The European Banking Authority (EBA) launched today a Discussion Paper on the application of the structural FX provision. The paper outlines the 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 standardised and internal model approaches. The consultation runs until 22 September 2017.
The application of this provision can have a significant effect on capital requirements and is currently 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. The EBA is, therefore, of the view that a more harmonised application and enforcement of this provision is necessary and intends to produce own initiative guidelines on this topic.
With this Discussion Paper the EBA is seeking feedback at an early stage in the process on stakeholders' current practices and interpretations of the structural FX provision.
Comments to this consultation can be sent to the EBA by clicking on the "send your comments" button on the consultation page. Please note that the deadline for the submission of comments is 22 September 2017.
A public hearing will take place at the EBA premises on 25 July from 14 to 16 UK time. All contributions received will be published following the end of the consultation, unless requested otherwise.
The current treatment for the structural FX provision is established in Article 352(2) of the CRR. Additionally, in accordance with the FRTB framework published by the BCBS in January 2016, the CRR2 proposal published by the Commission on 23 November 2016, incorporates in its Article 325c an updated treatment for the structural FX provision.