On 18 December 2020, there was published a letter from the chairs from the Basel Committee on Banking Supervision (BCBS) and the Committee on Payments and Market Infrastructures (CPMI) encouraging bank supervisors and banks and other participants in the FX market to follow the expectations set out in the 2013 BCBS Supervisory Guidance on managing FX settlement risk and the Global FX Code. The letter goes on to note that the 2019 Bank for International Settlements’ FX survey shows that FX settlement risk remains significant.
The letter explains that the BCBS guidance recommends eliminating principal risk by using payment-versus-payment (PvP) settlement where practicable. For FX transactions that do not settle via PvP, the guidance recommends that supervisors encourage banks to minimise the size and duration of their principal risk and to conduct timely reconciliation of payments received.
The letter adds that in response to the Triennial results, the BCBS and the CPMI have agreed an action plan. The plan involves concerted supervisory action, supplemented with education and improved data and analysis. The BCBS and the CPMI welcome the Global FX Code. The BCBS and the CPMI are supportive of plans to collect data to monitor FX settlement risk on a regular basis.