Industry Article

FX Living Dangerously

Baton Systems recently spoke with Colin Lambert, publisher of The Full FX, about what is getting the FX market talking and why the back office is ripe for transformation.

Listen to 'FX Living Dangerously' with Colin Lambert, Publisher of The Full FX

In its 2019 Triennial Survey, the Bank for International Settlements (BIS) surprised the FX industry by highlighting settlement risk as an area of growing concern when previous surveys had focused solely on trading volumes. Specifically, data collected for the survey showed that approximately USD8.9 trillion worth of FX payments is at risk on any given day.

“It made the industry sit up and take notice,” Colin said. “It was, frankly, a flag that the regulators want something done about settlement risk.”

The Global Foreign Exchange Committee (GFXC) has answered this call to arms. As part of its ongoing review of the FX Global Code, it is looking to strengthen guidance on the management of FX settlement risk, wishing specifically to place greater emphasis on PvP settlement mechanisms where available.

“Clients will look towards the banks for a solution, but I think the solution will come from the fintech industry.”
– Colin Lambert

As part of its feedback programme, the GFXC proposes an amendment to the Code that ‘if a counterparty’s chosen method of settlement prevents a Market Participant from reducing its Settlement Risk (for example, a counterparty does not participate in PvP arrangements or does not agree to use obligation netting) then the Market Participant should consider decreasing its exposure limit to the counterparty, or creating incentives for the counterparty to modify its FX settlement methods.’

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