The FX Global Code marked its anniversary on 25 May 2024. Eric Huttman, CEO, MillTechFX, discusses why this milestone flew under the radar and the progress of awareness, adoption, and engagement with the FX Code over the past year.
The FX Global Code (the Code) turned seven on the 25 May 2024 and its anniversary went by largely unheralded.
We can infer a number of conclusions from this: the Code is so embedded that it’s now part of the fabric of the FX industry, market participants may still lack awareness of it or simply that like many anniversaries, it may have simply slipped from people’s minds. I would suggest it’s a mixture of all three.
The Code is truly embedded with some market participants such as sell-side institutions that boast high awareness and adoption rates. For others, such as corporates and buy-side firms, there is still a lack of awareness of what the code is and how to adopt it.
While 25 May is, of course, an important date in the history of the FX market, I can’t imagine many marking their calendars for a party on the anniversary of the Code.
So far so good, but…
The Bank for International Settlements (BIS) Foreign Exchange Working Group published the FX Global Code of Conduct on 25 May 2017 with the aim of providing a common set of guidelines to promote the integrity and effective functioning of the wholesale FX market.
It is a set of global principles of good practice in the FX market, covering ethics, governance, execution, information sharing, risk management, and compliance as well as confirmation and settlement.
Each year, the Global Foreign Exchange Committee (GFXC) undertakes research to understand the effectiveness of the Code.
In its most recent report, it highlighted that awareness of the Code was high, with 81% of respondents being ‘familiar’ or ‘very familiar’ with the Code. So far, so good.
But adoption remains somewhat of a sticking point. While the GFXC pointed out that adoption has risen from 59% in 2019 to 68% in 2024, an average of just over 2% growth per year isn’t exactly groundbreaking.
Further, when we look at adoption among buy-side, which the GFXC has been working hard on improving, only 51% of buy-side respondents had fully adopted the Code, compared with 80% on the sell-side, while 16% were either ‘unfamiliar’ or ‘very unfamiliar’ with the Code. More work is necessary to attract the FX market’s end users to engage with the code.
That said, one of the most important highlights from the GFXC’s report is that those who have signed up to the Code continue to engage with the process. Around nine in ten respondents provide some form of code-related training every two years, mostly through e-learning and internal classes.
Further, market participants are using statements of commitment to judge their counterparties. In 2019, only 8% required a Statement of Commitment, but the latest survey shows that 21% said they would reduce or cease trading with a counterparty that doesn’t have a Statement of Commitment.
Focusing on end-user awareness and adoption
The GFXC has completed some great work in making the Code easier to sign up to. For example, to support market participants with less complex FX activities, in December 2022, GFXC members agreed to commission a Digital Proportionality Tool for facilitating FX Global Code adherence.
At the time, Andréa M. Maechler, then GFXC Chair, expressed her expectation that this mechanism would give new impetus to the promotion of the Code: “I am convinced that the Digital Proportionality Tool will attract more new signatories to the Code, especially from the still under-represented buy-side community.”
These types of developments have made the Code more accessible and have contributed to the average time to implement it being just 10 months.
At MillTechFX, we are great advocates of the Code and recently renewed our statement of commitment to conduct our FX market activities in a manner consistent with the principles of the Code.
But, as we move towards the upcoming three-year review of the Code, it’s clear there is still more work to be done.
The sell-side has driven the Code forward, adopting and adhering to its principles and improving standards across the industry. We now need the buy-side and corporates to step up and play their part and it’s vital the GFXC works to raise awareness and adoption among this core segment.
Whether it’s through tools to simplify adoption, marketing campaigns, speaking at events or direct engagement, it’s important the GFXC communicates that the Code helps them to scrutinise their liquidity providers and partners’ processes against best practices, leading to a fairer and more transparent FX market.
Without buy-in and widespread adoption among all segments of the FX market, the Code won’t be able to deliver the consistent best practices and standards it set out to, potentially damaging its credibility and relevance in the long-term.
For more information on the FX Global Code, and a link to join the register, go to FGX Hub, a dedicated resource and community designed for corporate users of the FX market supported by TMI Awards 2023 Best Risk Management Advisory Service winner Dukes & King.