Inter-professionals Code (IPC) FSA CP47 - ACT Response

Mr Ted Morris
Markets and Exchanges Division
The Financial Services Authority

26 July 2000

Dear Mr Morris

CP47 - The Inter-Professionals Code (IPC)

Thank you for giving us the opportunity to comment on the draft IPC.

At present, most corporate treasuries dealing in the wholesale markets operate in accordance with the London Code of Conduct which is endorsed by the Association as its guide to best practice in these markets. The Association expects to endorse NIPS and IPC as guides to best practice in the wholesale markets for non-investment and investment products respectively. We have reviewed CP47 both to assess what protections are available to corporates operating as market counterparties in the wholesale markets (as opposed to operating as intermediate customers) and also to decide whether the Association should recommend the IPC to its members as a guide to their own behaviour.

Currently the Association's endorsement of the London Code is published in The Treasurer's Handbook (an annual publication) and the most relevant sections are summarised. Eight sections of the London Code have been identified as being particularly important for treasurers. We have focused on responding to the questions relating to these issues, which are set out below:

1. Responsibility for actions of staff.
   This does not seem to be specifically dealt with in the IPC but we would expect this to be found somewhere in the FSA Handbook. For treasurers familiar with the London Code it is a retrograde step for issues of particular relevance to be distributed around a large document rather than all in one place.
2. Gilt Repo code - Q2.4
   The Association has recommended this code to members operating in this market. We would like to see it and other industry codes at least acknowledged by the FSA. Following on from our comment above, we would prefer it/them to be mentioned in the IPC to reduce the need to search for it.
3. Inducements - Q2.6
   We think the provisions are useful and consistent with current good practice.
4. Deals at non-market rates - Q2.8
   We agree that transactions should be at market price and that non-market price transactions area allowable only if they are part of a wider transaction that, taken as a whole, is at market price and the firm is satisfied that the reasons are legitimate. We note that senior management sign-off is no longer required and we do not see this as a problem for corporates operating as full market counterparties.
5. Taping dealing conversations - Q2.12
   We have no comments on the provisions relating to taping and keeping records. As long as records are kept in some form we see no need to maintain the London Code recommendation that tapes should be kept for 2 months. However we are aware that many organisations still rely on tapes to resolve issues where confirmations may be late, incorrect or non-existent. If firms are no longer relying on tapes then prompt, 2-way confirmations are vital.
6. Dealing with brokers - Q2.13
   The provisions seem to cover the essentials although they could be improved by adding detail as suggested in b).
7. Know your counterparty - Q6.2
   We have no objection to this being excluded from the IPC as long as it is easy to locate in the FSA Handbook.
8. Mandates - Q6.3
   We believe it is essential for COBS to contain guidance on dealing mandates. We would like to see it also in the IPC but we understand that this is not practical. As provided for in the London Code, treasurers do not rely for their own internal control purposes on banks' ability and willingness to monitor mandates on a real time basis. However mandates do provide useful clarification of the nature of the counterparty relationship particularly for the less sophisticated corporates operating as intermediate customers.

We also have comments on the following issues:

Annex 3 - General guidance on Good Market Practice

Q3.1 - We support the production of guidance on good market practice.

Q3.2 - Although we understand the distinction, we find it quite confusing that guidance on the Principles and Rules and guidance on market practice are separate. We would prefer that what is currently Annex 3 should appear as an Annex rather than a Fact Sheet, to give it more weight. There are issues covered in this Annex which would give us considerable concern if market counterparties did not follow the guidance, e.g. paragraph 6.1 on informing a counterparty promptly in the event of a settlement error, and 7.1 on providing written confirmations.

Q3.3 - Could the material on responsibility for actions of staff be included here?

Corporate finance

Q4.1 and 4.2 - Our view is that all corporate finance business should be covered by COBS. Even where a firm is dealing with a market counterparty, there is a customer relationship. It would also make the opt-up decision simpler (less complex as well as easier) for corporates as it should enable them to opt up for all products rather than a subset, knowing that they will still have the necessary protections on corporate finance business.

Issues relating to professionals and customers

Q5.1 - We would prefer to see any areas of the IPC which apply to customers, such as those mentioned in (a), to be reflected in COBS. Generally speaking, we believe that the least confusing way of doing this is to locate it in COBS and refer to it in the IPC, although we do not feel strongly about this.

Overall, we have little concern over the content of the IPC. What does worry us is the increased complexity of the proposed structure of the FSA Handbook. How will treasurers access the parts to which they need to refer? Treasurers operating as market counterparties will need to locate the IPC, certain annexes, some fact sheets, parts of COBS and other sections of the market conduct sourcebook. They will also need to have a grasp of the differences between all this and COBS before they can decide whether to opt up or not. This is a tall order for organisations which may have only one qualified treasurer. We trust that a comprehensive overview of the structure of the FSA Handbook and its contents will be provided.

If you have any questions arising from our comments please do not hesitate to contact the Association's technical officer Caroline Bradley on 0207 213 0738 or at cbradley@treasurers.co.uk1.

Yours sincerely

Philip Gillett, Chairman
Technical Committee

• 1. Contact details may have changed since publication. Refer to the ACT Press Room for the latest contact information for the ACT Policy & Technical team.