UK FCA Highlights Steps Companies Need to Take to Fix FX Fixings Damage

In light of the recent probes into the conduct of the foreign exchange market, the FCA is looking to encourage

The United Kingdom’s Financial Conduct Authority (FCA) has embarked on a reinforcing effort to remind firms about the damage to the foreign exchange industry caused by malpractices. With the FX fixings scandal recently shaking the foundations of the most liquid market in the world, the UK regulator is reminding companies about the conduct they need to adhere to when trading.

After the material fines against 6 major banks, the FCA has launched a remediation programme for the foreign exchange trading industry. The goal of the initiative has been to make sure that companies can identify and address the issues at the core of the FX fixing scandal.

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firms and responsible senior managers to ensure their staff satisfy appropriate standards of market practice

According to the FCA, over 30 firms which represent around 70 per cent of the UK FX market have taken part in the remediation programme and committed to make changes and actively monitor their conduct.

After the FX market was plagued with a slew of accusations of ineffective supervision of conduct and several confirmed cases when traders have been putting their own interests ahead of those of their clients, the failure to conduct risk-management has resulted in great damages to the industry.

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Future FCA Steps as to FX Conduct

The FCA is encouraging the remaining 30 per cent of the market to engage in similar measures in order to make sure that the violations of the past are not repeated. The FX Global Code of Conduct, which is expected to be published in May 2017, is looked upon as a major step. The FCA also has elaborated on the special status of Spot FX trading.

“We expect firms and responsible senior managers to ensure their staff satisfy appropriate standards of market practice. Spot FX is only subject to regulation in certain circumstances, for example where spot FX manipulation impacts an FX derivative or where spot FX trading is an ancillary activity to regulated business,” an FCA statement on the matter reads.

Details of FX Remediation Programme and Impact on Brokers

Companies which have participated in the FX remediation programme have committed to a set of detailed assessments of their operations on multiple levels. Their work considered all aspects of their FX business, which included culture, risk controls, compliance, financial compensation, conflicts of interest and among other aspects, communication monitoring.

The FCA is encouraging all participants in the industry to take appropriate action, including forex and CFDs and spread betting brokers. Any action which companies take to identify prospective manipulation or actions which are misleading clients to believe that they are receiving ‘best execution’ when they are not is going to help firms to repair the reputation of the industry.

The remediation programme is focusing on preventing coordinated trading to gain an unfair advantage, using ‘layering’ or ‘wash trades’, deliberately triggering client stop loss orders, front running and sharing confidential client information with other firms.

Looking ahead, the FCA is likely to become ever more vigilant as to the practices on the FX market despite the fact that the UK will most likely be leaving the European Union, which in part will strip it away from some obligations when it comes to financial regulation. While not flawless, the FCA has become one of the most credible regulators in the industry.

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