Dutch pension asset manager PGGM Investments has called for bankers involved in foreign exchange trading to have to adhere to an ethical code.
PGGM, which manages around €167bn for different pension funds, says the problems in the FX market stem not from benchmarks per se but from flows that are known in advance, “traded by people that act as both principal and agent at a price they can influence”.
This has led to an environment “prone to misbehavior” PGGM says in its submission to a consultation organized by the Financial Stability Board, the Basel-based body that coordinates national financial authorities and which is hosted by the Bank for International Settlements. “PGGM therefore urges focus on the governance of FX trading.”
One of the initiatives it would support includes making FX traders “adhere to a moral/ethical code” such the one developed by financial markets trade body the ACI, whose Model Code has been in place since the 1990s.
“A first priority would be to make sure all banks’ trading and sales people adhere to such a code,” PGGM said. “An even stricter regime should apply” to staff dealing with non-professional clients.But PGGM also warns that asset manager clients of FX banks also have their own responsibilities: “Especially towards their end-clients an asset manager should be able to demonstrate that they have the knowledge and controls in place to act as a professional asset manager.”
The FSB launched its consultation on FX benchmarks in July amid widespread concerns about the integrity of industry benchmarks. It set up a working group chaired by Guy Debelle of the Reserve Bank of Australia and Paul Fisher of the Bank of England to look at the issue. The project is independent of the various investigations worldwide into allegations of FX manipulation.
“More progressive banks and clients have already decided to return to the ACI Model Code, and are showing leadership,” ACI President Marshall Bailey wrote in a letter to the Financial Times in June. “We provide a moral compass and a global standard to which all professionals can adhere, regardless of institution, market segment or region.”
The ACI – formed in 1956 as the Association Cambiste Internationale – has itself bemoaned a banking culture that had “lost its sense of moral obligation” which has seen its membership dwindle.