Settlement Leaders Panel

FX settlement risk is on the rise

The FX market is the world’s largest capital market and it’s most significant risk – FX settlement risk – is on the rise and may be reaching levels that threaten global financial stability. The rise is largely due to an increase in trading of currencies that do not have access to payment-versus-payment (PvP) settlement mechanisms, in particular those from emerging markets. At the same time, the FX community recognizes that it must continue to push for resilience, standardization, ease of access and interoperability across financial market infrastructure solutions. 

In parallel with this heightened focus on overall risk management, public and private side participants have become particularly concerned about rising settlement risk. As a result, the public sector and market participants have been calling for greater adoption of PvP settlement in the FX market. Such initiatives include the update to the FX Global Code following a three-year review earlier this year and the inclusion of building block 9, “Facilitating increased adoption of PvP” and related action items in the Financial Stability Board’s/CPMI’s Cross Border Payments Roadmap.