On 27 September 2023, the Prudential Regulation Authority (PRA) published Consultation Paper 17/23: Capitalisation of foreign exchange positions for market risk (CP17/23).
In CP17/23, the PRA sets out its proposed clarifications and amendments when capitalising foreign exchange exposures under the market risk capital framework. It also sets out the process for seeking permission to exclude Structural Foreign Exchange (SFX) positions from this capital calculation.
The proposals in CP17/23 relate to the post-Basel 3.1 PRA proposed implementation described in Consultation Paper 16/22 (CP16/22) and would result in changes to:
- The proposed Article 325 (Approaches for Calculating the Own Funds Requirements for Market Risk) in the proposed Market Risk: General Provisions (CRR) part of the PRA Rulebook.
- The proposed Supervisory Statement 13/13 – Market Risk from CP16/22.
- The CRR Permission 352(2) supplementary application form.
- Clarifies that items held on the balance sheet at historical exchange rates (FX) are not to be included as a risk position for the purposes of calculating Pillar 1 capital requirements.
- Sets out the types of positions eligible for the SFX permission – currently available under Article 352(2) CRR and proposed to be available under Article 325 of the Market Risk: General Provisions (CRR) Part consulted on in CP16/22, together with SS13/13.
- Sets out expectations on the calculation of the maximum net FX risk position and the overall net FX position for the own funds calculation in SS13/13.
- Updates the supplementary application form.
The deadline for feedback to CP17/23 is 31 January 2024.
The PRA proposes that the implementation date for the changes resulting from CP17/23 would coincide with the PRA’s implementation of the Basel 3.1 standards.