FX risk concerns highlighted by the BIS and FiREapps

Poorly implemented exposure management practices feature in two studies on FX currency risk

A report from the Bank for International Settlements (BIS) has recommended financial institutions reduce and control large and long-lasting foreign currency exposures.

The Progress in Reducing Foreign Exchange Settlement Risk report asks banks, industry groups and central banks to build on the successes of the last decade in reducing foreign exchange-related risk.

BIS said: “A notable share of FX transactions is settled in ways that still generate significant potential risk across the global financial system, so further action is needed.”

BIS has asked for comments on the report, which the bank must receive before October 12.

Meanwhile, an industry study has revealed widespread economic and compliance risks due to poorly implemented exposure management practices and lack of confidence in FX-related data.

A majority of treasurers, foreign exchange managers and controllers in multinational US companies expressed concern or outright lack of confidence in their company’s foreign currency exposure data, translating into low confidence in their compliance with FAS 52 standards, according to a new industry survey conducted by FiREapps.

Some 95% of the 100 firms participating in the cross-industry survey relied on little or no automation when aggregating and reporting exposure data. Beyond challenges related to data, lack of automation and spreadsheets, survey participants consistently cited operational and organisational issues as significant contributors to achieving accurate, reliable and manageable foreign exchange exposure processes.

The industry survey, entitled A Cross-Industry Analysis of Common Challenges and Concerns for Corporate Foreign Exchange Management, will be presented in detail by FiREapps in an upcoming webinar on Wednesday, July 25.