CLS says FX settlement risk shifts to access, currency coverage

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FX settlement risk shifts

Highlights

According to the BIS 2025 Triennial Survey, 90% of average daily FX settlement now employs methods that eliminate or materially reduce settlement risk.
U.S.$1.4 trillion of daily FX settlements, representing 10%, still occurs on a gross bilateral basis and remains fully exposed to settlement risk.
The BIS attributes residual risk primarily to non-bank institution participation, lack of PvP system access, and increasing use of currencies and transactions outside existing settlement frameworks.

BIS data frames next phase

As reported by CLS Group, the BIS 2025 Triennial Survey shows that 90% of average daily FX settlement now takes place through methods that either eliminate settlement risk or materially reduce it. The survey, using a methodology based on the settlement hierarchy under Principle 35 of the FX Global Code, finds that U.S.$5 trillion of average daily settlement uses payment-versus-payment arrangements such as CLSSettlement, while U.S.$7.6 trillion uses methods including pre-settlement netting.

That leaves U.S.$1.4 trillion, or 10% of average daily settlement, still conducted on a gross bilateral basis and fully exposed to settlement risk. The figures reflect decades of coordination among central banks, commercial banks, regulators, market participants and infrastructure providers since the 1974 collapse of Bankhaus Herstatt highlighted the danger of one-sided FX payments.

The survey also points to why that exposure persists. CLS says the BIS identifies broader participation by non-bank financial institutions, growth in currencies outside existing PvP arrangements and transaction types beyond traditional settlement models as the main reasons some trades continue to settle outside risk-reducing frameworks.

The BIS finds that 75% of bilaterally settled transactions are not eligible for PvP settlement, most often because one counterparty lacks access to a PvP system. CLS argues that greater education, industry engagement and stronger adoption of best practice could help bring more activity from those institutions into existing settlement risk controls.

Our earlier article on Kalshi’s bid for CFTC approval to introduce margin on select event contracts explained how the operator wants to let eligible, self-clearing members use borrowed funds, while excluding categories such as sports and culture markets. We noted the proposal is designed to boost liquidity and attract more institutional participation, with access limited by capital and clearing-relationship requirements.

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