Regulatory Alerts2013-06-30
Settlement Risk in Foreign Exchange Transactions Guideline
The Office of the Superintendent of Financial Institutions (OSFI) issued this guideline to establish binding expectations for banks, bank holding companies, and trust and loan companies regarding the management of foreign exchange settlement risk. Institutions must implement comprehensive governance frameworks, enforce binding principal and replacement cost risk limits, prioritize payment-versus-payment settlement mechanisms, and conduct rigorous due diligence when selecting financial market infrastructures or correspondent banks. Banks are required to continuously monitor exposures, maintain robust management information systems, and develop remediation plans for identified deficiencies to ensure compliance during OSFI’s supervisory reviews.