The Basel Committee has issued a proposed update to its 2000 guidance on foreign-exchange (FX) risk management, reflecting lessons learned during the financial crisis and increasing use of payment-versus-payment (PVP) FX settlement. The proposal seeks to push PVP by requiring tougher standards for other settlement methods, but it does not let PVP pass without a significant review of potential risks (e.g., legal, liquidity and operational ones) that will require changes at affected firms.  New capital standards will require significant changes in transaction systems at all banks active in FX even if they clear principally through PVP and in some cases increase the cost of FX operations.

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