South Africa finds problems in FX trading but not by major dealing banks


On October 27th 2014, the South African Reserve Bank (SARB) and the Financial Services Board (FSB) announced the launch of a review of the Forex trading practices among authorized dealers in the South African Forex market which was published today. A Foreign Exchange Review Committee (FXRC) was established, headed by Mr. J Cross, former Senior Deputy Governor of the SARB. The review came on the back of worldwide investigations by various regulators into various forms of misconduct in their Forex markets.

Unlike in many other jurisdictions, this review was not informed by whistle-blowing or allegations of any indications of widespread misconduct or malpractice in the South African foreign exchange market. It was a proactive step by South African authorities intended to confirm and where appropriate, strengthen the level of adherence to best practice standards in Forex dealing. It also aimed at minimising the risk of manipulation of benchmarks and sharing of confidential client information, and at enhancing the transparency, efficiency and integrity of the South African foreign exchange market.

An investigation launched this past summer by the South African Competition Commission into the fixing of Forex trades by several global banks was still under way. The Competition Commission said it investigating whether dealers at the banks had colluded, using electronic chat rooms and instant messaging, to coordinate their trading when giving quotes to customers who buy or sell currencies. Similar investigations have been taking place in Europe, Asia and the United States.

However, Key findings of the FXRC include that:

  • For the period under review, the FXRC could not find evidence of widespread malpractice or serious misconduct in the South African Forex market. The FXRC, however, found that there was scope  for improvement in overall market conduct.

  • Most Authorised Dealers have acceptable arrangements and structures in place as well as whistle-blowing policies and complaints processes for clients, which, however, in some instances can benefit from updates and refinements.

  • The FXRC found that some Authorised Dealers experienced problems with retrieving records while others did not provide ongoing training to their staff to keep abreast of changes in regulatory frameworks and ongoing professional requirements.

Based also on international experience, the FXRC found early in the process that the market would benefit from a unified Code of Conduct for the Over-the-Counter financial markets and a decision was made to draft a Code of Conduct, in consultation with market participants, alongside the ongoing review.

The Code published today, which you can find here will remain open for public comments until November 30th, 2015.

The FXRC, based on the review, recommends that legislation in South Africa should be amended, in order to give the FSB sufficient powers to declare Codes of Conduct for Authorised Dealers as subordinated legislation and that Sections 78, 80 and 81 of the Financial Markets Act, 2012, be applicable to the OTC Forex market. It also recommends that in due course the Code of Conduct be aligned with the principles enshrined in the single Global Code of Conduct for the Forex market currently being developed by the Markets Committee of the Bank for International Settlements.

It is further recommended that in order to ensure ongoing compliance and best practice, a group of senior market professionals and compliance officers should form a Financial Markets Standards Group similar to the Treasury Markets Practice in the US and the Fixed Income, Currency and Commodities Markets and Standards Board in the UK.

The review recommends that such a group should be established and supported by both SARB and the FSB.

The SARB and FSB have accepted the recommendations contained in the report and are in the process of establishing appropriate structures to give effect to their implementation.

To see the official release click here, you can find the FXRC report here.

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South Africa finds problems in FX trading but not by major dealing banks

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