Debelle swings at ‘buyer beware’ disclosures in FX

Guy Debelle, the new chair of the Global Foreign Exchange Committee (GFXC), is cautioning currency market participants that hiding behind ‘buyer beware’ disclosures that suggest customers are ultimately responsible for making poor decisions is not an excuse for bad conduct.

“Personally, I am particularly concerned with disclosures that take the form of ‘as long as I warn you, then I am going to do whatever I want, when I want, when I am dealing with you’ – what might be termed full caveat emptor disclosures,” Debelle said. “In my view, these types of disclosures are not in the spirit of the [FX Global] Code in helping to move the market to a better place. They don’t give you free licence to do whatever you want.”

He was speaking at the 16th annual FX Week USA conference in New York on July 11, where he discussed the GFXC’s upcoming plans for a three-year review of the FX Global Code of Conduct and to update certain parts of it as necessary.

Debelle, deputy governor of the Reserve Bank of Australia, was elected to the post in May, after Simon Potter stepped down and also resigned from the New York Federal Reserve. Debelle’s tenure is expected to have a keen focus on how technology is transforming the currency market.

To ensure the Code evolves with the market, the GFXC will conduct its first review in 2020. So far, it has established several working groups to examine certain areas of markets and trading arrangements that might need further guidance on how its principles should be applied. The committee is expected to identify those areas that need further examination within the next quarter.

The challenges around ensuring sufficient transparency among trading capacities and behaviours are particularly acute on anonymous trading platforms

Guy Debelle, GFXC and Reserve Bank of Australia

Anonymous trading is likely to come under greater scrutiny over the next year, as the GFXC’s working group on disclosure and transparency continues to study the topic, and determine whether it is sufficiently clear how the Code’s principles are to guide this type of activity. The GFXC will also gather feedback from the market on what other areas need to be reviewed.

“The challenges around ensuring sufficient transparency among trading capacities and behaviours are particularly acute on anonymous trading platforms,” Debelle said. “The GFXC is doing further work to bring about greater understanding [of] information flow across those platforms and what roles the different participants play – be they liquidity providers, prime brokers or the platforms themselves; what role they do play and what roles they should play.”

Benchmark scandals

The Code was published in May 2017, after several benchmark scandals reduced the level of trust between counterparties. About a dozen banks were fined more than $12 billion in regulatory and civil penalties for alleged misconduct. The Code was a last-ditch effort to prevent regulation. Its 55 principles were designed to restore confidence in the currency market and promote standards of good behaviour that would ensure it functions properly.

More than 900 market participants have already signed statements of commitment, attesting they are compliant with the principles of the Code. Those statements can be found under a searchable Global Index of Public Registers on the GFXC’s website.

“[The Code] needs to work and it needs to be demonstrated that it is working to ensure we don’t hit another path that is more detrimental to the FX market,” Debelle added. “In my view the FX market is in a better place than it was a few years ago, but there is still further progress to be made, particularly in terms of its takeup across all sections of the market.”