Wearing the velvet glove, the RBA’s Debelle noted the enforcement agencies, such as the Australian Securities and Investments Commission, would be looking at the FX Code as a basis for action.
“Why is the work going on? As I have stated before, the foreign exchange (FX) industry has been suffering from a lack of trust in its functioning,” Debelle said. “This lack of trust is evident both between participants in the market and, at least as importantly, between the public and the market.”
He was pointed on actual compliance: “Clearly, that has been an issue with the various existing codes that have been in place in a number of markets over many years. It is evident that they were ignored on occasion, wilfully or otherwise.” Hence the presence of enforcers, the muscle.
The FX Code is also emblematic of the broader approach of regulators to restoring trust. It will be principles not rule based. That means culture rather than cleverness is essential.
In his speech to the Banking Standards board, the Fed’s Dudley articulated what such principles were based on.
“I would like to highlight three issues that are critical to improving culture within the financial services industry,” he said.
- defining and clarifying purpose, because clear goals are necessary if one is to assess performance;
- measurement of how firms and the industry are performing; and
- assessing whether incentives encourage behaviors consistent with the goals one wishes to achieve.
Purpose was critical: “For any bank, a statement of purpose should emphasise sustainable success, not short-run profit,” Dudley said.
“This is because of the many important roles that banks play in the economy. They are critical intermediaries between savers and borrowers; they provide essential infrastructure; they support well-functioning financial markets; and they act as custodians of our wealth.
“These functions require long-term commitment. They should not be erratic or ephemeral. The economy needs a steady supply of competent, honest, and reliable banking services in order to function. That is why any bank should emphasise the long term over the short term.”
Dudley finished his speech with a litany that should probably not just be painted in large print in any organisation’s foyer but required reading for those who think companies wishing to be good corporate citizens are forgetting their shareholders and indulging in activities not in their knitting patterns.