CLS, a market infrastructure delivering settlement, processing and data solutions across the global FX ecosystem, welcomes the Committee on Payments and Market Infrastructures’ (CPMI) continued efforts to mitigate settlement risk in the FX market in partnership with the international regulatory community and private sector.

In its latest report, Facilitating Increased Adoption of Payment Versus Payment (PvP), the CPMI acknowledges that “existing PvP arrangements have successfully reduced settlement risk for much of the FX market, but certain segments remain at risk.” This is particularly true for emerging market (EM) currencies.

Given its systemic importance, adding new currencies to CLSSettlement is an extended effort that is subject to several complex factors and requirements. In particular, it is necessary to ensure that crucial legal, risk and liquidity standards are met in the jurisdiction whose currency is onboarded.  

CLS has worked with its members to explore several avenues to expand PvP coverage, including an alternative PvP service for certain currencies. As highlighted in the CPMI’s report, geopolitical events and circumstances have led CLS to reassess the pace at which this moves forward. For now, CLS is focusing on increasing the adoption of CLSNet, its standardized, automated bilateral payment netting calculation service for over 120 currencies.

Most of the interbank transaction flow through CLSNet is in the deliverable EM currencies that pose the most settlement risk for CLS’s settlement members. CLSNet already helps to mitigate operational risk associated with these flows. The service also supports netting to reduce the payment obligations exposed to settlement risk, while improving operational and liquidity efficiencies.

The full report can be found here: https://www.bis.org/cpmi/publ/d216.pdf