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Keeping settlement risk high on the public policy agenda
In recent months, geopolitical and macroeconomic factors have sent waves of volatility and volume through the FX markets. In April 2025, CLS saw record average daily traded volumes of USD2.54 trillion, an increase of 17.9% from April 2024.
Volatility can increase settlement risk, as it can lead to liquidity shortfalls and timing mismatches. CLS was founded to mitigate this risk by synchronizing the settlement of payment instructions for both currency legs of a trade with finality. We provide payment-versus-payment (PvP) functionality, so a party’s payment instruction in one currency is not settled until the corresponding payment instruction in the counter currency is also settled.
In the first half of 2025, CLS settled an average daily value of USD7.9 trillion for 18 of the world’s most traded currencies, capturing 90% of the CLSSettlement addressable market. However, the proportion of FX trades not settled on a PvP basis has increased in recent years, driven mainly by an increase in the turnover of trading in emerging markets and developing economies (EMDE) currencies.
According to the BIS 2022 Triennial Survey, the share of EMDE currencies in total FX turnover has grown from 5.5% of trades in 2010 (total FX turnover volumes: USD2 trillion) to 8.5% in 2022 (total FX turnover volumes: USD7 trillion).
These trends underscore the need for settlement risk mitigation to remain a priority in terms of public policy. Encouragingly, FX stakeholders are addressing this through several ongoing initiatives.
In April 2025, CLS saw record average daily traded volumes of USD2.54 trillion, an increase of 17.9% from April 2024.
Expanding settlement risk mitigation
In 2020, the G20 launched a program to overcome long-standing challenges in cross-border payments. The G20 cross-border roadmap acknowledges that PvP arrangements mitigate FX settlement risk for wholesale cross-border payments.
As part of its ongoing work stemming from that roadmap, CLS actively contributes to the Payments Interoperability and Extension Task Force, which recently published a report that provides the industry perspective and outlines suggested next steps for mitigating FX settlement risk.1
FX Global Code
In January 2025, the Global Foreign Exchange Committee published the latest FX Global Code, to which CLS contributed. This Code is a set of best practice principles for the FX market. A key addition is the idea of a “risk waterfall approach” for managing settlement risk, which prioritizes PvP settlement.
Where that is not available, such as for EMDE currencies, the Code recommends netting to mitigate risk. CLSNet, our standardized, automated bilateral payment netting calculation service for over 120 currencies including EMDE currencies, can help meet these recommendations.
Insight into outstanding risk
Later this year, the BIS will publish its 14th Triennial Survey, the most expansive source of information on the size and structure of the FX market. The survey results (covering more than 1,100 financial institutions and 52 reporting jurisdictions) will help to bring greater transparency on key FX data, like the volume of EMDE currency trading and estimates on the amount of outstanding settlement risk.
Public-private power
These initiatives are good examples of public-private sector collaboration, which CLS supports as the optimal model to solve FX industry challenges.
CLS is working with the wider industry and public sector to find solutions for other developing FX market infrastructure challenges.
One area is same-day settlement. While still niche, discussions around same-day and instant settlement have intensified in the FX space recently. There are also more global experiments in the central bank digital currency space, which emphasize the benefits of instant settlement.
However, many initiatives often overlook the impact on liquidity. To enable more same-day settlement, more frequent settlement cycles may be required. As settlement frequency increases, netting efficiency can decrease and lead to higher funding requirements for market participants.
CLSSettlement delivers multilateral netting which considerably reduces the cash needed to settle the payment of trades on a given day. As a result, this releases on average, 96% of cash flow for other business operations like trading and business growth.2
Assuming same-day settlement becomes less niche, the question is, how do we move closer to same-day settlement without losing these key benefits? CLS recently partnered with FNA on a research report to explore this further.3
CLS is uniquely placed at the center of the FX ecosystem. We will continue to work with the public and private sectors to find solutions to industry challenges. Currently, addressing rising settlement risk is the most pressing challenge, and it is important that the topic stays high on the policy agenda.
First published in Eurofi magazine, September 2025.
1. https://www.bis.org/cpmi/cross_border/events.htm2. CLSSettlement utilizes other liquidity-saving tools to reduce funding requirements to 1% on average. 3. https://www.cls-group.com/insights/innovation/report-reimagining-same-day-fx-exploring-the-case-for-additional-settlement-cycles-shapingfx-series/
