FX policy 03 | Updates to the FX Global Code of Conduct: The risk waterfall for FX flows | ShapingFX series
The Global Foreign Exchange Committee (GFXC) published the latest version of the Foreign Exchange Global Code of Conduct in January 2025. These revisions follow the latest three-year review cycle of the Code, aiming to address feedback and evolve in line with developments in the FX ecosystem. CLS welcomes the changes to the Code’s settlement risk principles, which introduce a “risk waterfall” approach with a specified hierarchy of methods for mitigating FX settlement risk.
What is the FX Global Code of Conduct?
The Code was launched in 2017 following two years of public and private sector collaboration coordinated by members of the central bank Foreign Exchange Working Group (FXWG).1 Since its launch, the GFXC has maintained the Code through ongoing review and updates, continuing the collaboration between central banks and the private sector.
The Code comprises a set of global principles of good practice for the FX market. Principles 35 (Settlement Risk) and 50 (Measuring, Monitoring & Controlling Settlement Risk)2 of the Code encourage FX market participants to explore ways to further mitigate risk and reduce operational costs by adopting a best practice approach to FX settlement risk management and netting.
The Code has been widely adopted by both public and private sector institutions throughout the FX ecosystem, and CLS first signed its Statement of Commitment in 2018.3
“A key amendment to the Code introduces a “risk waterfall approach” through which market participants should consider a hierarchy of methods for reducing FX settlement risk”
A code to fit an ever-changing FX ecosystem
The Code was designed to be a living document with a three-year review cycle. Periodic reviews help to ensure that the Code remains relevant and reflects the continually evolving best practices in the global FX market.4 The first update of the Code in 20215 strengthened the settlement risk principles on payment-versus payment and netting (Principles 35 and 50). The most recent update to the Code was published in January 2025 following an extensive consultation period with the FX market.6 A key amendment to the Code introduces a “risk waterfall approach” through which market participants should consider a hierarchy of methods for reducing FX settlement risk.
1The Foreign Exchange Working Group (FXWG) was set up in 2015, under the auspice of the Bank for International Settlement’s Markets Committee, to establish a single set of global principles of good practice for foreign exchange markets. See Foreign Exchange Working Group: bis.org2For detail on how CLS supports adherence to these principles, see cls-group.com/about/fx-global-code/ 3Market participants can demonstrate their recognition of, and commitment to adopting, the good practices set forth in the FX Global Code by signing a standardized ‘Statement of Commitment’ to the FX Global Code. CLS maintains a public register of Statements of Commitment at Public Register | FX Global Code | CLS Group: cls-group.com4See Letter: bis.org
5The 2021 version of the FX Global Code; see fx_global.pdf: globalfxc.org 6Membership of the GFXC is made up of central bank-sponsored Foreign Exchange Committees (and sub-committees) and similar structures in various regions. Each member Foreign Exchange Committee designates a central bank and private sector representative for the GFXC. CLS actively contributed to the review of the Code throughout 2024 by responding to the GFXC public consultation as well as participating in two of the central bank-sponsored Foreign Exchange Committees (United Kingdom and United States) that comprise the GFXC membership.
