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Settlement risk’s next chapter
More than USD1 trillion of foreign exchange (FX) activity is fully exposed to settlement risk every day.1 While significant, it sits in a market that has become dramatically safer over the past five decades.
The collapse of Bankhaus Herstatt in 1974 exposed the consequences when one side of an FX transaction is paid but the other never received. It prompted industry action, including the creation of CLS, widespread adoption of payment-versus-payment (PvP) settlement, and the development of standards and best practice like the FX Global Code.
Fast forward to 2026. Data from the Bank for International Settlements (BIS) shows how successful those efforts have been. According to the BIS, 90% of average daily settlement now takes place using methods that eliminate or materially reduce settlement risk. The remaining risk reflects the evolution of the FX market more than shortcomings in market infrastructure.
The challenge now is extending proven solutions to a market that continues to diversify and grow.
A half-century of progress
The BIS 2025 Triennial Survey introduced a new methodology for assessing settlement risk, based on the settlement hierarchy established by Principle 35 of the FX Global. It found:
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USD5 trillion (36%) of average daily settlement used PvP arrangements such as CLSSettlement, eliminating settlement risk.
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USD7.6 trillion (54%) settled through methods such as pre-settlement netting that reduce settlement risk.
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Only USD1.4 trillion (10%) settled on a gross bilateral basis and remained fully exposed.
These results reflect decades of collaboration between central and commercial banks, regulators, market participants and infrastructure providers.
Broader participation
None of this argues for complacency. USD1.4 trillion remains a significant exposure.
The BIS identifies three reasons why some trades continue to settle outside PvP arrangements: broader participation by non-bank financial institutions (NBFIs); growth in currencies outside existing PvP arrangements; and transaction types that fall outside traditional settlement models.
The BIS found that 75% of bilaterally settled transactions were not eligible for PvP settlement, most commonly because one counterparty lacked access to a PvP system.
The BIS found that 75% of bilaterally settled transactions were not eligible for PvP settlement, most commonly because one counterparty lacked access to a PvP system.
This reflects the growing role of NBFIs. Over the past 20 years, the FX market has expanded beyond dealer banks, with other institutional investors accounting for more activity.
Many of these institutions have not embedded settlement risk management into their operating models in the same way as dealer banks. Education, industry engagement and greater awareness of best practice can help bring more activity from these sectors into existing risk mitigation frameworks.
New currencies, new flows
The survey also highlights evolving currency flows. Thirty-six percent of gross bilateral settlement involved currency pairs that are not eligible for PvP settlement.
The renminbi is the most prominent example. According to the BIS, it appeared on one side of 8.5% of global over-the-counter FX transactions after 12 years of sustained growth. As renminbi and other emerging market currencies grow, risk mitigation tools must evolve alongside them.
CLS is developing a dedicated USD/CNH PvP settlement session. Operating separately from the main settlement session, it would extend CLS’s risk mitigation and multilateral netting benefits to the USD/CNH market.
As with any new service, implementation remains subject to regulatory approvals, non-objection processes across multiple jurisdictions and settlement member readiness. CLS’s priority is to ensure the service is implemented safely, efficiently and in line with supervisory expectations.
Complementary approaches also play an important role. Where PvP is not yet practical, bilateral netting can significantly reduce risk. CLS’s bilateral payment netting calculation service, CLSNet, supports over 120 currencies, including CNH, THB, PLN, CZK and TRY. The BIS notes that pre-settlement netting nearly doubled between 2006 and 2025.
New markets create new settlement needs
Settlement risk also persists because certain transaction types fall outside existing PvP models. As settlement cycles shorten and demand for intraday liquidity grows, the industry must evolve without losing the benefit of multilateral netting.
Stablecoins, tokenized deposits and other forms of digital infrastructure could further improve intraday liquidity management and settlement where traditional processes are less effective.
The BIS findings do not point to a new settlement risk problem. Rather, they show that the next chapter will be about extending proven principles to an evolving market through resilient infrastructure, continued collaboration and broader adoption of best practice.
First published in Eurofi magazine, September 2026.
1. BIS Quarterly Review, June 2026.
