One of the principal aims of the recommendations of the FX benchmarks report was to reduce the incentive and opportunity for improper trading behaviour by market participants around the benchmark fixes. The implementation to date of the FSB’s recommendations, together with the enhanced scrutiny externally and within organisations on fixing transactions, appears to have moved the market in a favourable direction.
The overall assessment of this report is that there has been good progress in implementing many of the recommendations; however, in some cases progress has been mixed. A more complete implementation of the recommendations, particularly regarding other FX benchmarks, would increase the likelihood of maintaining and extending the improvement already seen. Regulators and FX market participants must remain focussed on achieving such an outcome. Key points from the report:
Recommendations to support more transparency in customer pricing for fixing transactions have seen good implementation among the largest market participants and for the most used benchmarks, but elsewhere there is scope for further improvement. Similarly, steps to separate dealers’ fixings business from other activities are being taken by the larger participants and in the most active markets, but again there is room for further implementation in other areas of the FX market. For the execution of benchmark transactions, industry-led initiatives to promote greater use of independent netting and execution facilities are seeing welcome progress.
Work is underway to improve market conduct practices, both within individual firms and through market-wide initiatives, including the global effort underway to develop a single code of conduct for the foreign exchange market through the Bank for International Settlements (BIS) Markets Committee working group on FX markets.
While many index providers and end-users have increased their focus on the due diligence around FX benchmark use, there is scope for greater follow-through on this on the part of some market participants.
The FSB will continue to monitor progress in this area, and work with authorities and industry bodies as needed to ensure continued enhancements to FX benchmarks and related activity.
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