Overview
FX settlement risk arises when one party to an FX trade pays the currency it sold, but the other party might fail to pay the currency owed. If settlement failure becomes widespread, it can result in significant losses for firms and potentially undermine global financial stability.
Principle 35 of the FX Global Code states that Market Participants should reduce their FX settlement risk as much as practicable, by settling transactions through settlement methods that eliminate FX settlement risk.
To better understand the scale of FX settlement risk in the financial system, the GFXC surveys banks from key member jurisdictions twice a year. The GFXC FX Settlement Risk Survey complements the Bank for International Settlements (BIS) Triennial Survey. The same reporting methodology and template underpin both surveys, with the only difference being coverage. Although fewer jurisdictions take part in the GFXC Survey, the majority of global FX trade settlement is captured.
The reporting periods are April and October, and data is reported as the gross average settlement value per day in US dollars.
Reporting Methodology
The 2025 BIS Triennial Survey introduced a new approach for collecting FX settlement risk data. The new approach was developed on behalf of the BIS Markets Committee by the GFXC, in cooperation with experts from the Committee on Payments and Market Infrastructures (CPMI), central banks, local FX committees, and the BIS.
Settlement data is collected from Reporting Dealers for all deliverable FX trades that involve two-way payments, and where the settlement date of the trade fell within the reporting period. Data is reported on a global banking group basis, and all trades settled globally by the Reporting Dealer are captured regardless of the jurisdiction in which the trade was executed.
The data is separated by the method by which the trades were settled and follows a risk waterfall approach, ordered by the level of FX settlement risk mitigation provided (see Illustration 1). The reporting methodology is aligned with the approach set out in the FX Global Code for managing FX settlement risk.
| Risk tier | Settlement method | Description |
|---|---|---|
| Payment-versus-Payment (PvP) |
Mechanism: Payment in one currency only occurs if the payment in the other currency occurs Risk: Eliminates FX settlement risk |
|
| Intra-group settlement |
Mechanism: Trades are settled intragroup, i.e. between two entities that are part of the same banking group Risk: Internal coordination can mitigate FX settlement risk. But internal settlement, particularly cross-border, can be at risk of liquidity ring-fencing in stress scenarios |
|
| Pre-settlement netting |
Mechanism: Multiple FX trades between one or more counterparties are netted, resulting in a single net payment per currency Risk: Netting reduces gross FX settlement risk, but net amounts need to be settled |
|
| Settlement over bank accounts with settlement timing controls |
Mechanism: Trades that are settled over an account where the Reporting Dealer has control over the timing of settlement Risk: Timing controls can mitigate settlement risk but require coordination between counterparties to be effective |
|
| Gross bilateral settlement |
Mechanism: Payment of the full amount is made without any FX settlement risk mitigation Risk: Trades settled on a gross bilateral basis are fully exposed to FX settlement risk |
More detailed information on the methodology can be found in the Reporting Guidelines.
Participating Jurisdictions
The following jurisdictions take part in the GFXC FX Settlement Risk Survey: Australia, Canada, Euro Area, Hong Kong, Japan, Singapore, Switzerland, United Kingdom, and United States.