BACKGROUNDER ON CODES OF CONDUCT IN THE CANADIAN FOREIGN EXCHANGE MARKET

FX Global Code

On 24 May 2017, the Global Foreign Exchange Committee (GFXC), a global association of foreign exchange (FX) committees that includes CFEC, approved and endorsed the FX Global Code (Global Code). The Global Code is a set of global principles of good practice in the FX market, developed to provide a common set of guidelines to promote the integrity and effective functioning of the wholesale FX market. The Global Code does not impose legal or regulatory obligations on market participants, nor does it substitute for regulation, but rather it is intended to serve as a supplement to any and all local laws, rules and regulations by identifying global good practices and processes.

The work to develop the Global Code spanned roughly two years. Its establishment was facilitated by the Foreign Exchange Working Group (FXWG), which operated under the auspices of the BIS Markets Committee and consisted of central banks from 16 jurisdictions around the globe. The work was supported by a Markets Participants Group (MPG), which drew from market participants spanning the sell side, the buy side and FX infrastructure providers across these regions.

Upon the initial launch of the Global Code, the GFXC has been tasked with its ongoing evolution maintenance and promotion, continuing the collaboration between central banks and the private sector on developing principles of good practice in the FX market. More information on the GFXC and the Global Code can be found on the GFXC website.

History of Codes of Conduct in Canada

From its inception, the purpose of CFEC's code of conduct has been to provide participants in the FX market a common set of principles that will foster a high standard of professional conduct, reduce operational risk and promote efficiency in the FX market. CFEC provided its first guidelines for professional conduct in 1990, shortly after CFEC was founded in 1989. In 1997, in cooperation with the Canadian Committee for Professionalism (CCFP)¹ and the Financial Markets Association of Canada (FMAC)², CFEC issued updated best market practice guidelines.

In 2001 CFEC, along with CCFP and FMAC, had adopted the ACI Model Code as the standard for best market practices in the Canadian FX market. The Model Code was first published in 2000 by ACI - The Financial Markets Association, the global umbrella organization of foreign exchange associations. It combined the recommendations from six pre-existing codes of conduct (those of New York, London, France, Singapore, Tokyo and the original ACI Code) and is updated through a regular review process by the ACI Committee for Professionalism³.

In 2004, the Canadian Operations Managers Working Group (OMWG), a subcommittee of CFEC, endorsed two best practices documents that are published by the New York Foreign Exchange Committee. The first publication, Management of Operational Risk in Foreign Exchange, recommends 60 best practices for financial institutions to use as a resource or checklist for when they regularly evaluate their policies and procedures to manage operational risk. The second publication, Recommendations for Nondealer Participants, is a condensed version of the 60 best practices that is geared towards nondealer participants.

In 2005, the Chairs of CFEC and CCFP, and the President of FMAC, wrote to CFEC members to recommend that all personnel in the Canadian FX market have a minimum standard of knowledge equivalent to the information contained in the ACI Dealing Certificate. Those who did not meet the minimum standard of knowledge were encouraged either to obtain the Certificate or to take some other course(s) that cover, at a minimum, the same material.

In late 2012 and early 2013 CFEC collaborated with seven other FX committees in the drafting and publishing on 29 May 2013 of a global statement on "Codes of Best Market Practice and Shared Global Principles".

On 9 December 2013, CFEC adopted "Guiding Principles for Conduct in the Canadian Foreign Exchange Market" (Guiding Principles). This was the outcome of a review initiated in late 2012 that concluded that the endorsement of a single code of conduct for Canada by CFEC was no longer appropriate. These Guiding Principles consist of two elements: the five shared global principles embedded in the global statement that was published by CFEC and seven other FX committees on 29 May 2013, and a commitment to take into account relevant regulations and reference codes.

On 5 May 2015, CFEC adopted revised "Guiding Principles for Conduct in the Canadian Foreign Exchange Market" (Guiding Principles). These Guiding Principles, first adopted by CFEC in December 2013, were updated to include the global foreign exchange (FX) committee guidance endorsed by CFEC and seven other FX committees on 30 March 2015 (Global Preamble: Codes of Best Market Practice and Shared Global Principles) and also the Financial Stability Board's Foreign Exchange Benchmarks Final Report published in September 2014.

1. The CCFP was disbanded in January 2013.
2. FMAC's representation on the CFEC was ended in October 2012.
3. Link http://www.aciforex.org/docs/misc/20130222_ACI_The_New_Model_Code_Feb_2013.pdf