UK Money Markets Code Updated | The Association of Corporate Treasurers

UK Money Markets Code Updated

Go back 05 May 2021

On 21 April 2021 the Bank of England published an update to the UK Money Markets Code on its website. The updated UK Money Markets Code can be found online here, alongside an updated explanatory notes and FAQ document here.  The ACT was represented in the working group and supports the revisions, which include clarifications of how the voluntary Code applies to corporates. 

The fundamental purpose of the Code remains the same: to ensure trust exists in the UK money markets. The core principles of the Code to which participants commit are unchanged following this update, which should make continued commitment to them straightforward for existing signatories. 

Similarly to the FX Global Code, commitment to the Money Markets Code is in the form of an initial statement, is applied proportionately and does not require annual attestation.  Corporate Treasurers who have not yet considered signing-up to the principles of the Code will want to note that the FCA has confirmed that it is recognising the updated Code as an industry standard. Therefore, among other reasons for signing, we infer that a statement of commitment by a corporate treasury may be a beneficial (and efficient) way of demonstrating best practice when answering “KYC” questions from its regulated sell-side counterparties.

There have been some significant positive changes to the Code in the following five areas:

  • Diversity and Inclusion. The updated Code recognises and promotes the benefit of a diverse and inclusive money market team.
  • Working from Home. The updated Code reflects the response to COVID-19, and emphasises it is acceptable to work from home, provided the same level of robust systems and controls are applied.
  • Environmental, Social and Governance (ESG) Criteria. ESG criteria are becoming increasingly relevant to financial markets. The updated Code adds commentary about the increasing importance of ESG.
  • Electronic Trading. Electronic trading via platforms is now more widely used than in 2017, especially in the repo market. The updated Code sets out how it applies to such trading and details best practice for using electronic venues.
  • Trade Settlement Discipline. The updated Code stresses the importance of high standards of settlement discipline, in response to concern in the market that the level of non-settled trades has increased.

The Code, as applied proportionately, applies to: (a) the execution of transactions in the deposit markets, specifically in the sterling and foreign currency wholesale unsecured deposit market (including certificates of deposits and commercial paper but not general transactional banking activity in, for example, call or evergreen bank accounts); (b) the repo market; and (c) securities lending transactions, as transacted in the UK, which together constitute, for the purposes of this Code, the UK Market.

The Explanatory Notes document is particularly helpful in clarifying the application of the Code. Corporate Treasurers may wish to refer to Questions 5-8 as a starting point – as inserted below:

Q5 Does it only apply to banks?

A5 No. It needs to apply to all types of participants. It is not intended to apply to any party that would not be a professional or eligible counterparty as defined by the FCA; that is broadly firms with net assets below £5 million. It applies to corporates (as well as other non-banking market participants) above the FCA threshold who are regularly active in these markets. Whilst the Code is voluntary, it sets out best practice which benefits all in promoting the integrity and functioning of the market. The Code recognises the principle of proportionality in how it applies. But the key principles of ethical behaviour, good governance, robust controls, protecting confidential information, and settling and confirming carefully and efficiently apply to all.

Q6 If the Code is voluntary, why does it discuss adherence?

A6 The Code has to set out some expectations around adherence. Without such the Code would not be effective. Adherence is not regulation; it simply sets out how the standards that market participants expect of each other can be assured.

Q7 Why do we need to make a Statement of Commitment?

A7 A Statement of Commitment is recognition of a willingness to apply those standards to a UK Market Participant’s own activities. That willingness can be demonstrated by posting the Statement of Commitment to the UK Money Markets Code on the Public Register of those who support the Code. The Public Register is hosted on behalf of the Money Markets Committee on the Bank of England’s website.

Q8 Why is everyone expected to adhere?

A8 The Code sets out that an expectation of adherence has to apply across the whole market to be effective, but it can be proportionate. If a participant only uses one part of the money market, for example only making unsecured deposits, there is no need for it to consider how it will follow the standards for the other markets. If a firm only undertakes a few transactions of a simple nature, the way it applies market standards can be appropriately simple. By signing a simple standard form of expression of commitment to the UK Money Markets Code, there will be a universal approach rather than multiple differing forms of requests between counterparties.

 

For your ease of reference, please see the following web-links:

 

 

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