Financial services, and the settlement space in particular, is going through a period of significant change, primarily to “de-risk” the way money moves around the world.
Settlement is at a tipping point, and banks are under pressure to respond to an evolving regulatory landscape to remain compliant and future-proof their operations. Specifically, they are being urged to support the reduction of settlement risk, embrace fintech payment technology, and to be inclusive for all countries and markets.
With the industry undergoing changes that we’ll see only once in a generation, I’ve broken down the most significant initiatives and regulatory shifts, and clarified what they each mean for banks.
Transition to T+1 settlement – Deadline: Came in May 2024
Settlement timelines are already seeing major change this year, with the US Securities and Exchange Commission (SEC) shortening the standard securities settlement cycle from T+2 to T+1, requiring the settlement of funds to occur one business day after the trade date.
With this now in place it is already impacting market participants involved in US equities, corporate debt, and unit investment trusts. Europe knows it must follow the US’ move to T+1 settlement, which will likely happen soon. Further afield, Canada is poised to adopt this change and we’ve already seen India’s phased transition to T+1 for its equity markets in January 2023.
More efficient settlement is needed for T+1 to become a global reality. At RTGS.global, we believe all unnecessary friction can be removed from the cross-border payments process, with real-time Financial Market Infrastructure (FMI) capabilities powered by Payment vs Payment (PvP) holding the key to unlocking instant, seamless execution, breaking down barriers and ensuring faster settlement times. Ultimately, this will take global payments to a new level.
G20 Roadmap for Enhancing Cross-border Payments – Deadline: 2027
In 2020, the G20 made cross-border payments an area of global focus and set out a Roadmap for significant changes by 2027. The CPMI and the FSB have since outlined their priority actions towards achieving these targets, with three priority areas:
- A focus on improving payment system interoperability and extending real-time gross settlement system hours
- Mechanisms to promote efficiencies in the legal, regulatory, and supervisory environment for cross-border payments while maintaining security and integrity
- Facilitating cross-border data exchange and increasing the use of standardised messaging formats for cross-border payments
While not a mandatory requirement, such ambitious targets require collaboration between the public and private sectors if they are to be met, and to ultimately achieve faster, safer, more efficient, and cheaper cross-border payments.
At RTGS.global, our cloud-based, cross-border inter-bank payment system uses bilateral atomic settlement capabilities to enable safe settlement of foreign exchange transactions. We recently completed the first instant settlement cross-border transaction conducted through our global network, which saw Credo Bank in Georgia and MDO Humo in Tajikistan settle the obligations resulting from two FX trades, Payment vs. Payment, in a matter of seconds. By enabling instantaneous movement of funds cross-border between banks, we can directly connect key market participants from individual countries into a global settlement network, creating seamless interoperability across borders and currencies.
If you are curious to understand more about the work we’re doing, it’s worth exploring our Banks Working Group – a group of innovative, forward-thinking, technology-rich organisations that are looking to shape the future of international settlement.
ISO 20022 for cross-border payments - Deadline: November 2025
Banks and financial institutions are being asked to transition their payment systems from ISO 15022 to a new, mandatory structured and data-rich financial messaging standard called ISO 20022.
By November 2025, ISO 20022 will be the universal standard for high-value payments systems. As we see it, the opportunity that ISO 20022 presents for large banks to optimise efficiency, cost, resilience, and compliance should fuel the drive to change among even the most established of institutions.
The FX Global Code – Ongoing
This is a set of six global principles of good practice in the foreign exchange market, one of which is Confirmation and Settlement Processes. According to the Code, “Market Participants are expected to put in place robust, efficient, transparent, and risk-mitigating post-trade processes to promote the predictable, smooth, and timely settlement of transactions in the FX Market.”
It is made clear by the Code that market participants should reduce their settlement risk as much as practicable, including by settling FX transactions through services that provide PvP settlement where available. PvP eliminates FX settlement risk because it creates simultaneous movement of currency ownership.
RTGS.global stands ready to help banks eliminate settlement risk with our unique solution.
