Bank of England unveils money market code of conduct

The Bank of England has unveiled a new code of conduct for participants in UK money markets, ahead of the release of the FX Global Code in May.

The document, published today (April 26), sets out numerous principles governing standards of conduct in the deposit, repo and securities-lending markets.

Six “high-level principles” – covering ethics, governance, risk management, confidentiality, execution and settlement – are underpinned by the idea that participants should always act “in a manner to promote the integrity and effective functioning” of their markets, the BoE said in a statement.

Like the FX Global Code, and a code pitched at precious metals markets also due out next month, the money markets code was written “by the market for the market”, said Chris Salmon, executive director of markets at the BoE, who chaired the drafting committee.

“Participants should therefore embrace the new code and embed the high standards of behaviour it sets out,” said Salmon, who also sits on the committee drawing up the forex code.

The code includes provisions on ethical standards, including competency and the avoidance of conflicts of interest. It stresses that firms should establish good ethical standards as part of their governance structure, such that senior managers are ultimately responsible for culture, while “local management” should ensure team members have the appropriate skills and accountability.

Firms should maintain a “vigorous control environment” to keep on top of risk, have procedures in place to ensure business continuity, and aim for “clear and accurate” communications to promote the highest possible standards of transparency.

Individuals need to be open and transparent when discussing execution policies, with clearly defined roles for different actors, and avoid confusion in areas such as whether prices are fixed or indicative. Communications when doing business should be recorded to permit surveillance and the settlement of disputes.

Companies should use “standard settlement instructions” when trading and implement appropriate controls to reduce complications during settlement. “No UK market participant should intentionally allow a trade to fail,” the money markets code states.

The new code supersedes a handful of existing ones, including those governing gilt repos and securities lending.