As an example, in the FX market, concerns were raised about the integrity of FX rate benchmarks, particularly around incentives for potential market malpractice linked to the structure of trading around the benchmark fixings, such as the WM/Reuters 4pm London fix. The WM/Reuters fix is one of the long-standing and dominant benchmarks used in the market. It was structured in a way that created an incentive for dealers to “trade ahead” of clients at the fix and also an opportunity for them to influence exchange rates. The FSB’s FX benchmark working group produced recommendations that called for a change in methodology around the structure of the fix and changes in firms’ trading behavior at the fix. Guidance suggested that firms establish and enforce internal guidelines and procedures for collecting and executing fixing orders, such as separate processes for handling such orders. In addition, the group recommended that transactions conducted at to-be-determined levels be priced in a manner consistent with the risk borne in accepting such transactions through such methods as applying a bid-offer spread or a direct fee. The Global Preamble, published by the FXC in coordination with other FX committees, supported and reinforced the FSB’s FX benchmark recommendations. 15, 16 Since the release of the recommendations, a number of changes have been made. For example, there is a new structure for certain FX benchmark rates, including the WM/Reuters fix. Many dealers have changed how they provide FX benchmark execution, with a growing emphasis on the use of algorithmic execution and a more transparent pricing structure.

However, unlike regulations or supervisory standards, compliance with the best practice standards developed by our committees is not mandatory for the broader market. Furthermore, there may be instances where implementation may vary given the diversity of entities in the market and the different profiles of market engagement. This is particularly relevant for the global FX market, with its range of market participants. 21 Central banks play an important role in convening industry stakeholders to develop high standards of behavior that promote fairness and integrity, and in pushing the industry to affirm them. Nonetheless, central banks are not acting as regulators when they sponsor these committees, even when they have relevant regulatory powers. Since best practice standards that are articulated by the committees that we work with are not, in and of themselves, binding, promoting their adoption is both challenging and important. We work on a number of fronts in this effort. We strive to engage a wide diversity  18  See “The Introduction of the TMPG Fails Charge for U.S. Treasury Securities” for more information. 19  The New York Fed has organized workshops and conferences on reforming culture in the financial services industry. Additionally, several executives have spoken publicly on the topic. See here for more detail. 20  The G30, the Basel Committee, the European Systemic Risk Board, and the FSB have issued papers on culture, governance, and misconduct risk. The Bank of England’s Fair and Effective Markets Review called for higher conduct standards for the fixed income markets.