The European Banking Authority (EBA) has published a Discussion Paper on the treatment of structural FX under Article 352(2) of the Capital Requirements Regulation (CRR).

The structural FX provision in Article 352(2) of the CRR is subject to various interpretations that have led to differences in its application both in EU Member States and across banks. In order to ensure a harmonised approach, the Discussion Paper outlines a number of considerations on the application of the structural provision in the CRR with a view to gathering feedback on banks’ current practices.

Whilst the Discussion Paper mainly considers practices under the CRR, a similar provision exists under the CRR2 proposal issued by the European Commission in November 2016. The interpretation of the structural FX provision will therefore continue to be of importance under the new framework, given the similar nature of the provisions in the CRR2 proposal.

The Discussion Paper is structured as follows:

  • section 4.1 – the current regulatory treatment of relevant structural FX positions;
  • section 4.2 – the nature of FX risk, assessing the interaction between the accounting and prudential frameworks;
  • section 4.3 – a stylised example of the application of the structural FX provision, which illustrates how capital ratios may be sensitive to FX movements despite having their FX assets totally matched with liabilities in the same currencies;
  • section 4.4 – certain general elements that will have to be clarified in any guidelines on the structural FX treatment. This includes the maximum size and directionality of the position to be potentially excluded;
  • section 4.5 – an overview of the cases where the exclusion of FX positions may be justified; and
  • section 4.6 – potential implications of the CRR2 proposal, which will incorporate the Fundamental Review of the Trading Book framework into EU legislation, regarding the application of the structural FX provision.

The deadline for comments on the Discussion Paper is 22 September 2017. A public hearing will take place at the EBA’s premises on 25 July 2017.

View EBA publishes Discussion Paper on the treatment of structural FX, 22 June 2017

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