Minutes of the London FXJSC Legal Sub-committee Meeting – 5 March 2024

Minutes

Minute 1 – Introduction and Minutes

The minutes of the meeting of 28 November 2023 were approved.

Minute 2: FXJSC Global Code Review (Natalie Lovell)

A survey was carried out at the end of 2023 on the FX Global Code (the Code), including among other local foreign exchange (FX) committees, which confirmed that the Code was fit for purpose. However, there will be a targeted review of the Code with two areas of particular focus: i) FX settlement risk; and ii) enhancing data transparency. The FXJSC members were invited to join the two working groups which were currently being formed to address these two areas. It was noted that the Global Foreign Exchange Committee (GFXC) would be discussing the working groups at the meeting in July which was due to be held in Frankfurt.

The GFXC also agreed that the pre-hedging guidance sat outside the Code and therefore that there was no appetite to either review or transpose the pre-hedging guidance into the Code, but instead to include hyperlinks whilst legal considerations were being explored by the GFXC.

Natalie also noted that in the FX space, pre-hedging had made good progress as a product and there was some consideration around the appropriateness of having guidance run alongside the Code for participants.

Minute 3: Regulatory Update from Allen & Overy (Kate Sumpter, Louise Bralsford and Nick Bradbury)

The group presented on the following five upcoming and evolving projects in the regulatory landscape.

• The Standardised Approach to Counterparty Credit Risk (SA-CCR)

From 1 January 2022, the UK implemented changes to SA-CRR and in Policy Statement 17/23, the PRA confirmed that further UK amendments should be expected. Whilst limited impact is expected on FX markets, dealers should consider widening spreads, moving to clearing (including the new products on offer around ‘smart clearing’) and counterparty risk mitigation.

• European Market Infrastructure Regulation (EMIR) 3.0

The European Commission (EC) has proposed making amendments to EMIR to increase resilience and the attractiveness of EU central counterparties (CCPs), with the aim of reducing reliance on third country CCPs. There was provisional political agreement on the amending regulation and directive on 7 February 2024, and final publication in the OJ is expected from May 2024.

The UK has not launched its official review of UK EMIR as part of the Smarter Regulatory Framework (SRF), however, there has been engagement with industry and trade bodies through 2023 and 2024 and UK EMIR will form part of “Tranche 3” of the UK SRF reforms.

• Accelerated Settlement

As part of the Edinburgh Reforms, the UK established its Accelerated Settlement Taskforce (AST) in December 2022. In December 2023, the Chair of the AST provided an update on the work to date and expectations for 2024, including the key objectives, which are: exploring the case for moving to an accelerated settlement cycle, i.e. T+1, in the UK; evaluating current settlement performance across the UK market and assessing potential improvements and reforms; engagement with the wider financial services sector; and providing recommendations, including how any changes should be implemented by industry, regulators and government and what the appropriate timetable should be.

• Operational Resilience

This is a key area of regulatory focus across the spectrum of different firms and markets. Due to the nature of the FX markets in particular and the reliance placed on them by a range of financial and non-financial institutions, the recent and ongoing developments in this space will impact both directly and indirectly on FX market participants. Two new operational resilience regimes are the EU Digital Operational Resilience Act (DORA) and the UK Critical Third Party (CTP) Regime. The CTP Regime came into force in the UK through the Financial Services and Markets Act 2023, and from 17 January 2025, EU Member States will be required to have national measures in place implementing the DORA directive.

• Pre-hedging

There have been several recent global developments in the pre-hedging space. ESMA has published its findings following its call for evidence consultation of pre-hedging in 2023. The report discussed market views on the definition, scope and legitimacy of pre-hedging practice and set out provisional views on areas which could be covered in any future guidance. Further, the International Organisation of Securities Commissions (IOSCO) Q4 2023 survey covered similar points to the ESMA report and the Australian Securities and Investments Commission (ASIC) also published guidance on pre-hedging practices in February 2024.

Minute 4: Any other business

The Chair noted that George Johnston was stepping down as Secretary of FXJSC and introduced Sakshi Gupta, who is now joint-Head of the Central Banking Division in the Bank’s Legal Directorate (alongside James Brennan), as the new Secretary.

Attendees

Sharon Blackman (Chair) – Citigroup

David Harris – Financial Conduct Authority (virtual)

Simon Goldsworthy – Deutsche Bank (virtual)

Gaynor Wood – CLS

Tamsin Rolls – JP Morgan Chase

Rakesh Shah – Standard Chartered (virtual)

Rowland Stacey – Goldman Sachs (virtual)

Harkamal Singh Atwal – HSBC (virtual)

Stephanie Cayer – Natwest (virtual)

Natalie Lovell – Bank of England (virtual)

FXJSC Legal Sub-Committee Secretariat

George Johnston (Secretary) – Bank of England

Sakshi Gupta – Bank of England

Matthew Hartley – Bank of England

Hana Mori – Bank of England

Charlotte Marshall – Bank of England

Guest attendees

Kate Sumpter – Allen & Overy

Louise Bralsford – Allen & Overy

Nick Bradbury – Allen & Overy (virtual)

Apologies

Baljit Saini – NatWest Markets

Mayank Patel – Bank of America

Krisha Somaiya – UBS