The proportion of FX trades not settled on a PvP basis has increased in recent years, driven by the growth in emerging market (EM) currency trading. According to the Bank for International Settlements 2022 Triennial Survey,^[1] the share of non-CLS eligible currencies grew from USD0.2 trillion average daily turnover in 2010 (ca. 5.5% of trades) to USD0.7 trillion in 2022 (ca. 8.5% of trades). This has led the FX market to renew its efforts in reducing FX settlement risk. One way to mitigate the outstanding settlement risk is to make PvP and other practices for risk mitigation, including netting, available to a broader range of currencies – particularly heavily traded EM currencies.

Extending PvP solutions in EM currencies comes with challenges, ranging from operational to legal and regulatory aspects, that must be carefully managed in the current geopolitical context. There are several public / private sector initiatives around the globe exploring ways to further facilitate the mitigation of the FX settlement risk.

In October 2020, the Financial Stability Board published the G20 Roadmap for Enhancing Cross-Border Payments, an initiative addressing the challenges of cost, speed, transparency, and access in cross-border payments. Building Block 9 of the G20 roadmap focuses on mitigating FX settlement risk for cross-border payments – a key challenge for the wholesale market – by encouraging the use of PvP arrangements. The G20 initiative acknowledges that while existing PvP systems like CLSSettlement have made significant progress in reducing settlement risk, there are still obstacles to broader PvP adoption.^[2]

During its first two years, the G20 roadmap initiative focused on stock-takes and analysis. On this basis, and in an effort to deliver tangible enhancements to cross-border payments by the end of the 2027, the project established a three-year prioritization plan and a public-private sector engagement model.^[3] As a member of the CPMI-led Payments Interoperability and Extension task force, CLS is working with a diverse group of public and private sector stakeholders to help achieve the G20 cross-border payments targets.