Central banks handed the task of clamping down on the scandal-hit foreign exchange markets say they are on course to publish a global code of conduct for currency traders in 2017.
The first comprehensive code covering the £3.5tn a day market is expected to be widely adopted after regulators discovered longstanding price rigging at some of the world’s biggest banks and handed out a multibillion-dollar series of fines.
Barclays, Royal Bank of Scotland, Citigroup and JP Morgan were among the banks to pay more than £6.3bn in fines after three years of investigations. Regulators accused traders of “breathtaking flagrancy” and published online exchanges between tradersshowing them operating in a group they called “the cartel” to manipulate market rates.
Dozens of traders have been suspended or fired in what has marked another low point for the financial services industry after the 2008 banking crash.
Work on the code by a committee from the Bank for International Settlements (BIS), a forum for central banks based in Switzerland, is the latest effort to restore confidence in markets after a series of regulatory failures.
The assistant governor of the Reserve Bank of Australia, Guy Debelle, told a briefing at the Bank of England the code would deal with issues that go beyond the straightforward buying and selling of currencies to include futures contracts that are activated at a later date and the difference between when banks are making markets themselves and when they are acting as agents for clients.
He said huge developments in foreign exchange trading in the last five years, following the introduction of high-frequency trading and a blurring of the role of market-making banks, had increased the urgency for a comprehensive set of principles for all participants.
Six codes of conduct currently in force will be scrapped in favour of a global template that goes beyond traders to include asset managers and trading platforms, a reflection of how the market is rapidly evolving.
“We are not trying to reinvent the wheel in this code, but build on what’s there. There clearly needs to be a significant rebuilding of confidence in the way this market functions,” said Debelle, who leads the BIS’s markets committee.
He said the biggest challenge was to devise ways of making banks and other participants stick to the new code, which will not have the status of binding regulation, adding that it would be for governments to devise sanctions in the event of market abuse.
Critics have accused regulators of failing to adopt measures that tackle the culture on trading floors that led to the scandals.
Britain has already made rigging of currency and other market benchmarks a criminal offence, and the EU is also introducing tougher punishments for market manipulation.
