FX Code Review will Include Digital Asset Tech, Assess Pre-Hedging Guidance

The next review of the FX Global Code will examine how digital asset technologies, tokenisation and new settlement mechanisms could affect foreign exchange markets, according to the co-chair of the Global Foreign Exchange Committee and the chair of the recently-established Technology and Innovation Working Group.

Manuel Mondedeu, who is also co-head of global FX at CIBC Capital Markets, says the working group’s focus will be on three key areas, with settlement rails for tokenised assets and stablecoins, the impact of new tech on markets and ways of reflecting these developments in the principles outlined in the Code.

“We want to be looking at three main things,” he explains. “Number one is how these new technologies are going to affect the market in terms of data, execution and governance.”

The second area of focus is digital assets, although Mondedeu stressed the committee is concentrating on tokenised financial instruments rather than cryptocurrencies. “We’ll be looking at digital assets. It’s not crypto. It’s really tokenised assets,” he says.

The working group is also assessing whether blockchain-based settlement infrastructure could eventually alter the way FX transactions are processed. Mondedeu says the committee is monitoring discussions around alternative settlement rails and examining whether distributed ledger technology (DLT) could reduce settlement times further following the move to T+1 securities settlement in North America.

“The potential new settlement rails continue to be talked about, although they’re not really materialising yet,” he observes. “We’re looking at how blockchain technology could impact settlement times.”

A third priority is determining how the FX Global Code should address the adoption of emerging technologies and whether additional best-practice guidance is needed. “How do we put in the code recommendations for best practices to adopt these new technologies? Those are the three things we’re focusing on,” Mondedeu says.

Asked whether the outcomes of this work would feed into the next review of the code, scheduled for 2027, Mondedeu was unequivocal. “Very much so,” he asserts.

The review is expected to coincide with the 10th anniversary of the FX Global Code and will provide an opportunity for the GFXC to assess whether existing guidance remains fit for purpose as market structure evolves.

The committee is already considering how recent regulatory developments could influence the review. Outgoing GFXC chair Gerardo García says members believe the recent IOSCO report on pre-hedging is broadly consistent with the committee’s existing guidance under Principle 11, but adds that differing approaches across jurisdictions could become a topic during the review process.

Stuart Simmons, co-vice chair of the GFXC, points out that the three-year review cycle provides the appropriate forum to determine whether current guidance should be updated following IOSCO’s work. “Pre-hedging is an issue that’s not going away, as far as the GFXC is concerned,” he says. “The three-year review process is the appropriate place to have those discussions around whether the current guidance is fit for purpose, or whether now that the IOSCO report has been published, we can move forward and develop the GFXC’s guidance through the Global Code.”