Are you up to speed with the FX Global Code?

in Financial Services, 13.07.2018

Many of Switzerland’s banks haven’t yet adopted the FX Gobal Code. But the tide is changing. Some regulators such as the Swiss National Bank recently signed a Statement of Commitment to the FX Global Code and announced its expectation that its counterparties do the same.

Over the past five years, systemically significant banks have come under increased scrutiny for failing to adequately organize or monitor their foreign currency (FX) business activities. Authorities in the US, Europe and Switzerland have sanctioned Global Systemically Important Banks (G-SIBs) to protect customers around the world from the impact of currency manipulation.

In December 2017, the Global Foreign Exchange Committee – a forum of central banks and private sector participants from 16 jurisdictions around the globe – issued the FX Global Code (the Code) as a set of good-practice guidelines. The Code covers all front-to-back procedural, organizational, policy and behavioral aspects of the FX business activity in a comprehensive and actionable way and applies to all FX Market Participants[1] (buy-side and sell-side).

Currently, Switzerland does not have individual regulation (as a stand-alone set of rules) specifically addressing a regulated institute’s FX business activities. Instead, various regulation applies such as the requirements outlined in the FINMA Circular 2013/8 “Market conduct rules” to prevent misuse of insider information and market manipulation (applicable to all FX Market Participants, not only banks.)[2] Or, more broadly the concept of proper business conduct, internal controls, segregation of duties and risk management as set out in the Banking Law.

Mind the gaps

In early 2018, KPMG conducted a survey of 35 financial institutions and corporate treasury organizations in the Swiss market and found that – apart from a few major banks – the Code isn’t broadly recognized. The banks and financial institutions that reported they are considering the Code also acknowledged that their organization and control systems already include the majority of the following principles:

  • segregation of duties between front personnel, deal processing, accounting, settlement, and risk management and independent control and compliance functions
  • policies and controls on personal dealing
  • broad coverage of risk management and control activities
  • appropriate training of personnel
  • measures to prevent conflicts of interests with customers
  • management information for effective oversight of their own FX market activity
  • approach for informing customers on how orders are handled and transacted
  • definition, identification and protection of confidential customer and trade order information
  • allowance for the traceability and audit of trades as well as record keeping
  • recording communication channels on sales and trading desks
  • management monitoring of trade amendments and trade cancellations
  • independent trade confirmation with counterparties.

The survey respondents stated that more work is required in certain areas. In particular, they report the need for more work on policies to improve the fair handling of customer orders and explicitly excluding certain risky practices, as well as regarding compensation structures.

For now, smaller financial institutions are not required by local regulators to follow the Code.  However, we may see a wider implementation of the Code as smaller institutions are forced to adopt standards similar to those adopted by their national and international broker-counterparties. The Swiss National Bank set such an example recently, announcing in June that it intends to apply the Code and also expects its counterparties to implement and adhere to the Code.

Closing the gap

Although our survey found that the Code is not yet broadly recognized, many of its principles were already central to the respondents’ control framework and organization. But not all.


[1] Private persons trading FX for their own account and the general retail public are not expected to implement the Code.
[2] As set out in Banking Law. See ciphers 3 and 44 of the Circular 2013/8.



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