to 12 months, depending on the nature of the market participant and its FX activities.

If you would like further information, please contact Jeremy Ladyman  

[1] fx_global.pdf (globalfxc.org)

[2] Overview - Global Foreign Exchange Committee (globalfxc.org)

[3] The London Foreign Exchange Joint Standing Committee | Bank of England

[4] Recognised industry codes | FCA

[5] COCON 2.1 Individual conduct rules - FCA Handbook

[6] Recognised industry codes | FCA

[7] gfxc_request_feedback_oct2024_annex_a.pdf (globalfxc.org)

[8] gfxc_request_feedback_oct2024_annex_b.pdf (globalfxc.org)

[9] gfxc_request_feedback_oct2024_annex_c.pdf (globalfxc.org)

[10] Letter (bis.org)

[11] Press release: Markets Committee calls for wider adoption of global code of conduct for foreign exchange markets (bis.org)

[12] Roadmap to Adherence - Global Foreign Exchange Committee (globalfxc.org)

[13] STATEMENT OF COMMITMENT TO THE FX GLOBAL CODE (globalfxc.org)