New code of conduct for FX trades: what the buy-side needs to know

While buy-side firms continue to adapt to the raft of regulatory changes transforming the industry, such as the EU Benchmarks Regulation, MiFID II and MAD II, a new business code of conduct for FX trades may have gone unnoticed by some.

However, it is important that buy-side firms review the code before moving ahead with updates to their data management process and technologies; updates that have been made necessary by the increase in regulations imposed upon the sector.

The new rules have been introduced to restore trust in the FX market, and defines a comprehensive code of conduct that will impact all branches of the FX trade including the sell-side, technology vendors, nonbank participants and buy-side firms.

The code is being released in two parts. The first part, which was published this May, concerns market ethics and covers key areas including sharing, execution costs, trade confirmation, and settlement. The rules promote transparency and the automation of front-to-back-office process. The second part, yet to be released, will cover governance, risk management, and compliance.

As reported in Finextra, these rules tacitly promote the greater centralization of workflow and systems as the best approach to meet stipulations around active compliance and best execution. This is because the integration of pre- and post-trade technology and the standardization afforded by centralized workflow solutions makes compliance significantly easier.

The question now facing buy-side companies is how to best achieve this centralization. The challenge is that historically buy-side firms have not had to concern themselves too much with compliance and reporting; a situation that the regulators have completely changed. Buy-side firms are therefore faced with taking a quantum leap forward in terms of the sophistication of their compliance systems and workflow.

This is why the managed data service model championed by RIMES increasingly looks like the best approach to data management and compliance for buy-side firms. With a managed data service, workflow and systems are already centralized, compliance is already assured, and the platform is built to adapt to any future compliance requirements.

Whether adapting to niche market rules, such as those on FX trades, or more far-reaching regulations such as MiFID II, buy-side firms can benefit from instant access to a low-cost compliance platform and the expertise that comes with it.

For businesses challenged to change their entire data operations in such a short period of time, managed data services offer a compelling proposition.

RIMES will be discussing the impact of regulation on the buy-side with a range of industry experts on October 6th. Please email for more information.

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