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RBA's Debelle warns of FX code of conduct non-compliance

RBA’s Debelle warns of FX code of conduct non-compliance

(19 July 2017 – Australia) Banks that do not sign up to a new global code of conduct for the A$6.6-trillion-a-day foreign exchange market will be barred from dealing with central banks as well as with other signatories to the voluntary code, says Reserve Bank of Australia’s deputy governor Guy Debelle.

Debelle told The Australian newspaper that he was confident banks had begun improving their behaviour, even before the code came into effect, and that the dark days since the global financial crisis were over.

“The main message is ... that the code is out there now and we expect people in the market to start adhering to it pretty shortly and sign up to the statement of commitment,” he said.

“But I would say the behaviour started to improve even a couple of years ago. That doesn’t mean it’s across the board, but in the past there wasn’t a common understanding of what was good ­practice.”

So far, Westpac, Citi and XTX Markets are among major players in the global FX market that have already signed up to the code, which requires them to be “both ethical and professional”, have “robust and clear policies” to protect confidential information, and promote “a strong, fair, open, liquid and appropriately transparent foreign exchange market”.

All of the large sell-side institutions have indicated they will sign up.

Underlining interest in the event, players are jetting in from New York, Singapore, Tokyo and Hong Kong for an event in Sydney this week to hear Mr Debelle discuss the code at bank prime broker Invast Global. Attendees also include NAB, ANZ, Westpac, Macquarie, the Future Fund, some international banks, ASIC and number of fund managers and brokers.

“It will take people a bit of time to check that they are fully compliant,” Debelle said.

“But certainly they will need to sign up within 12 months, otherwise we — as central banks — will stop dealing with them, and there is some chance that other counterparties will follow suit.

“In the past, if I decided I’m going to stop trading with you and take my business somewhere else, there was a fair chance that somewhere else would do exactly the same thing, so it wouldn’t achieve much.

“A reasonable expectation we have is that now it’s a credible threat to say, ‘I’m going to take my business to someone who will treat me appropriately’.

“So to some extent, the more people we have signing up to this, then if (you don’t) you’re very much on the outer.”

As well as the threat of a loss of business from counterparties refusing to deal with those who don’t sign up for the FX GCC, non-compliant market participants face reputational damage.

“To some extent that could see some negative publicity because they won’t be on a foreign exchange committee anywhere in the world either,” Debelle said.

“It’s not regulation, but there are non-trivial commercial and reputational consequences.”

As well as guiding the behaviour of participants, the code is intended to help restore the confidence of businesses — and particularly smaller companies — that they will be treated fairly in the global FX market. With large chunks of the nation’s A$2 trillion superannuation assets invested offshore investors need to be able to do large cross-border deals.

“It’s the financial plumbing of the global economy, so you need to have confidence that it works properly.

“If I’m a corporate wanting to hedge my FX exposure, I want to have the confidence that it’s going to be done appropriately.

“Otherwise I stop hedging, and that’s doesn’t help my business.”

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