What is the UK Money Markets Code? Phiroza Katrak pkatrak@arlingclose.com

Earlier this month, my colleague Stephen Kitching’s Insight referred to the Bank of England’s Money Markets Code.

Developed by the Bank of England, The UK Money Markets Code was first published in 2017 and established high level principles of appropriate standards to ensure trust exists between a diverse set of participants. With a common set of good practices, participants can have confidence when transacting in the UK money markets in a manner consistent with the highest standards of behaviour. 

This Code was updated in 2021 to reflect the increasing electronification and use of platforms, the growing importance of developing ESG policies and the importance and benefits of a diverse and inclusive money markets team.

The Code does not supplant or modify applicable law nor does it impose legal obligations.  The Code is voluntary, and intended to promote an open, fair, effective and transparent market.

Its overriding principle is to always act in a manner to promote the integrity and effective functioning of the markets. Underpinning it are expectations for:

  • Ethics - behaving in an ethical and professional manner, acting with honesty in a consistent and appropriately transparent manner, acting with integrity by not participating in and if encountered, confronting, questionable practices and behaviours,
  • Governance - having a governance framework which facilitates responsible participation and provides for comprehensive oversight at an appropriately senior level of management,
  • Risk management - maintaining vigorous control environment to effectively identify, measure, monitor, manage and report on risks associated with engagement in the UK market
  • Clarity and accuracy of communication, transparency, managing access to and protecting confidential information,
  • Appropriate care and transparency being exercised when negotiating and executing transactions – be clear whether prices are indicative or firm, whether all relevant information and disclosures have been provided including the timeframe for completion,
  • Effective and efficient processes to promote the secure, smooth and timely settlement of transactions.

What does the Code apply to?

(a) the execution of transactions in the deposit markets, specifically in the wholesale unsecured deposit market including CDs and commercial paper,

(b) the repo market and

(c) securities lending transactions. 

Not covered by the Code are general transactional banking activity, including call and other bank accounts.

Who does it apply to?

It is applicable to a broad range of participants, including but not limited to banks and building societies, asset managers, insurance companies, pension funds, local authorities, education establishments, market makers, prime brokers and money brokers, matched principal traders, and custodians holding customers’ securities for safekeeping and management services.

Know your counterparty

This is not just about creditworthiness.  For your own risk management and the need to meet anti-money laundering requirements, detailed counterparty checks are to be undertaken before dealing in the UK Markets.

Clear and comprehensive dealing mandates help to clarify the nature of the counterparty relationship. On iDealTrade, Arlingclose’s local authority matching platform, every iDealTrade agreement is backed by clear documentation which is fully compliant with the UK Money Markets Code and both lenders and borrowers know exactly what the authority is signed up to rather than simply relying on a deal ticket or confirmation email.

Highest professional standards

As with the adoption with any policy or professional standard, demonstrate that you and your organisation strive to achieve the high standards by:

  • having sufficient knowledge of, and complying with, applicable law,
  • having sufficient relevant experience, technical knowledge, and training,
  • acting with competence and skill,
  • applying professional judgement in following your organisation’s guidelines and operating procedures including, but not limited to, methods of execution, record keeping, and ethical behaviour.

If you are a UK local authority officer or money market practitioner reading this, CIPFA recommends the UK Money Markets Code to its members as good practice.   Your authority may likely be a significant participant in the UK money markets.  Does your authority’s Treasury Management Practices (TMP) document reflect the principles of the UK Money Markets Code, notably TMP 5 - “Organisation, Clarity and Segregation of Responsibilities and Dealing Arrangements”, TMP 10 – Training and Qualifications and TMP 12 – Corporate Governance?   

The Code does state, however, that proportionality is fundamental. It isn’t aimed at lowering the bar, although there is an undoubted benefit to all in aspiring to adopt best practices.  If you believe your authority is a smaller, less complex market participants and you have sound, practical reasons for a different approach, you can make this clear and outline your alternative approach.

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