On 1 July 2020, the European Banking Authority (EBA) issued final guidelines concerning the treatment of structural foreign exchange (FX) under the Capital Requirements Regulation (CRR). The purpose of the guidelines is to ensure harmonised EU interpretation and implementation of Article 352(2) of the CRR which deals with the concept and specific application of structural FX provision. The EBA is aware that over the last few years institutions have become increasingly interested in the application of the structural FX exclusion but implementation of the provision has been quite uneven across jurisdictions.

Article 352(2) of the CRR provides that:

Any positions which an institution has deliberately taken in order to hedge against the adverse effect of the exchange rate on its ratios in accordance with Article 92(1) may, subject to permission by the competent authorities, be excluded from the calculation of net open currency positions. Such positions shall be of a non-trading or structural nature and any variation of the terms of their exclusion, subject to separate permission by the competent authorities. The same treatment subject to the same conditions may be applied to positions which an institution has which relate to items that are already deducted in the calculation of own funds.

The guidelines set objective criteria that Member State competent authorities should consider for the purpose of assessing whether the conditions set out in Article 352(2) for receiving the permission are met, while granting a balance of flexibility.

The guidelines relate to the current market risk framework but the EBA has also considered the changes introduced by the CCR 2 which builds on the new Fundamental Review of the Trading Book (FRTB) standards published by the Basel Committee on Banking Supervision in January 2019, and taking into account the structural FX treatment envisaged in those standards.

The guidelines also have been designed so that institutions or Member State competent authorities will not be required to request or grant a new permission once institutions switch from the current framework to the FRTB framework for computing the own funds requirements for market risk.

The guidelines apply from 1 January 2022.