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FCA & Unregulated Market Codes of Conduct

FCA Supports FX Global Code & UKMM Code

8th July 2019

The UK Regulator, the FCA, has now announced that it officially recognises both the FX Global Code and the UK Money Markets Code (UKMM) as voluntary market codes of best practice under its recognition scheme.

FCA Recognition Scheme

The FCA’s Codes Recognition Scheme was established last year to allow the regulator to recognise external industry codes for unregulated financial markets and activities.

Now, the FX Global Code is one of the first codes to be recognised by the UK regulator, alongside the UK Money Markets Code.

External Codes of Conduct

Both of the above-mentioned external market codes are voluntary and have been written by market participants.

The UK Money Markets Code was published in April 2017 and incorporates revised relevant sections of the Non-Investment Products (NIPs) Code and a revision and update of the Gilt Repo Code in addition to the Securities Borrowing and Lending Code.

The FX Global Code on the other hand, was first published in May 2017 and is a set of global principles of good practice in the foreign exchange market for all FX Market Participants. The FX Global code has been written and is owned by the FX industry, reflecting industry views of best practice. Those market participants committed to this code can show their support of the code’s objectives by making a voluntary statement of commitment. The FX Global Code has been updated a number of times since initial publication and it is the latest version of the code (August 2018) that the FCA has acknowledged support for.

FCA Support

Issued in a Feedback Statement (FS19/3) on 26 June 2019, the FCA has now detailed their support for both the FX Global Code and the UK Money Markets code, following an earlier FCA consultation paper (CP18/39) that was published in December last year.

All responses received from the FCA’s consultation agreed that the FX Global Code and the UK Money Markets Code met the FCA’s recognition criteria and that they should be recognised.  

What does this mean?

The FCA’s recognition of these codes will last for a period of 3 years, which the regulator can extend if they think it appropriate and that the codes are still relevant.

It should be noted that the FCA’s recognition of these codes is as they stand at present and therefore if in future the FCA feel the codes no longer represent proper standards of market conduct, then they will withdraw their recognition, which may be before the end of the 3-year period.

The FCA has stated “By conducting themselves in line with these codes’ provisions, where applicable, individuals and firms may be assured that this will tend to indicate compliance with their obligation to observe proper standards of market conduct.”

FCA & Unregulated Markets:

Whilst the FCA have shown support for these Codes, they have also confirmed that they do not intend to supervise firms or individuals directly against these codes in unregulated markets, and that whilst codes may be used as evidence and relied upon in determining what proper standards are, or were believed to be, at the relevant time, recognition of a market code does not change the FCA’s enforcement approach.

The FCA will not take action based solely on a breach of provisions in market codes (recognised or not) and the FCA have said that it is not a new basis for enforcement, and does not enhance their ability to take enforcement action.

To clarify, the FCA’s role is to make sure that firms meet their governance, and systems and control obligations, including under the Senior Managers & Certification Regime (SM&CR).

However it should be noted that the FCA expects “firms and individuals to consider both the spirit and letter of code provisions to make sure they fully meet ‘proper standards of market conduct’.” Since, “compliance with codes may be one way to show evidence they are compliant” with the FCA’s overall governance requirements.

For more information on the FX Global Code, visit fxglobalcode.com

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