The UK Money Markets Code Phiroza Katrak

The Bank of England recently published The UK Money Markets Code.  The aim of the Code, which is voluntary, is to promote and maintain the integrity and effective functioning of the UK markets. It sets out the standards and best practice expected from participants in the deposit, repo and securities lending markets.  The Code supersedes and substantively updates existing guidance: the Non-Investment Products Code (2011) [previously the ‘Grey Book’], the Gilt Repo Code (2008) and the Securities Borrowing and Lending Code (2009).

The Code applies to Local Authorities who will be considered ‘UK Market Participants’ as they engage in one or more activities i.e. (i) placing or receiving unsecured money market deposits and/or buying or selling CDs or commercial paper, (ii) purchasing or selling securities under repo agreements, (iii) borrowing and lending securities. Local authorities will be deemed principals whether they are direct participants dealing on their own account or through a broker in the unsecured money markets.  

A principles-based framework covers ethics, high standards, governance, risk management and confidentiality. These include knowing your counterparty, handling information, negotiating and executing transactions, acting with competence and skill and applying professional judgment, and having a framework for addressing alleged misconduct and improper practices.

By adhering to CIPFA’s Code of Practice on Treasury Management, many of The UK Money Market Code’s principles may already be embedded into local authorities’ treasury documentation in the ‘Schedules’ of their Treasury Management Practices (TMPs) and in their day-to-day treasury activity, in particular risk management - identifying, controlling and mitigating credit, market, funding and liquidity, operational and conduct risk.  Authorities’ TMPs would also cover policies, procedures and systems as well as the duty of care and high dealing standards to be observed when negotiating, executing and settling money market transactions.  

Good governance and managing conduct risk includes having internal policies to identify and manage actual and potential conflicts of interest. It also entails ensuring treasury staff have knowledge of relevant products, markets, and applicable law/regulation and the competency to fulfil their dealing roles -  professional qualifications, relevant experience and appropriate training therefore come into play. The internal audit function shouldn’t be forgotten; it also, in turn, needs to be staffed, skilled and resourced to independently examine adherence to the standards you have set.

CIPFA is reviewing and strengthening the Treasury Management Code and the Prudential Code. These revised codes will be published later this year and treasury documentation will require updating accordingly.   However if, in the interim, you think your TMPs could do with a refresh, now is just as good a time to do so. Arlingclose’s client TMP workshops in June and July can help smooth this task.

The UK Money Markets Code can be accessed  here.