The Bank for International Settlements in Basle’s Committee of Payment And Settlement Systems this week published a detailed consultative report titled: Progress in reducing foreign exchange settlement risk (http://www.bis.org/publ/cpss81.pdf)
In a nutshell, it says that significant progress has been made over the past decade and gives the central banks a pat on the back, specifically for the establishment and growth of CLS.
However, it notes that “a notable share of FX transactions is settled in ways that still generate significant potential risk across the global financial system and so further action is needed.” The report recommends specific actions by individual institutions, industry groups and central banks to reduce and control remaining large and long-lasting exposures and to guard against a risk of reversing the important progress already made.
Commenting on the report, Rob Close, chief executive of CLS Group, says he supports the call for action to further reduce FX settlement risk. “CLS notes from the report that more than half of institutions surveyed expect to settle more of their own trades through CLS... CLS is working with its members to meet their changing needs, including extending coverage to include fund FX, additional currencies and extend its working day if the impetus comes from the industry to settle same day trades,” he says.