Featured Product

    BCBS-CPMI Issue Letter on Supervisory Guidance for FX Settlement Risk

    December 18, 2020

    BCBS and CPMI issued a letter encouraging bank supervisors and banks and other participants in the foreign-exchange (FX) market to follow the expectations set out in the 2013 BCBS supervisory guidance on managing FX settlement risk (BCBS guidance) and the Global FX Code (Principles 35 and 50). BCBS and CPMI welcome the plans of Global FX Committee to strengthen the guidance on FX settlement risk in its Global FX Code. BCBS and CPMI are also supportive of plans to collect data to monitor FX settlement risk on a regular basis. BCBS also published an update related to the assessment methodology and the additional loss absorbency requirement of global systemically important banks (G-SIBs).

    With respect to the FX settlement risk, bank supervisors should incorporate the BCBS guidance into their supervisory framework and, as part of their ongoing supervisory activities, assess whether banks that are engaged materially in FX trading are meeting that guidance. Settling FX trades can lead to significant principal risk when one counterparty to a trade sends a currency payment to the other before receiving the currency it is buying. Principal risk and other associated risks are often underestimated because the length of time between trade execution and final settlement is not fully taken into account. 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 minimize the size and duration of their principal risk and to conduct timely reconciliation of payments received. To fully address FX settlement-related risks, banks’ incentives, business practices, and infrastructures must be properly aligned.

     

    Related Links

    Keywords: International, Banking, G-SIB, G-SIB Assessment, FX Settlement Risk, FX, Systemic Risk, BCBS, CPMI

    Featured Experts
    Related Articles
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697