Basel Committee Consults on FX Transaction Settlement Risk

The Basel Committee on Banking Supervision has issued a paper for consultation entitled ‘
Supervisory Guidance for Managing Risks Associated with the Settlement of Foreign Exchange (FX) Transactions
’.

These proposals update the Committee’s ‘
Supervisory Guidance for Managing Settlement Risk in FX Transactions
’. Since publication of that guidance in 2000, the FX market has made significant strides in reducing the risks associated with settlement of FX transactions. However, substantial FX settlement-related risks remain, not least because of the rapid growth in FX trading.

The proposed new guidance aims to ensure that such risks are effectively managed. It provides more comprehensive and detailed direction on governance arrangements and the management of principal risk, replacement cost risk and all other FX settlement-related risks. In addition, the guidance promotes the use of payment-versus-payment (PvP) arrangements, where practicable, to reduce principal risk.

The guidance is organised into seven guidelines that address governance, principal risk, replacement cost risk, liquidity risk, operational risk, legal risk and capital for FX transactions.

Comments should be submitted by Friday 12 October 2012.

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