Facilitating increased adoption of payment versus payment (PvP) – final report

This final report – issued as part of the G20 cross-border payments programme – focuses on facilitating increased adoption of payment versus payment (PvP) to reduce foreign exchange (FX) settlement risk and improve cross-border payments. It analyses the causes of non-PvP settlement, takes stock of existing and proposed new PvP solutions and suggests roles for the private and public sectors to facilitate increased adoption of PvP. The report has been informed by a call for ideas, extensive industry engagement and a public consultation in 2022.

The report finds that existing PvP arrangements have been successful at reducing settlement risk for much of the FX market, but certain market segments remain exposed to risk: PvP arrangements are not available for all currencies and may not be the preferred solution of some market participants or for settling certain trades. New PvP solutions can complement the existing arrangements by providing flexibility and functionalities such as real-time settlement or 24/7 operations, expanding coverage to the retail market, and supporting emerging market currencies.

However, existing as well as new PvP arrangements face barriers to broad adoption, including: (i) weak incentives for market participants to settle FX trades using PvP; (ii) technical challenges for PvP providers to access and interoperate with real-time gross settlement systems; and (iii) legal challenges for PvP providers to reconcile differences in national legal and regulatory frameworks. Facilitating further adoption of PvP depends on whether providers of PvP services can overcome these barriers. The report identifies the roles public and private sector stakeholders could play to help increase adoption of PvP and unlock the full potential of innovation in new settlement solutions while mitigating risk.

The CPMI will further engage with industry stakeholders to explore possible practical actions to expand PvP settlement. In cooperation with other public stakeholders and relevant international committees, the CPMI will continue to monitor the evolution of FX settlement risk and PvP adoption with the aim of reducing settlement risk and enhancing global cross-border payments.