The International Swaps and Derivatives Association (ISDA) has published legal guidelines for smart derivatives contracts, focusing on foreign exchange derivatives.


The guidelines highlight ways in which the design and implementation of new technology solutions for foreign exchange derivatives can meet legal and regulatory requirements. The paper also suggests areas in which there is ongoing legal and regulatory uncertainty which require further co-operation.

BACKGROUND

The legal guidelines set out ways in which the design and implementation of the new technology solutions can meet legal and regulatory requirements, including the following recommendations:

  • developing ways of automatically reporting information about the FX to the relevant regulator with the required information;
  • using smart technology as part of FX prime brokerage services to reduce costs and promote increased efficiency; and
  • the implementation of the "FX Global Code" by developers and market participants in their systems.

The paper also suggests that further consideration and collaboration is required to overcome areas where there is continuing legal and regulatory uncertainty, for example in managing the relationship between third party "oracles" or external data sources and the relevant systems in the automation process; as well as developing standards to allow for "interoperability" across different technologies. 

COMMENTARY

These guidelines follow a letter sent by ISDA, along several other trade associations, to the Financial Stability Board, IOSCO and the Bank for International Settlements in July 2020, setting out their pledge to developing the digitisation of the financial markets. 

It is hoped that such digitisation will promote greater stability, efficiency and compliance in the financial markets as well as lowering costs for participants.

Key Contacts

James Herring

James Herring

Partner, Finance Disputes
London, UK

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Lynsey Walker

Lynsey Walker

Partner, Dispute Resolution
Edinburgh, UK

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Sivan Daniels

Sivan Daniels

Legal Director, Finance Disputes & Commercial Litigation
London

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Colin MacIver

Colin MacIver

Managing Associate, Dispute Resolution
Edinburgh

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