By Brian Charlick, Expert,  Global Wealth and Capital Markets, CGI
By Brian Charlick, Expert, Global Wealth and Capital Markets, CGI

How soon will instant FX Settlement be possible?

During the last decade we have witnessed a significant upheaval in the payments landscape. The relentless drive to mobile banking, real time payments, and online shopping has been driven by fintechs, younger tech-savvy demographics and new global financial instruments. This pattern has driven increased volumes and has coincided with ever-increasing demands for payments to be executed and settled in real-time. This past decade has seen a plethora of developments in payments and FX settlements including new entrants, new models and changes to existing models. Despite all this, the introduction of instant FX settlement and international payments has some serious obstacles to overcome; not just in terms of the market infrastructure, but also the internal systems and processes and just as importantly and vitally, how the two intersect.

  Issues to be faced A number of issues, including regulatory requirements, operational logistics, risk management, and pricing are creating operational constraints for domestic and international payments.  The regulatory requirements, largest of all being under AML5 and increasing requirements due under AML6, mean that it is currently impossible to be compliant while also guaranteeing instant payments. Under AML5 and AML6, the need to monitor the transaction for potential fraud and check against the sanction lists for not only the payer and payee, but also the ultimate beneficial owner means exceptions that need to be investigated will increase.  Based on current processes on large international payments, possibly up to 5% of all transactions falling within the scope of the regulation. Given that level, the guarantee of truly instant payments becomes a real problem. Smaller value payments and crypto currencies will also be impacted as they are also captured under AML5 and AML6. This...continued

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