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:
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:
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.