On 13 January 2020, the European Banking Authority (EBA) launched a consultation on draft regulatory technical standards (RTS) on the treatment of non-trading book positions subject to foreign-exchange risk or commodity risk.

The draft RTS have been developed in accordance with Article 325(9) of the amended Capital Requirements Regulation (CRR II). Article 325(9) mandates the EBA to develop draft RTS to specify how institutions are to calculate the own funds requirements for market risk for non-trading book positions that are subject to foreign-exchange (FX) risk or commodity risk in accordance with the approaches set out in points (a) and (b) of paragraph 3.

Under the CRR II, institutions are required to calculate capital requirements for market risk for:

  • positions held in the trading book; and
  • positions held in the banking book (i.e. non-trading book positions) subject to FX and commodity risk.

Article 105 requires institutions to revalue trading book positions at fair value at least on a daily basis. However, it does not set any specific requirements with respect to the valuation of banking book positions in the context of the calculation of the own funds requirements for market risk associated to those positions.

The specific objective of the draft RTS is to establish common requirements on:

  • the valuation of FX and commodity non-trading book positions; and
  • the specifications on the calculation of hypothetical and actual changes for the purpose of the back testing and the profit and loss attribution test for positions in the non-trading book.

Generally, the draft RTS seek to create a level playing field, promote convergence of institutions’ practices and enhance comparability of own funds requirements across the EU.

The deadline for comments to the consultation is 10 April 2020. The EBA intends to finalise these RTS in Q3 2020.