Failed FX Settlement: Responding Without Admitting Liability
The treasury operations desk of a bank discovers at 10:15 a.m. that a ₹12 crore FX forward settlement due today has failed. The counterparty's payment instruction, received yesterday, quoted BIC ABCDINBBXXX, while the bank's records show the correct BIC as ABCDINBB042. The bank's Straight-Through Processing system rejected the instruction at 4:55 p.m. yesterday, after the cutoff. The counterparty is now asking for compensation and threatening to escalate. The relationship manager has drafted an email that begins: 'We deeply regret that our operational lapse caused the failed settlement. We accept responsibility and will compensate you for any loss suffered.' The treasury manager knows the counterparty supplied the wrong BIC and that the bank's cutoff policy was disclosed in the signed FX master agreement. A response must go within two hours, must not admit liability, and must ask for a corrected instruction. The manager also has a junior's note claiming the sentence 'Neither the dealer nor the back office have confirmed the corrected BIC' is grammatically correct.
1. Identify the two phrases in the draft that create avoidable legal or relationship risk, and explain in one sentence each why they are risky in this factual setting.
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- 'Our operational lapse' admits fault before the facts are established. The record shows the counterparty supplied a mismatched BIC, so calling the failure the bank's lapse concedes an issue that the FX master agreement may allocate differently. 2. 'We accept responsibility and will compensate you for any loss suffered' creates an open-ended liability and may prejudice the bank's position. It promises compensation without proof of loss, causation, or contractual entitlement. A neutral notice should describe the rejected instruction, the cutoff, and the need for a corrected BIC while expressly reserving rights.
2. Rewrite the opening two sentences (35–60 words) as a neutral, factual notice that requests a corrected BIC and preserves the bank's position.
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We refer to the FX forward due today. The payment instruction received yesterday quoted BIC ABCDINBBXXX, which did not match our records (ABCDINBB042), and our system rejected it after the 4:55 p.m. cutoff. Please send a corrected instruction quoting ABCDINBB042 so we can process settlement. We reserve all rights under the FX master agreement. (57 words)
3. Correct the junior's sentence about the dealer and the back office, and explain the agreement rule. Also choose the correct term: 'principal-to-principal' or 'principle-to-principle'.
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Correct sentence: 'Neither the dealer nor the back office has confirmed the corrected BIC.' With 'neither … nor', the verb agrees with the nearer subject. The nearer subject is 'back office', which is singular, so use 'has'. If the nearer subject were plural, use the plural: 'Neither the back office nor the dealers have confirmed…'. The correct term is 'principal-to-principal', meaning a settlement between parties acting for themselves; 'principle' means a rule or belief.