Federal banking regulators issued an advisory Thursday, calling on banks to ensure that they are properly managing foreign exchange settlement risks.

The Office of the Superintendent of Financial Institutions (OSFI) issued an advisory that aims to establish expectations for banks when it comes to the management of foreign exchange settlement risk — including governance, principal risk, liquidity risk, and operational risk, among other concerns.

“Institutions are expected to take account of the nature, size, complexity and risk profile of their foreign exchange transactions when assessing their practices against the principles in the OSFI advisory,” it notes, adding that banks should also develop a plan to remedy any deficiencies that come to light during their assessments.

The basis for the advisory is a paper issued by the Basel Committee on Banking Supervision back in February, which set out supervisory guidance for these sorts of risks. In that paper, the Basel Committee noted that the rapid growth in FX trading in recent years has boosted these risks.

“Many banks underestimate their principal risk and other associated risks by not taking into full account the duration of exposure between trade execution and final settlement,” it also warned. “While such risks may have a relatively low impact during normal market conditions, they may create disproportionately larger concerns during times of market stress.”