FX May Move into the Market Abuse Spotlight

Published On October 21, 2019

21 October 2019: The European Securities and Markets Authority (ESMA) is mulling the potential to extend the regulatory remit of the Market Abuse Regulation (MAR) and/or MiFID II to cover spot currency trading. These markets are currently covered by voluntary codes of conduct rather than formal regulation. ESMA is concerned with the sheer size of these markets and the enforcement action witnessed in the last ten years. But regulation of this is no small task and it is seeking feedback as the costs will be significant for firms and regulators. 

“Ensuring the market abuse framework matches market developments and thus remains effective in detecting and preventing abusive behaviour is paramount to safeguarding investors’ interests and essential to ensure safe and orderly markets,” Steve Maijoor, chair of ESMA, commented on its review of MAR.

ESMA said misconduct related to the G10 spot FX market in 2014 led the Bank of England and the UK Treasury to agree that a market abuse regime with some features of the MAR and MiFID II framework would be sensible across the market. Spot FX’s connection to the  derivatives market was also another potential reason to expand MAR. Many will argue that the OTC nature of this market may make formal regulation very hard to implement. 

Firms have generally been active in signing up to the voluntary codes of conduct that have been developed since many of the trading enforcements have come to light. The industry has until November 29 to give feedback to ESMA on its consultation, which includes other proposals to rework MAR, after which the EU authority will submit a final report to the European Commission early in 2020.