Puth: FX Must Repair Its Reputation

Foreign exchange market participants must close the integrity and ethics gaps that have surfaced over the years to repair the industry’s tarnished reputation, says David Puth, chairman of the market participants group at the Bank for International Settlements (BIS).

“Unless we address the conduct issues that have surfaced over the past several years, we know we will face further challenges,” he says.

Puth, chief executive of CLS Group, was the guest speaker at an ACI America event staged in New York on October 27. He was updating the industry on the progress made by the BIS’s market participants group on creating a global code of conduct for the FX space.

I believe we have a great opportunity and, more importantly, a great responsibility to get it right this time

The goal is to have a document that covers all wholesale market participants – as well as defining them – by May 2017. The group plans to borrow significantly from the ACI’s widely adopted Model Code to help drive acceptable market behavior.

‘Stakes are extremely high’

“I think we all recognize the stakes for everyone in this room are extremely high,” Puth says. “I believe we have a great opportunity and, more importantly, a great responsibility to get it right this time.”

A failure to find common standards could result in the team being sent back to the drawing board or prompt authorities to move towards more restrictive regulations to rebuild the integrity of a market hit by rigging scandals. With the mammoth task of compressing various codes of conduct into a single overarching document, the focus will be on a consensus from group members rather than unanimity.

“We need to deliver something that is sufficiently strong and that provides the right kind of incentives to adhere to the code,” Puth says. “If we do something that is too high level and too light and misses the point, I think we will be sent back to our room to go give it another try and to do our homework. I am positive that in partnership with the FXWG, we will develop something that is sufficiently strong to shift market behavior in the right direction.”

With former bank trader Tom Hayes receiving a 14-year prison sentence for trying to rig the London interbank offered rate, Puth says the incentives to get common standards in place are higher than they have ever been.

“I certainly think that there are more incentives than there have ever been and it is my belief that we will have absolutely no choice but to implement the codes,” Puth says.

“We welcome the banks’ input to the development of the code and they will certainly offer a valuable contribution. It will fall within the central banks’ remit to develop a meaningful strategy to ensure adherence to the code. I would expect that this work will be released at the same time we put the all the components of our work together,” he adds.                   FX Week Oct2015