Managing risks associated with the settlement of foreign exchange transactions - consultative document issued by the Basel Committee

The Basel Committee on Banking Supervision today issued for consultation Supervisory guidance for managing risks associated with the settlement of foreign exchange transactions.

The proposals published today update the Committee's Supervisory guidance for managing settlement risk in foreign exchange transactions. Since publication of that guidance in 2000, the foreign exchange market has made significant strides in reducing the risks associated with the settlement of FX transactions. However, substantial FX settlement-related risks remain, not least because of the rapid growth in FX trading.

The proposed new guidance aims to ensure that such risks are effectively managed. It provides more comprehensive and detailed direction on governance arrangements and the management of principal risk, replacement cost risk and all other FX settlement-related risks. In addition, the guidance promotes the use of payment-versus-payment arrangements, where practicable, to reduce principal risk.

The guidance is organised into seven "guidelines" that address governance, principal risk, replacement cost risk, liquidity risk, operational risk, legal risk and capital for FX transactions.

The Basel Committee welcomes comments on this consultative document. Comments should be submitted by Friday 12 October 2012 by e-mail to: baselcommittee@bis.org. Alternatively, comments may be sent by post to the Secretariat of the Basel Committee on Banking Supervision, Bank for International Settlements, CH-4002 Basel, Switzerland. All comments may be published on the website of the Bank for International Settlements unless a comment contributor specifically requests confidential treatment.