CLS to the fore
Concerns during the crisis period undoubtedly resulted in some switching of bank providers. But Joerg Pinkernell, head of GTS FI product management at RBS, insists it is important to remember that, while it is technically possible to switch providers overnight, the operational hurdles are greater. "In a volatile market where settlement risk was a concern, banks avoided making changes to their providers unless they had really serious doubts about the future of individual banks," he says.
Indeed, Pinkernell contends that, while the risk associated with individual banks was a concern to clients, the possibility of systemic failure – a domino effect caused by one or two banks failing to meet their obligations – was a greater worry. "People previously assumed that nothing could go wrong if they dealt with large banks," he says. "That assumption has been challenged, and now there is significant demand for tools that address the problem."
The result has been a sharp increase in interest in the use of Continuous Linked Settlement (CLS). This long-standing industry initiative removes the settlement risk associated with FX transactions by introducing an intermediary, which releases payments on the principle of payment-versus-payment.