FX Global Code ensures foreign exchange transactions are safer

The financial crisis of 2008 left a lingering sense of distrust towards the world’s financial institutions.

Understanding that effective change can only come from within, the industry developed the FX Global Code — a set of global principles of good practice in the foreign exchange (forex or FX) market.

“The FX Global Code was developed by central banks and market participants from 20 jurisdictions around the world, and it speaks to the behaviours necessary for a transparent, efficient and client-friendly FX market,” says Chris Paizis, head of client FX and international banking at Absa Group.

The code provides a common set of guidelines that supports a robust, fair, liquid, open and appropriately transparent market.

Absa Group is committed to ensuring they act in a way that reassures that every interpretation of the code is treated in a conformed manner and reaffirms their behaviour through all client channels, says Ross Long, head of foreign exchange at Absa Group.

Leading principles for global FX

The FX Global Code is organised around six leading principles: ethics; governance; execution; information-sharing; risk management and compliance; and confirmation and settlement processes.

“In SA the global code is co-ordinated through the Reserve Bank,” says Paizis, who sits on the SA Reserve Bank’s SA Foreign Exchange Committee.

“Our domestic body includes representation from the large banks, second-tier banks, the buyside, the Banking Association SA, the Treasury outsourcing community as well as the ACI Financial Markets Association (a leading global trade association) and other relevant forums. This is all co-ordinated globally via a central committee.”

SA is one of a handful of African countries to have adopted the code, he says.

The country has been an integral part of the global code since the beginning because of the complexity and liquidity of the national FX market.

The code aims to ensure that FX clients are treated fairly by liquidity providers.

“As a bank, we’re doing this with the client at the centre of it,” says Paizis.

“We ensure that, in our dealings with clients, we always reflect the principles ourselves while also holding others to account. In our dealings with, for example, the hedge fund and asset management communities, we ensure that we highlight our adherence to the global code and we encourage theirs.”

The same applies to Treasury outsourcers or financial intermediaries.

In this regard, Absa insists that any Treasury outsourcer with whom the bank trades must adhere to the global code.

“That’s carried through from the SAFXC, and in our dealings with client bodies like the Association of Corporate Treasurers.”

A need for self-regulation

Paizis sees the FX Global Code as a living document.

Changes to the code are infrequent and influenced by global ACI committees.

Absa monitors and adapts to changes in the global code through a robust governance model comprising of sales, trading and compliance stakeholders.

Absa is also committed to protecting its clients and providing competitive, transparent and fair execution, says Long.

As it stands, the code is skewed towards — and largely driven by — the banking community.

However, it aims to regulate all liquidity providers in the FX market.

“It’s often assumed that the banks are the big liquidity providers, and they do play a large role but increasingly one has other bodies — like hedge funds, for example — who do not necessarily adhere to the global code yet and are very active as liquidity providers,” says Paizis.

“Hopefully, over time, the global code will encapsulate all the real participants in the FX market.”

Paizis says that Absa’s clients are already seeing the benefits of the global code.

“It’s adding the right developments in terms of FX systems. And the FX market is getting bigger every day, so the need for self-regulation and adherence is not going to go away.”

This article was sponsored by Absa Group.