The Last Look…
Posted by Colin Lambert. Last updated: October 31, 2024
“Feedback” and “Consultation” are interesting concepts in the world of conduct and regulation – I can’t count the number of times a regulatory body has published calls for either, or both, and then pretty much ignored what it has received (there are honourable exceptions) – so I hope the Global Foreign Exchange Committee takes into account one particular sentiment expressed by the Foreign Exchange Professionals Association (FXPA) regarding its latest outreach, because that response strikes a chord with many in the industry.
There will inevitably be different views on the Code changes – that is why the FX market is so healthy, there is room for all opinions – so the concerns expressed by the association over the “prescriptive” nature of some proposed changes will not reflect a universal view, but it is important it is heard. That is why the 16-day feedback period has caused some disquiet in the industry, not just at the FXPA.
Looking at the changes first, I suspect that this is really a question of language, hence the desire for more explanatory notes on the part of FXPA. There is little doubt that for a large proportion of the FX market, PvP settlement represents the “safe” and right way to conclude trades, however to be all-encompassing – and to retain the Principles-based approach – I agree with the FXPA that for some market participants, different forms of settlement are equally “safe” and appropriate. This seems to have been missed in the GFXC proposals, although again, I sense it is a question of language.
The FXPA highlights “on-us” settlement, which is a big feature of the market, but I would also point out that as payment and settlement procedures accelerate thanks to tokenisation and other new initiatives, the “real economy” clients, such as corporates, will be pushing for instant settlement, which can be achieved outside a PvP environment (as well as inside).
The bigger theme of this column, however, is to discuss the short feedback period. The FXPA points out, and I am aware that some senior members of ACI FMA feel the same, that it takes time to collate the views of a diverse membership, and 16 days probably isn’t enough. On this occasion it might have been, because the feedback published by the FXPA is comprehensive and gets the views across, but that may not always be the case.
Sources on the GFXC have pointed out to me that the proposed amendments have already gone through an extensive feedback process with the local FX committees, and this is true, but how representative are these committees of the broader market? A look at the UK’s FX Joint Standing Committee membership highlights the presence of two representatives from the platform world, LSEG and CME – perhaps this should be expanded to at least incorporate one or two secondary ECNs?
It is hard for a primary venue (I understand they operate secondary as well) to really understand and put across the views of other platforms – that is where bodies like the FXPA come in (and it was a pointed reference to platforms in the feedback I suggest), but they need time to collate a proper response.
The GFXC is doing a difficult job well, but we cannot ignore the fact that some believe the committee’s agenda is being increasingly driven by “interests” and that the committee is a little unwieldy
The problem may not be with the GFXC per se, perhaps the local FXCs should be more public about their own feedback processes? The FXPA could feed back to the FXC in New York, ACI FMA to the ECB Contact Group or FX JSC. Either way, it is important that the GFXC, and by association the local FXCs, are seen to be all-embracing.
This is especially important as we are clearly in the midst of a period where some are starting to question the size and value of the GFXC. I personally have no truck with these views, it is doing a difficult job well, but we cannot ignore the fact that some believe the committee’s agenda is being increasingly driven by “interests” and that the committee is a little unwieldy. The GFXC and the Code will, or should, remain relevant, but to ensure that, it needs to be open to as many views as possible.
The challenge for the committee, however, is how does it do that and not balloon to the size of the UN Council? The use of working groups is one obvious way, and something the GFXC does well, and the last thing the industry needs is a standard-setting body with 200 members!
To me the answer is simple, raise the level of outreach, starting with the local FXCs. It can be coordinated by the GFXC and ensure that everyone that wishes to do so has ample opportunity to have their voice heard. The process can start early and be all-inclusive, thus making the industry genuinely feel that the GFXC is part of it, rather than, as some see it, a group sitting above that is dictating terms (again, I disagree with this view, but it most certainly exists).
It remains vitally important that, to paraphrase one of the founders of the Code, “we keep the lawyers out of it”, but the GFXC also needs to represent the views of the widest possible scope. To do this, it should make more use of, or direct, the local FXCs to start their consultation process earlier, so we can create a filter framework to ensure those on the global committee are fully aware of every view. It could be they choose to ignore the, that is a committee’s right, but if it really wants the Code, and itself, to remain relevant – and this is in everyone’s interest – it needs to dispel the notion that feedback and consultation are part of a “tick-box” process.