Central banks to survey FX settlement risk

Source: Bank for International Settlements

The Committee on Payment and Settlement Systems will carry out a survey of how banks and other selected institutions manage the risks they can incur when settling foreign exchange transactions.

The survey will take place during the second quarter of this year. More than 100 institutions active in the foreign exchange market will be invited to take part and the CPSS strongly encourages their participation.

In 1996 the G10 central banks endorsed a comprehensive strategy to reduce the systemic risks inherent in the arrangements being used to settle foreign exchange transactions. The strategy, which was set out in Settlement risk in foreign exchange transactions, involved three tracks: action by individual banks to control their settlement exposures, action by industry groups to provide risk-reducing multicurrency services, and action by central banks to induce private-sector progress. The G10 central banks reaffirmed this strategy in 2000, emphasising the prime responsibility of the private sector for risk reduction.

Since 1996, the CPSS has been monitoring progress in implementing the strategy, including the launch in 2002 of CLS Bank. The Committee has decided that now is an appropriate time to assess in more detail the extent to which the objectives of the strategy have been achieved and whether or not there may be a need for further action.

The current survey is based on those carried out in 1996 and 1997, the results of which were reported in Reducing foreign exchange settlement risk: a progress report. The current survey has been updated to reflect the significant developments in settlement practices that have since taken place.

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