European Banking Authority Publishes Consultation on Structural FX Guidelines Under Capital Requirements Regulation

The European Banking Authority has published a consultation on its proposed guidelines on the implementation of the structural FX position contemplated by the Capital Requirements Regulation. The CRR requires institutions to calculate their net open positions in currencies according to specified formulae, but permits institutions to exclude positions that have been taken for hedging purposes and that are of a structural nature. The EBA has observed diversity in the application of the CRR structural FX framework and hopes that the proposed guidelines will assist with harmonization and enforcement of the relevant provisions. The EBA is seeking feedback on its proposed guidelines by January 17, 2019. A public hearing will take place at the EBA premises in Paris on November 25, 2019.

The consultation paper makes certain clarifications regarding the regulatory treatment of the structural FX provision under the CRR and the extent of the exclusion for positions taken for hedging purposes. It goes on to set out governance and risk-management requirements for structural FX positions and how positions that are held at “historical cost” should be considered as part of the FX-open positions. Guidance is also given on the calculation of the maximum open position that can be excluded from the net open position, the calculation of own funds requirements for FX-risk and how national regulators should react to changes in the risk-management strategy of the structural FX positions.

View the EBA's Consultation Paper.

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