Debelle: regulation could be ‘helpful’ to FX code

As EU weighs regulation of spot market, GFXC chair dismisses key industry argument

Guy Debelle: adoption of similar approach to Australia’s is “potential solution or a potential option to address what the EC is trying to solve”

Photo: Reserve Bank of Australia

Regulation of the spot foreign exchange market could buttress the industry’s voluntary standards – the FX Global Code – according to the supervisor overseeing the code’s development. The EU is weighing regulation of spot FX, but lobbyists have argued the code removes the need for a separate rulebook.

“I don’t see the two as being inconsistent,” says Guy Debelle, deputy governor of the Reserve Bank of Australia and chair of the Global Foreign Exchange Committee (GFXC). “In fact, I see them as being quite complementary.”

The EU is consulting on whether to include spot FX in its market abuse and securities-trading rules, but the FX industry has pushed back, claiming such steps are unnecessary – thanks to the FX code, which sets out standards of conduct for spot markets.

“I don’t think it does the code any harm to have it backed up by the Financial Conduct Authority and the Australian Securities and Investments Commission, so you’ve got that as a reference point in their oversight of the market,” says Debelle. “I think that’s actually helpful.”

The possible regulation of spot FX in Europe was first debated in a public consultation of the Market Abuse Regulation, set out by the European Securities and Markets Authority in October 2019.

In February, the idea of regulating spot FX again appeared in a review by the European Commission on the Markets in Financial Instruments Directive and its associated regulation, Mifir.

The European Commission (EC) says it is studying the Australian market for ideas on how to regulate its spot FX market.

In Australia, spot FX transactions are regulated as financial products, and come under the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001.

We’ve already obviously laid out what we’re doing in the three-year review. We’ve had input from all sorts of people in that, so I would hope it would address any of the issues the EC has got

Guy Debelle, Reserve Bank of Australia

Market participants who trade or provide financial product advice regarding spot FX are required to have an Australian Financial Services Licence. Similarly, operators of financial markets in Australia are required to have an Australian Market Licence.

Foreign firms are also required to have an AFSL – with exemptions from certain provisions in the Corporations Act for financial service providers deemed to be regulated in equivalent jurisdictions.

Many of the individuals who operate and are regulated in Australia’s FX sector are global market participants. “They seem to work perfectly fine under the regime here,” says Debelle.

Debelle says he spoke with the EC in January about how Australian regulators had incorporated the FX Global Code into market surveillance, and pointed European regulators towards the Australian Securities and Investments Commission to discuss the topic in greater detail.

He believes adoption of a similar approach to Australia’s is “a potential solution or a potential option to address what the EC is trying to solve”.

This year, the GFXC will begin a three-year review of the code, although Debelle says it may happen at a slower pace than initially intended due to the impact of coronavirus.

“We’ve already obviously laid out what we’re doing in the three-year review. We’ve had input from all sorts of people in that, so I would hope it would address any of the issues the EC has got,” he says.