Off-Bank FX Settlement: Global Regulatory Framework and Compliance Requirements

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Reader Role	Relevant Sections
Legal & Compliance Officers	Click to view sections → United States: GENIUS Act — Federal stablecoin licensing, reserve requirements, BSA/AML obligations European Union: MiCA — EMT/ART authorization, reserve safeguarding, CASP compliance United Kingdom: Systemic Stablecoin Regime — Bank of England/FCA dual regulation, holding limits AML/CFT Compliance Framework — FATF Travel Rule, ISO 20022 requirements, compliance-by-design
Treasury & Finance Teams	Click to view sections → Regulatory Framework Evolution — Central bank wholesale CBDC initiatives (Rialto, Meridian FX) Singapore: BLOOM Initiative — Multi-currency settlement, programmable compliance automation Strategic Implications — Settlement finality, central bank money access, compliance-by-design advantages
Fintech & Platform Operators	Click to view sections → Compliance Obligations for Non-Bank Providers — Licensing requirements, PvP settlement, reserve management Singapore: BLOOM Initiative — Regulated interoperability, consortium participation Strategic Implications — Compliance-by-design as competitive advantage
Risk & Policy Analysts	Click to view sections → FSB Peer Review and Implementation Gaps — Global stablecoin regulation lag, cross-border coordination deficits AML/CFT Compliance Framework — FATF Travel Rule updates, IMF compliance-by-design framework Strategic Implications — Regulatory clarity vs cross-border gaps, arbitrage opportunities

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As of November 2025, the global regulatory landscape for off-bank foreign exchangeA platform where users can buy, sell, or trade cryptocurrencies settlement—encompassing on-chainA decentralized, digital ledger of transactions maintained across multiple computers stablecoins, blockchain-based FX engines, and non-bank institutional settlement infrastructure—reflects a coordinated yet jurisdictionally fragmented approach. Major regulators including the SEC, ESMA, MAS, FCA, FSB, BIS, and IMF have converged on a "same activity, same risk, same regulation" principle, yet implementation diverges significantly across timelines, prudential requirements, and technical standards.

The momentum is decisively toward legitimacy and integration with traditional finance infrastructure, coupled with heightened scrutiny of systemic risks, AMLRegulatory framework requiring financial institutions to detect and prevent money laundering, terrorist financing, and other illicit financial activities/CFT compliance, and monetary sovereignty threats.

1. Regulatory Framework Evolution: From Prohibition to Integration (2024-2025)

1.1 Shift in Regulatory Posture

The past 18 months have witnessed a fundamental reversal in regulatory positioning. Rather than restricting or prohibiting off-bank settlement infrastructure, major regulators are now actively designing frameworks to integrate tokenized settlement assets into existing financial infrastructure while maintaining prudential oversight.

Key inflection points:

• January 2025: FSB published its finalized Global Regulatory Framework for Crypto-Asset Activities, establishing high-level recommendations for functional regulation.
• July 2025: United States enacted the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins Act), creating the first federal stablecoin regulatory framework with explicit settlement use cases.
• October 2025: MAS launched BLOOM (Borderless, Liquid, Open, Online, Multi-currency) Initiative, a regulated interoperability framework explicitly designed for settlement in tokenized bank liabilities and well-regulated stablecoins.
• November 2025: Bank of England published consultation on systemic stablecoin regulation, positioning sterling-denominated stablecoins as potential wholesale settlement assets within a Digital Securities Sandbox.

This evolution reflects regulators' recognition that blockchainA decentralized, digital ledger of transactions maintained across multiple computers-native settlement infrastructure offers genuine benefits—reduced friction, 24/7 operability, atomic settlement, and cross-border efficiency—while acknowledging that these benefits require robust governance and prudential controls.

1.2 Central Bank Leadership in FX Settlement Innovation

Central banks, through the BIS, are spearheading technical innovation in off-bank FX settlement:

Project Rialto (BIS Innovation Hub, 2024-present): A foreign exchange module designed to improve FX settlement for instant cross-border payments using wholesale CBDCs as settlement assets. Rialto addresses the fact that FX accounts for 60% of peer-to-peer payment costs globally and poses substantial settlement risks exceeding total banking capital in jurisdictions including the UK, Hong Kong, and Singapore.

Project Meridian FX (Bank of England, BIS, ECB, 2025): Demonstrated synchronised settlement for FX transactions using DLT, proving that real-time gross settlement (RTGS) systems can interoperate via new technologies while maintaining central bank money as the settlement anchor. The synchronisation operator model enables atomic settlement across multiple ledgers, eliminating need for escrow arrangements.

Pontes and Appia Initiatives (ECB, 2025): Short-term (Pontes) linking of DLT platforms to TARGET services by Q3 2026; long-term (Appia) shaping integrated financial ecosystems.

These initiatives move beyond pilot phases into operational deployment, with central banks explicitly positioning themselves as providers of settlement finality and risk mitigation infrastructure for blockchainA decentralized, digital ledger of transactions maintained across multiple computers-based systems.

2. United States: GENIUS Act Creates Federal Stablecoin Settlement Framework (Effective 2027)

2.1 Reserve Requirements and Prudential Standards

The GENIUS Act, signed July 18, 2025, establishes unprecedented federal guardrails for payment stablecoins used in settlement:

Reserve backing: Payment stablecoins must be backed 1:1 with eligible assets comprising cash, cash equivalents, and short-term US Treasury securities. Reserves must be segregated from operational funds and cannot be rehypothecated.

Monthly disclosures and certification: Stablecoin issuers must file monthly certification from CEO and CFO attesting to reserve adequacy. Annual audited financial statements demonstrating compliance are mandatory.

Capital and liquidity requirements: Federal and state regulators are directed to establish tailored capital and liquidity requirements within 18 months to account for issuer business models and risk profiles.

2.2 Regulatory Jurisdiction and Supervision

The Act creates a dual supervisory regime:

• Federal nonbank issuers: Supervised by the Office of the Comptroller of the Currency (OCC)
• Insured depository institutions and credit unions: Supervised by their primary federal regulator
• State-licensed issuers: Subject to state certification provided they remain under $10 billion in issuance; state regulators must meet federal prudential standards or cede authority to federal regime.

Cross-border jurisdiction: Non-US issuers may issue stablecoins in the US only if they operate from a "qualifying non-US jurisdiction" with a comparable regulatory framework (Treasury to determine) and can comply with US "lawful orders" including asset freezes, seizures, blocks, and AML/CFT directives.

2.3 AML/CFT and Settlement-Specific Obligations

Payment stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold issuers are classified as "financial institutions" under the Bank Secrecy ActU.S. anti-money laundering law applied to crypto businesses by FinCEN, subjecting them to:

• FinCEN registration and reporting requirements
• Customer due diligenceProcess of verifying customer identity and assessing risk (CDD) and Know Your CustomerA process where exchanges and financial institutions verify user identity (KYC) obligations
• Suspicious activity reporting (SAR) and currency transactionA transfer of value or data recorded on a blockchain, verified by network participants, and permanently added to the distributed ledger reporting (CTR)
• OFAC sanctions screeningChecking customers and transactions against government sanctions lists and compliance
• Redemption capability even under legal orders (freeze/burn functionality)

The Act explicitly prohibits tying stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold issuance to other financial products, addressing concerns about coercive bundling in settlement operations.

2.4 Settlement Use Cases and T+1 Alignment

While the GENIUS Act focuses on payment stablecoins, the SEC's Crypto Task Force (established February 2025) is concurrently developing pathways for securities settlement using distributed ledgerA record of financial transactions technology. Commissioner Hester Peirce has signaled SEC willingness to grant exemptive relief allowing firms to use DLT for issuance, trading, and settlement of eligible tokenized securitiesTraditional securities (stocks, bonds) represented as blockchain tokens, subject to market integrity conditions.

The Act also creates alignment with T+1 securities settlement (initiated May 2024 in US, Canada, Mexico), where FX liquidityThe ease with which an asset can be bought or sold without affecting its price constraints are a critical concern. StablecoinA cryptocurrency pegged to a stable asset, such as USD or gold settlement could alleviate FX cut-off pressures, particularly for Asian and European market participants subject to compressed 2-hour windows between US market close and CLS cut-off.

3. European Union: MiCA as Global Regulatory Baseline, Stablecoin Settlement Still Evolving

3.1 MiCA Stablecoin Regime (Fully Effective December 30, 2024)

The Markets in Crypto-AssetsAn EU regulatory framework standardizing crypto rules for issuers and service providers Regulation (MiCA) establishes a licensing framework for Electronic Money Tokens (EMTsCrypto token under MiCA that maintains stable value by referencing a single fiat currency, fiatTraditional government-issued currency, such as USD, EUR, or NIS-pegged) and Asset-Referenced Tokens (ARTsCrypto token under MiCA that maintains stable value by referencing multiple assets, multi-asset pegged):

Authorization requirement: Both EMTs and ARTs require authorization from a National Competent Authority (NCA) within an EU member state. Circle achieved the first EMI license globally (June 2024) for USDC and EURC.

Reserve safeguarding: Issuers must maintain sufficient low-risk, liquid reserves, segregated from operational funds, not pledged as collateral, with regular NCA reporting.

Significant stablecoin provisions: Caps on transaction limits and use as means of exchange apply to large stablecoins exceeding systemic thresholds, determined jointly by European Banking Authority (EBA) and European Securities and Markets Authority (ESMA).

Regulatory oversight split:

• EMTsCrypto token under MiCA that maintains stable value by referencing a single fiat currency supervised by EBA unless "significant" (systemic threshold), then jointly by EBA and ESMA
• ARTsCrypto token under MiCA that maintains stable value by referencing multiple assets supervised by ESMA unless significant, then jointly supervised

3.2 CASP Settlement Transfer Services and Compliance Timeline

MiCAAn EU regulatory framework standardizing crypto rules for issuers and service providers regulates Crypto-Asset Service Providers (CASPsEntity providing crypto services under EU MiCA requiring authorization and regulatory compliance) offering transfer services, including FX settlement via crypto rails:

Cut-off times and execution standards: CASPs must establish cut-off times for transfer instructions, maximum execution times, and block confirmation thresholds (sufficiently irreversible) for each DLT network.

Non-MiCA stablecoin treatment: ESMA clarified (March 2025) that non-MiCA-compliant stablecoins can receive custody and transfer services, provided these do not constitute public offering or trading. However, CASPs must restrict acquisition of non-compliant tokens by March 31, 2025.

Withdrawal of enforcement discretion: Despite restrictions on non-compliant stablecoin trading, issuers like Tether may continue offering deposits/withdrawals under compliance guardrails.

3.3 Stablecoin Settlement Use in Wholesale Markets

Crucially, stablecoins are currently prohibited from use as settlement assets in core regulated financial market infrastructures (FMIs) under the Central Securities Depositories Regulation (CSDR). However, the Bank of England and FCA are pioneering an exception through the Digital Securities Sandbox (DSS), which will permit live FX and other transactions using regulated sterling and non-sterling stablecoins for settlement testing, with pathway to systemic recognition if successful.

The ECB has similarly signaled commitment to exploring stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold settlement but emphasizes central bank money as the "risk-free settlement anchor," with stablecoins playing a secondary role in domestic B2B settlements and limited retail payments.

3.4 European Stablecoin Initiatives and Monetary Sovereignty Concerns

In September 2025, nine major European banks (ING, UniCredit, CaixaBank, Danske Bank, DekaBank, Banca Sella, KBC, SEB, Raiffeisen Bank International) formed a consortium to launch a euro-denominated stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold, positioning it as a "European alternative to US-dominated stablecoin market."

The ECB has expressed strong concern about dollar-dominated stablecoins (USDTThe largest stablecoin by market cap, pegged 1:1 to the US Dollar and issued by Tether Limited and USDCA fully-reserved stablecoin pegged 1:1 to the US Dollar, issued by Circle and backed by regulated financial institutions) eroding European monetary sovereignty and control over monetary conditions. The ECB note observes that Tether and USDC collectively holdA misspelling of 'hold,' used to mean holding onto cryptocurrency for long-term gains more US Treasuries than Saudi Arabia (Q2 2025), raising questions about capital flight, monetary policy transmission, and geopolitical dependency.

4. Singapore: BLOOM Initiative as Regulatory Co-Creation Model (MAS, October 2025)

4.1 BLOOM Framework: Regulated Interoperability

On October 16, 2025, the Monetary Authority of SingaporeSingapore's central bank and integrated financial regulator overseeing banking, insurance, and securities (MAS) announced BLOOM, a landmark initiative designed to create regulated interoperabilityThe ability of different blockchain networks to communicate and work together seamlessly for digital settlement across tokenized bank liabilities and well-regulated stablecoins.

Core principles:

• Multi-currency settlement (G10 and Asian currencies)
• Borderless, Liquid, Open, Online architecture
• Programmable compliance automationUsing technology to automate regulatory compliance processes
• AIAI systems that learn patterns from data without explicit programming-enabled agentic payments (transactionsA transfer of value or data recorded on a blockchain, verified by network participants, and permanently added to the distributed ledger executed by AI agentsSoftware entities capable of performing tasks and executing transactions independently under preset rules)

Regulatory safeguards within BLOOM:

• Tokenised bank liabilities and MiCAAn EU regulatory framework standardizing crypto rules for issuers and service providers-compliant stablecoins only
• Programmable controls embedding AMLRegulatory framework requiring financial institutions to detect and prevent money laundering, terrorist financing, and other illicit financial activities/CFT and cross-border regulatory checks at the technical level
• Compliance automationUsing technology to automate regulatory compliance processes via smart contractsSelf-executing code on a blockchain that automates transactions, ensuring consistency even as instruments evolve
• Global Layer One (GL1) initiative ensuring common digital infrastructure and programmable compliance standards

4.2 Consortium Participation and Industry Collaboration

BLOOM unites leading global and domestic institutions: Circle, DBS, OCBC, UOB, Partior, Stripe, Coinbase, Ant International, and StraitsX, representing both incumbent finance and crypto-native players.

MAS explicitly invites additional financial institutions and clearing networks to conduct trials, marking a shift from regulatory observation to regulatory co-creation. This approach contrasts sharply with enforcement-heavy models, positioning Singapore as a jurisdiction where innovation and oversight are complementary rather than adversarial.

4.3 Alignment with Singapore's Broader Digital Finance Strategy

BLOOM builds on three prior MAS initiatives:

1. Project Orchid (2021-2024): Explored digital Singapore dollar infrastructure through 10+ trials, yielding production-ready solutions (programmable rewards, conditional payments, cross-border collaborations)
2. Project Guardian (ongoing): Tokenization of financial and real-world assets
3. Global Layer One (GL1): Common digital infrastructure and programmable compliance toolkit

This creates an integrated ecosystem where currency innovation (digital SGD), asset tokenisation, and compliance automationUsing technology to automate regulatory compliance processes operate cohesively.

4.4 Stablecoin Regulatory Framework (MAS, August 2023 updated)

MAS has established rigorous stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold requirements for single-currency stablecoins pegged to SGD or G10 currencies:

• Full reserve backing
• Redemption at par value
• Price stability mechanisms
• Monthly reporting on reserve adequacy

Under Payment Services Act 2019 (amended June 2025), cross-border transfer services, including crypto-to-crypto and fiatTraditional government-issued currency, such as USD, EUR, or NIS-to-crypto bridges, require licensing. MAS has jurisdiction even over Singapore-based entities facilitating cross-border transfers with minimal involvement if the entity is part of a global money transfer service ecosystem.

5. United Kingdom: Systemic Stablecoin Regime and Digital Securities Innovation (FCA, Bank of England, November 2025)

5.1 Bank of England's Proposed Systemic Stablecoin Regime

On November 10, 2025, the Bank of England published a detailed consultation on sterling-denominated systemic stablecoins, proposing joint Bank/FCA regulation for stablecoins deemed systemically important.

Scope criteria: The Bank will designate stablecoins as systemic based on:

• Volume and value of transactionsA transfer of value or data recorded on a blockchain, verified by network participants, and permanently added to the distributed ledger processed or likely to be processed
• Nature of transactionsA transfer of value or data recorded on a blockchain, verified by network participants, and permanently added to the distributed ledger (retail payments vs. wholesale settlement)
• Substitutability (whether transactionsA transfer of value or data recorded on a blockchain, verified by network participants, and permanently added to the distributed ledger could be processed elsewhere)
• Interconnectedness with other FMIs

Proposed reserve and capital requirements:

• Backing assets must comprise only the highest-quality, most liquid assets
• Capital and liquidityThe ease with which an asset can be bought or sold without affecting its price requirements to be set through further consultation (consultation ends February 2026)
• Safeguarding regime focusing on segregation and reconciliation
• Holding limits: £20,000 per individual, £10 million per business (provisional, subject to consultation)

Redemption rights: Systemic stablecoin coinholders must have robust legal claims to reserves and par redemption into sterling on demand.

Settlement pathway: The Bank explicitly notes that if stablecoin use in the Digital Securities Sandbox proves successful, it would recommend HM Treasury recognize the issuer as systemic, jointly regulated by the Bank (prudential) and FCA (conduct).

5.2 FCA Approach to Non-Systemic Stablecoins and DLT Transactions

The FCA's parallel framework (CP25/14, consultation ongoing) addresses non-systemic qualifying stablecoins, which will receive sole FCA regulation for authorization, capital, and conduct requirements.

Key FCA proposals:

• Qualifying stablecoins as a new regulated activity under FSMA 2023
• Safeguarding requirements for custody of qualifying cryptoassets
• Authorization regime mirroring traditional financial services
• Market abuseArtificial interference with price or volume to mislead market participants and admissions/disclosure frameworks (DP24/4)
• Phased absorption of cryptoasset exchangeA platform where users can buy, sell, or trade cryptocurrencies providers and custodians from MLR registration into FSMA framework (final rules expected 2026)

The FCA has committed to clarifying:

• Rules for cryptoasset admissions and disclosures (final guidance 2026)
• Cryptoasset trading platforms and intermediaries
• DeFiFinancial systems built on blockchain that operate without intermediaries like banks lending, borrowing, and staking
• Use of credit to purchase cryptoassets

5.3 Digital Securities Sandbox and Stablecoin Settlement Testing

The Bank and FCA are jointly conducting Digital SecuritiesTraditional securities (stocks, bonds) represented as blockchain tokens Sandbox trials, which will permit live FX and other transactionsA transfer of value or data recorded on a blockchain, verified by network participants, and permanently added to the distributed ledger using:

• Regulated sterling stablecoins
• Regulated non-sterling stablecoins (EURC, EUR stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold proposals)

Settlements can occur on DLT platforms separate from traditional infrastructure. Success of DSS trials creates the regulatory precedent for broader stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold use in wholesale settlement.

6. Global Stablecoin Arrangements: FSB Peer Review and Implementation Gaps (October 2025)

6.1 FSB Thematic Peer Review Findings

On October 15, 2025, the FSB published a comprehensive peer review evaluating implementation of its 2023 Global Regulatory Framework for Crypto-Asset Activities across 24 FSB member jurisdictions (and outreach to 70+ others).

Critical finding: While jurisdictions have progressed in regulating crypto-asset markets and activities, regulation of global stablecoin arrangements (GSCs) is significantly lagging.

Specific implementation gaps:

• Insufficient risk management: Many jurisdictions lack robust requirements for capital buffers, recovery/resolution planning, and insolvency frameworks
• Reserve and collateralization variance: Significant divergence in redemption requirements, custody standards, timing of disclosures, and reserve collateralisation frameworks across jurisdictions
• Cross-border coordination deficit: Implementation remains inconsistent, creating opportunities for regulatory arbitrage
• Decentralization ambiguity: Inconsistent approaches to assessing centralization/decentralization of protocols, complicating regulatory perimeter determinations

6.2 FSB Recommendations for Accelerated Implementation

The FSB called on member jurisdictions to:

1. Prioritize GSC regulation to reach full and consistent implementation
2. Conduct cross-border assessments of crypto-asset activities into/out of jurisdictions
3. Enhance international coordination mechanisms to reduce arbitrage opportunities
4. Strengthen supervision and enforcement of existing crypto-asset activity rules
5. Accelerate data collection and sharing to enable real-time systemic risk monitoring

7. Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) Compliance Framework

7.1 FATF Travel Rule as Global Baseline (2025 Update)

The Financial Action Task ForceGlobal standard-setter for combating money laundering and terrorist financing (FATF) Travel RuleRequirement to share sender and recipient information for crypto transactions above a threshold, based on Recommendation 16, requires virtual assetFATF term for digital value representation tradable or transferable electronically service providers (VASPs) and financial institutions to obtain, holdA misspelling of 'hold,' used to mean holding onto cryptocurrency for long-term gains, and transmit originatorPerson or entity sending a virtual asset transfer under Travel Rule requirements and beneficiaryPerson or entity receiving a virtual asset transfer under Travel Rule requirements information for value transfers.

June 2025 Updates:

The FATF issued significant updates to Recommendation 16 (Travel RuleRequirement to share sender and recipient information for crypto transactions above a threshold) effective by end-2030:

• Scope Expansion: The Travel Rule now applies to all "payments or value transfers and related messages," not just wire transfers, bringing crypto-native FX settlement into scope.
• Structured Information Requirements: Payment information must be structured to comply with established standards (ISO 20022 where possible).
• Enhanced Beneficiary Due Diligence: Beneficiary financial institutions must use received information to inform transaction monitoring and implement measures to mitigate misdirected payment risks, including name/account checks or holistic ongoing monitoring.
• Virtual Asset Service Providers (VASPs): The Travel Rule applies indirectly to VASPs through FATF's tailored framework for virtual assets, with FATF issuing Best Practices on Travel Rule Supervision for VASPs in June 2026.
• Net Settlement Clarification: Where net settlement results from multiple transactions, information about underlying transactions continues to apply, but the net settlement itself is not required to carry individual transaction details.

7.2 IMF "Compliance-by-Design" Framework (September 2025)

The IMF published guidance on integrating AMLRegulatory framework requiring financial institutions to detect and prevent money laundering, terrorist financing, and other illicit financial activities/CFT and sanctions complianceChecking customers and transactions against government sanctions lists into stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold protocol design:

• Smart Contract Enforcement: Compliance rules can be embedded in smart contracts to execute AML/CFT checks algorithmically, replacing reactive manual reviews with proactive real-time enforcement.
• KYC Credential Management: Decentralized stablecoin systems can maintain KYC credentials and update them dynamically when legal status changes (e.g., upon sanctions designation).
• Tiered Transaction Approval: White-listed transactions between known parties proceed seamlessly, flagged transactions trigger automated Suspicious Activity Reports (SARs), and high-risk transfers involving known offenders are blocked.
• Cross-Border Coordination: Compliance-by-design requires cross-jurisdictional cooperation analogous to traditional correspondent banking, with the BIS's Project Mandala proposing zero-knowledge proofs to validate compliance without sharing sensitive data.

8. Compliance Obligations for Non-Bank FX Settlement Providers

8.1 Regulatory Licensing Requirements

To operate compliant off-bank FX settlement infrastructure in 2025 and beyond, providers must address:

1. Regulatory Licensing: Determine whether operating as stablecoin issuer, CASP, payment service provider, or financial technology company, with jurisdiction-specific authorization pathways.

2. Settlement Finality Mechanism: Implement Payment-versus-Payment (PvP) or equivalent risk mitigation guaranteeing irrevocable, simultaneous settlement in both currency legs, ideally using central bank money or accessing RTGS systems.

3. Compliance-by-Design Architecture: Integrate AML/CFT checks, Travel Rule data handling, and sanctions screening into smart contracts or system protocols to ensure real-time enforcement rather than post-trade reviews.

4. Interoperability Standards: Support ISO 20022 messaging, ensure technical compatibility with existing payment systems and RTGS platforms, and maintain segregation between DLT network participants and custodied assets.

5. Jurisdictional Coordination: Establish bilateral and multilateral agreements with relevant regulators and central banks, particularly regarding cross-border settlement, dispute resolution, and operational continuity.

6. Reserve and Liquidity Management: For stablecoin-based systems, maintain full reserve backing (1:1 parity), independent audits, regular disclosures, and access to reliable on-ramp/off-ramp infrastructure.

7. Operational Resilience: Invest in cyber security, business continuity planning, and insurance or capital buffers equivalent to traditional financial infrastructure, with transparent reporting to regulators.

8.2 Strategic Implications for Institutional Participants

Comprehensive Regulatory Landscape Comparison

Detailed comparison of regulatory frameworks across major jurisdictions:

Regulatory Clarity Emerging, But Cross-Border Gaps Persist

The regulatory landscape for off-bank FX settlement has shifted from prohibition to structured integration, with major jurisdictions establishing clear licensing pathways, prudential requirements, and compliance obligations. However, cross-border coordination remains fragmented, creating regulatory arbitrageBuying and selling an asset across different platforms to profit from price differences opportunities and systemic risks.

For institutional participants:

• Compliance infrastructure investment is now unavoidable for multi-jurisdictional operations
• Regulatory clarity is emerging in individual jurisdictions, but global harmonization lags
• First-mover advantage accrues to firms securing licenses in multiple jurisdictions (Circle, Paxos)
• Central bank-led initiatives (BLOOM, Rialto, Meridian FX) create pathways for wholesale settlement infrastructure

Settlement Finality and Central Bank Money Access

The persistent challenge for off-bank FX settlement providers is achieving settlement finality equivalent to traditional banking infrastructure. Central banks are addressing this through:

• Direct RTGS access for systemically important stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold issuers (UK Digital SecuritiesTraditional securities (stocks, bonds) represented as blockchain tokens Sandbox)
• Wholesale CBDC infrastructure enabling atomic settlement across currencies (Project Rialto, Meridian FX)
• Interlinked instant payment systems with tokenized commercial bank money (Partior, Fnality)

For treasury departments and institutional allocators:

• Evaluate whether settlement infrastructure provides finality in central bank money or commercial bank money
• Assess counterparty risk in commercial bank money-based systems
• Monitor central bank licensing and RTGS access as key indicators of systemic legitimacy

Compliance-by-Design as Competitive Advantage

Embedding AMLRegulatory framework requiring financial institutions to detect and prevent money laundering, terrorist financing, and other illicit financial activities/CFT checks, Travel RuleRequirement to share sender and recipient information for crypto transactions above a threshold compliance, and sanctions screeningChecking customers and transactions against government sanctions lists into protocol design (smart contractsSelf-executing code on a blockchain that automates transactions, algorithmic validation) creates operational efficiency and regulatory credibility. Firms implementing compliance-by-design frameworks gain:

• Reduced manual compliance overhead
• Real-time enforcement rather than post-trade reviews
• Regulatory confidence through transparent, auditable compliance mechanisms
• InteroperabilityThe ability of different blockchain networks to communicate and work together seamlessly with regulated financial institutions requiring automated complianceUsing technology to automate regulatory compliance processes validation

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Conclusion

The global regulatory framework for off-bank FX settlement infrastructure has matured significantly in 2025, with coordinated efforts from the FSB, BIS, FATF, and major national regulators creating structured pathways for stablecoinA cryptocurrency pegged to a stable asset, such as USD or gold-based settlement, blockchainA decentralized, digital ledger of transactions maintained across multiple computers FX engines, and non-bank institutional platforms. While implementation gaps persist—particularly in cross-border coordination and global stablecoin arrangements—the trajectory is clear: off-bank FX settlement is transitioning from regulatory uncertainty to structured oversight.

For institutional participants, the compliance investment required is substantial, but the operational benefits—24/7 settlement, atomic finality, reduced friction, and cross-border efficiency—justify the cost. Firms that secure multi-jurisdictional licenses, achieve central bank RTGS access, and implement compliance-by-design architectures will define the next generation of FX settlement infrastructure.