ACT Conference Recap on the FX Global Code

7th June 2024

At the recent ACT conference held in Liverpool on 21-22 May, I had the pleasure of participating in a panel session focused on embracing best practice through codes of conduct. For those who couldn’t make the session, or the conference, here is my quick recap, focusing on the FX Global Code of Conduct.

Fostering transparency

As part of treasury optimisation and innovation, it is crucial to understand and – where possible – adopt the latest best practices. One such development is the FX Global Code of Conduct. Although originally created in 2017, the Code is now rising in prominence among the corporate treasury community.

Established by a working group sponsored by the Bank for International Settlements, the Code provides guidelines to ensure that all market participants can operate confidently and effectively, maintaining high standards of integrity, transparency, and professionalism. The Global FX Committee, which includes central banks and private sector entities, reviews and updates the Code every three years to keep it relevant. This year, the Code is under review, with updates expected later.

Embracing standards such as the FX Code protects the interests of all market participants, including corporates, and helps create a fairer market environment. By aligning with these principles, we can elevate industry excellence and foster a more resilient and transparent marketplace. In the long run, this makes our jobs as treasurers easier and boosts our professional reputation.

The role of self-regulation

Importantly, the FX Code does not impose additional legal or regulatory obligations. Instead, it serves as a benchmark for best practices. By adopting the Code, an entity commits to monitoring and self-regulating according to these standards.

The Code covers six key areas and includes 55 principles related to ethics, governance, execution, communication, risk management, and post-trade processes. While this may seem extensive, many principles may not apply to corporates, and those that do should be applied based on the entity’s level of market engagement and operational complexity. Essentially, it incorporates aspects that should already be part of good corporate governance. The market volatility and unexpected events of recent years have underscored the importance of having solid risk management frameworks in place.

As alluded to earlier, for corporates, adhering to the FX Code is more than just another process. It shows our commitment to high standards of conduct in the FX market. This not only enhances our reputation but also contributes to a better market environment. It signals to stakeholders that we are dedicated to upholding the highest standards.

And while Whilst we could argue that as treasurers we are already drowning in regulation, voluntary codes are different – they are ultimately what we should alreadyl be doing anyway as good governance. In the advisory work we do supporting organisations at Dukes & King, for example, we use these codes as the foundation for treasury policy and procedures where appropriate and applicable.

Doing this ensures alignment to the principles of best practice. What’s more, ongoing adherence is linked to regular policy and wider review cycles, leading to a policy based on a framework that is being kept up to date by industry experts.

How to engage

To start, familiarise yourself with the Code’s principles and assess how they apply to your market interactions. The Global FX Committee has developed a proportionality tool – a questionnaire and decision tree resource – to assist with this. Once you understand the principles and how to apply them, conduct a gap analysis to identify any necessary changes. After training your teams on best practices and securing management approval, you’ll be ready to sign and submit your statement of commitment. This process includes updating FX policies to incorporate best practices, ensuring ongoing adherence, and aligning to your regular review cycles without to avoid adding extra ongoing work.

If you’re not ready to sign and publish a statement of commitment, there are other ways to engage with and promote the Code. The dedicated corporate FX Hub offers extensive resources to help you stay informed about market best practices. You can align your risk management policies with the Code’s principles, which is a free framework available to everyone.

In addition, you can use your position as a corporate entity to hold providers accountable. When interacting with banks, brokers, and other service providers involved in the FX markets, for example, ensure they are signed up and operating in line with the FX Code. You can include this in your RFPs or checklists during counterparty reviews.

The FX Code is not about adding more rules but about demonstrating and documenting best practices in FX dealings, likely already followed. It complements any ESG frameworks you are implementing in your financing or treasury areas, representing the ‘G’ in ESG for governance.

In summary, adopting the FX Code should not be a significant burden for corporates. Instead, it keeps us – as treasurers – informed about the latest updates, demonstrates our commitment to managing risks effectively, and shows our dedication to best practices to our boards, risk committees, and external stakeholders. This approach ensures we are not just maintaining the status quo but striving for continuous improvement and excellence in our operations.

To find out more about the FX Code, or how to sign up to it, visit the FX Hub – a dedicated FX resource for corporates supported by Dukes & King: https://fx-hub.org/about

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