US move to T+1 creates FX settlement risks for European asset managers

T1 Settlement

EFAMA research estimates that 40% of daily FX flows are at increased risk

Ahead of the US go-live on T+1 implementation on May 28th, EFAMA calls on central banks and regulators to consider the impacts on FX settlement risk. A recent EFAMA survey of European fund managers estimates that 40% of daily FX flows will no longer be able to settle through the CLS platform. On a regular trading day, this could amount to USD 50-70 billion, whereas in volatile markets this figure could be in the hundreds of billions. Increased FX settlement risk carries systemic implications as previous episodes in history have shown.

EFAMA urges central banks and regulators to take a more pro-active role in requiring mitigating measures such as an extension of the CLS cut-off time, and improved cut-offs and alignment among the custodial community. This urgency is further compounded by the fact that within days of the US go-live, major indices like MSCI World are set to rebalance (31 May 2024).

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