The ACI FMA Today Kiev – April 2015 Ethical Behaviour in the Financial Markets Moving From Industry to Profession Partnering with the ACI will enable you to demonstrate the concrete steps you are taking to ensure all of your staff have been trained to your expectations of the highest ethical standards of conduct, and that they understand their individual obligations. The Challenge © ACI – The Financial Markets Association - Confidential 4 The Opportunity © ACI – The Financial Markets Association - Confidential 5 The Future © ACI – The Financial Markets Association - Confidential 6 Four Key Themes 1. Markets are always in transition 2. A healthy market requires more participants, not fewer 3. Regulation, including self-regulation, needs to be effective. It’s better to educate than regulate 4. ACIFMA has some of the answers via The Model Code and ELAC Four Key Themes 1) Markets are always in transition Complete change of structure within our lifetime Policy driven: Gold standard/fixed rates to free rates = global growth Technology-driven: Telex machine, telephone, evolution of on-line systems such as Reuters matching to EBS, and onward to HFT Client-driven: need for bi-lateral credit but multilateral pricing, consolidation/concentration, focus on (e.g.) TCA, Innovation-driven: e.g. CLS, clearing products & services Regulatory driven: Dodd-Frank, SEFs/OTFs, Conduct A failure to remember this has consequences Four Key Themes 2) A healthy market requires more participants, not fewer • • • • • • • • Genuine liquidity is beneficial, and brings pricing benefit to all All forms of well-behaved market participation can help Easy-access, low threshold to entry for buy-side (real economy) Multiple venues are additive, including a wide variety of predominantly OTC mechanisms, and exchanges. Clients’ choice is key. Mandated change to venue (choice-reducing) is NOT helpful Well-intentioned recent FINMA statement may have unintended consequences – what happened on “SNB Policy Day”? Concentration of market into small number of large providers is unhealthy. New entrants and local/regional players are additive. A failure to remember this has consequences Four Key Themes 3) Regulation, including self-regulation, needs to be effective • To be clear: while largely self-regulated, important rules have always applied to FX. • Certain activities (manipulation of benchmarks, acting against the interests of clients and counterparties, etc.) have long been wrong, and should always have part of education and enforcement • To be left alone to act responsibly, one has to act responsibly 1. Standards must be set (creation) 2. Education must be available and required (dissemination) 3. Controls must be in place, and functioning (enforcement) • Accountability is real, both individual and supervisory A failure to remember this has consequences! Recent Sanctions Heavy focus on culture and conduct • How to ensure conduct is appropriate in a global market? • Fundamental Importance of First Line of Defence • Supported by the Second Line, and Audit (3rd) • Dealing with compliance and legal aspects • Regulators insist on professionalism • Regulators want the industry to solve it problem • Why doesn’t the industry understand this? • Latest developments on codes of conduct, enforcement and risks to the business • FSB & IOSCO & FEMR & Code Harmonisation • What can be done to keep the industry functioning effectively? What Role for the ACI FMA? • In the financial markets, nothing is more important than trust. ACI is the world’s leading non-profit, non-political association of wholesale financial market professionals, and has a proud and illustrious history of involvement in helping educate and test individuals on ethical conduct and best practices • Vital central value of our Model Code, the Committee for Professionalism, the Board of Education source of benchmarking for ethical behaviour and high standards among professional market participants • Vision of self-certification for all participants (ELAC Portal) ACI – The Financial Markets Association For Internal Use Only - Confidential 13 WHAT Institutions Need • Visibility to clients and shareholders that they are embedding behavioural improvements • A Code recognised and endorsed by regulators and central banks around the world • To demonstrate support, leadership and proactive approach to public domain and regulators • Public Relations benefits with shareholders and clients • Significant measurable, achievable and timely significant increase in market participants’ awareness • A global code that can sit alongside and reinforce any code of conduct • A solution to mitigate operational risk under Basle III © ACI – The Financial Markets Association - Confidential 14 ELAC - Portal ELEARNING AND CERTIFICATION 15 16 © ACI – The Financial Markets Association - Confidential 17 PAR © ACI – The Financial Markets Association - Confidential 18 © ACI – The Financial Markets Association - Confidential 19 © ACI – The Financial Markets Association - Confidential 20 Four Key Themes 1. Markets are always in transition 2. A healthy market requires more participants, not fewer 3. Regulation, including self-regulation, needs to be effective. It’s better to educate than regulate 4. ACIFMA has some of the answers via The Model Code and ELAC Дякую Kiev – April 2015