Featured Product

    EBA Consults on Guidelines for Application of S-FX Provision Under CRR

    October 16, 2019

    EBA is consulting on the guidelines on application of the structural foreign exchange, or S-FX, provision under Article 352(2) of the Capital Requirements Regulation (CRR). The guidelines aim to set a regulatory framework on structural foreign exchange to address the observed diversity in its application across EU. The guidelines identify criteria to assist competent authorities in their assessment of the structural nature of a foreign-exchange position and whether such a position has been deliberately taken for hedging the capital ratio. The consultation period ends on January 17, 2020.

    This consultation paper sets out objective criteria that competent authorities should consider for assessing whether the conditions set out in article 352(2) of the CRR for receiving the permission to exclude a foreign-exchange position from the net open position in the foreign currency are met. The guidelines introduce, for the first time, a detailed regulatory framework for the structural foreign-exchange provision and several questions have been included as part of the consultation process to gather feedback on the proposed provisions. The consultation paper:

    • Provides clarifications on the structural foreign-exchange provision, clarifying, among others, that institutions computing the own funds requirements for foreign-exchange risk with the standardized approach and with the internal model approach may apply for the waiver and the waiver should be sought only for currencies that are material for the institution.
    • Discusses the concepts of positions ‘deliberately taken to hedge the capital ratio and positions of "a non-trading or structural nature." EBA proposes that only banking book positions may be subject to the waiver and that the position for which the exemption is sought should be long on a net basis.
    • Sets the governance requirements and the requirements related to the risk-management strategy of the institution with respect to its structural foreign-exchange positions.
    • Clarifies that items held at historical cost should be considered as part of the foreign-exchange open position.
    • Deals with the calculation of the maximum open position that can be excluded from the net open position. In line with the Fundamental Review of the Trading Book (FRTB) standards, the EBA proposes that the exemption should be limited in size by the open position for which the capital ratio is non-sensitive to the exchange rate.
    • Clarifies some aspects with respect to 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.
    • Provides clarifications on the approval process and how competent authorities should react to possible changes in the risk-management strategy of the structural foreign-exchange positions.

    Furthermore, the annexes to the consultation paper further clarify technical details discussed in the paper and provide examples on the application of the structural foreign-exchange provision. The concept and application of the structural foreign-exchange provision, as laid down in the CRR, appears to be subject to several interpretations, across both supervisory authorities and institutions. This is particularly relevant, as over the last few years banks appear to have become increasingly interested in the application of the structural foreign-exchange exclusion. Moreover, the implementation of this provision seems to be quite uneven across jurisdictions and there is a lack of clarity about what constitutes a structural position for the purposes of Article 352(2). Finally, the treatment of the structural foreign-exchange has been modified in the recently published FRTB. Therefore, the application of this provision can have a significant impact on capital requirements. Accordingly, EBA believes that a more harmonized application and enforcement of this provision is necessary and can be achieved with these guidelines.

     

    Related Links

    Comment Due Date: January 17, 2020

    Keywords: Europe, EU, Banking, CRR, Guidelines, S-FX, Structural Foreign Exchange, FRTB, Market Risk, Regulatory Capital, Basel III

    Featured Experts
    Related Articles
    News

    APRA Finalizes Guidance on Management of Climate Change Risks

    The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.

    November 26, 2021 WebPage Regulatory News
    News

    European Council Adopts Position on Digital Finance Package Proposals

    The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).

    November 25, 2021 WebPage Regulatory News
    News

    PRA Proposes Rulebook Changes; BoE Extends BEEDS Testing Window

    The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.

    November 25, 2021 WebPage Regulatory News
    News

    EC Proposes New Measures Under Capital Markets Union Package

    The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.

    November 25, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards to Calculate Risk-Weights of CIUs Under CRR

    The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR).

    November 24, 2021 WebPage Regulatory News
    News

    FED Outlines Lending Conditions and Supervisory Activities in H1 2021

    The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED.

    November 24, 2021 WebPage Regulatory News
    News

    APRA Expects Boards to Strengthen Ability to Oversee Cyber Resilience

    The Australian Prudential Regulation Authority (APRA) recently completed two pilot initiatives in its 2020-2024 Cyber Security Strategy, which was published in November 2020.

    November 23, 2021 WebPage Regulatory News
    News

    FSB Updates List of Global Systemically Important Banks

    The Basel Committee on Banking Supervision (BCBS) published further information related to its 2021 assessment of global systemically important banks (G-SIBs), with additional details to help understand the scoring methodology.

    November 23, 2021 WebPage Regulatory News
    News

    FASB Proposes Improvements to Credit Losses Standard

    The Financial Accounting Standards Board (FASB) is consulting on an Accounting Standards Update and the associated taxonomy improvements for requirements on troubled debt restructurings and vintage disclosures under the credit losses standard (for financial instruments) topic 326.

    November 23, 2021 WebPage Regulatory News
    News

    US Agencies Issue Statement on Crypto-Asset Policy Initiatives

    US Agencies issued a statement that summarizes the work undertaken during the interagency policy sprints focused on crypto-assets and provides a roadmap of future work related to crypto-assets.

    November 23, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7733