A significant portion of daily currency trades are at risk of failure, according to the Bank of England. The central bank estimates that around 10-15% of the $7.5 trillion-a-day foreign exchange market is settled without proper risk mitigation, raising concerns over the need for tighter regulations.
Philippe Lintern, head of the bank’s FX division, highlighted the issue at the TradeTech FX conference in Amsterdam, stressing that if the market doesn’t address the problem, regulators may step in with more costly solutions.
This issue will be a focus for the Global FX Committee’s review of its industry code of conduct, set to conclude in December. The review will also address transparency in FX data. Although efforts have been made to reduce settlement risk, challenges persist, especially in emerging market currencies, where settlement systems are incomplete.