FCA’s recognition of FX Global Code not to change its enforcement approach

Maria Nikolova

The UK regulator notes that it will not take action based solely on a breach of provisions in market codes (recognised or not).

Following consultation feedback, the UK Financial Conduct Authority (FCA) is today confirming its recognition of the FX Global Code and the UK Money Markets Code.

The FX Global Code is maintained and updated by the Global Foreign Exchange Committee. It is setting global principles of good practice standards in the FX market, promoting the integrity and effective functioning of the wholesale FX market.

The regulator notes that individuals subject to the Senior Managers and Certification Regime (SM&CR) need to meet the requirements for market conduct, for both regulated and unregulated activities. Behavior that is in line with an FCA recognised code, such as the FX and MM Codes, will tend to indicate a person subject to the SM&CR is meeting their obligation to observe ‘proper standards of market conduct’.

The FCA consulted on recognition of the codes in December 2018. The consultation responses all agreed that they met the recognition criteria and that the FCA should recognise both.

The FX Global Code and UK Money Markets Code will be recognized for 3 years. The FCA can extend the period if appropriate and if it finds these codes are still relevant. The recognition of these codes is as they stand at the current date. If the FCA believes that the codes no longer represent proper standards of market conduct, the regulator will withdraw recognition before the end of the 3-year period. The SM&CR rules do not change because of the recognition of these codes.

Importantly, the FCA says it does not intend to supervise firms or individuals directly against these codes in unregulated markets. The regulator stresses that its role is to make sure that firms meet their governance, and systems and control obligations, including under the SM&CR. 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’. Compliance with codes may be one way to show evidence they are compliant with the FCA’s overall governance requirements.

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

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