EBA Guidelines on Treatment of Structural Foreign Exchange Under CRR
EBA finalized the guidelines on treatment of structural foreign-exchange (FX) positions under Article 352(2) of the Capital Requirements Regulation (CRR). The guidelines consider changes to the market risk framework introduced in CRR2 and the structural foreign-exchange treatment envisaged in the Fundamental Review of the Trading Book (FRTB) standards. Thus, the guidelines have been designed in such a way that institutions will not be required to ask for a new permission once they switch to the FRTB framework for computing the own funds requirements for market risk. The guidelines will be applicable from January 01, 2022, one year later than originally envisaged to ensure that institutions have time to prepare for the introduction of the requirements.
The guidelines are deemed to set objective criteria that competent authorities should consider for assessing whether the conditions set out in Article 352(2) of CRR for receiving the permission to exclude a foreign-exchange position from the net open position in the foreign currency are met. To harmonize such practices among EU jurisdictions, several technical details have been included as part of these guidelines, which:
- Provide some clarifications about the structural foreign exchange provision. It is clarified that institutions computing the own funds requirements for foreign exchange risk both using the standardized approach and using the internal model approach may apply for the waiver. The waiver should be sought only for currencies that are relevant to the institution
- Discuss the concepts of positions "deliberately taken to hedge the capital ratio" and positions of "a non-trading or structural nature." The guidelines set out that only banking book positions may be subject to the waiver (on meeting other conditions) and that the position for which the exemption is sought should be long on a net basis.
- Lay down the governance requirements and the requirements related to the risk management strategy of the institution with respect to the structural foreign-exchange positions.
- Deal with the treatment of items held at historical cost. EBA clarified that such items should be considered part of the foreign-exchange open position.
- Deal with the calculation of the maximum open position that can be excluded from the net open position. In line with the FRTB standards, EBA clarifies that the exemption should be limited in size by the open position for which the capital ratio is non-sensitive to the exchange rate.
- Clarify certain aspects of the calculation of the own funds requirements for foreign-exchange risk, where some positions have been excluded from the net open position following the permission of the competent authority.
- Provide clarifications about the approval process and how competent authorities should react to possible changes in the risk management strategy of structural foreign exchange positions.
The two annexes to the guidelines further clarify certain technical details discussed in the guidelines and provide examples on application of the structural foreign-exchange provision. These guidelines are based on a consultation paper that EBA had published on October 16, 2019. Twenty-one respondents provided feedback on the consultation paper. However, only six of the responses were non-confidential and were published on the EBA website. A summary of the non-confidential responses, along with EBA analyses of those responses, has been included in the guidelines. EBA considered the feedback provided by all respondents in developing the final guidelines.
Related Links
Effective Date: January 01, 2022
Keywords: Europe, EU, Banking, CRR, CRR2, Structural Foreign Exchange, FRTB, Market Risk, Regulatory Capital, Basel, EBA
Featured Experts

María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer

Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.

Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
MFSA Updates Guidelines on Supervisory Reporting RequirementsRelated Articles
OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
EBA Proposes Standards to Support Secondary NPL Markets
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
EBA Issues Standards for Crowdfunding Service Providers Under ECSPR
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
US Agency Publications Address Basel, Reporting, and CECL Developments
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
SEC Extends Comment Period on Climate Risk Disclosures
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.