June 22, 2017

EBA launched a discussion paper on the application of the structural FX provision. The paper outlines rationale behind the treatment of structural positions as well as broader issues related to the structural FX concept, such as the actual nature of FX risk, considering both the accounting and regulatory perspectives. It also examines in greater detail the potential inconsistencies in the articulation of the FX requirements, both in the current Capital Requirements Regulation (CRR) as well as in the CRR2 proposal for institutions applying the standardized and internal model approaches.

The application of this provision can have a significant effect on capital requirements and is subject to various interpretations that have led to differences in its application, both in EU member states and across banks. This raises potential concerns about the level playing field, as it could lead to significant differences in capital requirements across institutions with similar exposures. EBA believes that a more harmonized application and enforcement of this provision is necessary and intends to produce own initiative guidelines on this topic. With this discussion paper, EBA is seeking feedback at an early stage in the process on stakeholders' current practices and interpretations of the structural FX provision.  
 
The current treatment for the structural FX provision is established in Article 352(2) of the CRR. Additionally, in accordance with the Fundamental Review of the Trading Book (FRTB) framework published by the BCBS in January 2016, the CRR2 proposal published by the EC on November 23, 2016, incorporates, in its Article 325c, an updated treatment for the structural FX provision.
 

Comment Due Date: September 22, 2017

Keywords: Europe, EBA, Banking, CRR, FRTB, FX Risk, Hedging

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