FX market misconduct spurs good-conduct principles
Spurred by misconduct in the world's foreign exchange currency market, a global panel of experts Thursday issued the first phase of a new code of conduct aimed at restoring public trust.
The Bank for International Settlements, based in Switzerland, outlined six operating principles, including strong ethics, robust and clear operating procedures, accurate information sharing and protection of clients' interests, effective risk management and timely confirmation and settlement of market transactions.
"The foreign exchange industry has suffered from a lack of trust in its functioning," said Guy Debelle, the Reserve Bank of Australia assistant governor and chair of the BIS' foreign exchange working group. "The market needs to rebuild that trust, so that participants and the public have much greater confidence that the market is functioning appropriately."
The conduct code, expected to be completed in May 2017, is designed to supplement but not supersede local laws, rules and regulations around the globe, said David Puth, the CEO of foreign exchange settlements company CLS Group and chair of the BIS' market participants group.
The principles will apply to all trading venues, banks, brokers, traders, investors and other market participants.
"The success of the code lies with foreign exchange market participants and I am pleased to report that some of the larger institutions that have been involved with its development are already moving towards adoption internally," said Puth. "That's an impressive and reassuring step forward at this point."
The drive to develop a global code of conduct for foreign exchange traders, managers and companies was prompted by allegations and evidence that bank traders colluded and repeatedly manipulated currency rates in the world's nearly unregulated $5.3-trillion-a-day foreign exchange market.
Five global banks, including U.S.-based Citicorp and JPMorgan Chase, in May 2015 agreed to plead guilty to criminal charges and pay more than $5.5 billion in collective penalties for misconduct by their traders.
Excerpts of electronic communications released in 2014 with the announcement of $4.3 billion in separate bank penalties showed that Citibank and JPMorgan traders coordinated their currency trades with counterparts at Swiss banking giant UBS, Englad-based Barclays and other financial institutions.
Large investors, including city and state pension plans and financial funds, filed a group lawsuit in 2014 against 12 major banks whose traders were suspected of rigging foreign exchange rates.
The world's central banks on Thursday signaled their support of the new code of conduct, saying they will adhere to the principles and standards when they themselves act as foreign exchange market participants.
Follow Paste BN reporter Kevin McCoy on Twitter: @kmccoynyc