FSB reports on forex 4pm spot rate: FSB and IOSCO have published the results of their review of the WM/Reuters 4pm London foreign exchange closing spot rate (the WMR benchmark). The review analysed compliance by that benchmark's administrator with the Principles for Financial Benchmarks. It found the principles on sourcing the WMR benchmark from observable transactions and conducting due diligence on the platforms used to source the data are being observed. Nonetheless, the administrator needs to keep up efforts to determine that the data source responds to arm's length transactions in an active market. Other principles require further implementation. For example, the oversight function and conflicts of interest policy should be sufficiently tailored and specific to determining the WMR benchmark, and policies should be made public. (Source: Review of the WM/Reuters 4pm London Foreign Exchange Closing Spot Rate)

FSB publishes final report on forex benchmarks: FSB has published its final report and recommendations on the integrity of foreign exchange benchmarks. The report notes that risks to integrity arise more from the incentive for improper trading behaviour around fixing windows, rather than from the methodology for calculating the benchmarks. The recommendations include:

  • the fixing window for the WMR benchmark should be extended to five minutes. This could be widened further for less liquid currencies;
  • the WMR benchmark should use transactions data from a broader range of sources;
  • changes to the WMR benchmark should be consulted on with a user group;
  • central banks producing reference rates intended for transaction purposes should also take note of the Principles for Financial Benchmarks;
  • industry should develop initiatives to create netting and execution facilities for transacting forex orders;
  • forex transactions should be priced according to the risk borne by the dealer accepting the transactions;
  • dealers should establish guidelines for collecting and executing forex transactions, and for addressing conflicts of interest arising from managing customer order flow;
  • market makers should not share information beyond that needed to execute transactions, and particularly should not pass on information on levels of order flow. These restrictions should be specified in codes of conduct; and
  • asset managers should conduct due diligence around their foreign exchange fixing.

(Source: Foreign Exchange Benchmarks. Final Report)

FSB consults on cross-border recognition of resolution action: FSB has launched a consultation on statutory processes for jurisdictions to recognise foreign bank resolution measures. The consultation focuses on measures to stay the early termination of derivatives when a bank enters resolution and to bail creditors in. FSB welcomes and endorses using contractual solutions, such as the protocol on the exercise of early termination rights (developed by ISDA) or the inclusion of contractual recognition clauses in the debt instruments governed by the laws of a jurisdiction other than that of the issuer. Despite these positive developments, FSB wants to see a statutory underpinning for recognising these (stay and bail-in) and other measures. (Source: Cross-Border Recognition of Resolution Action)