How to manage the closely correlated currencies according to Article 354(1) CRR under the standardised approach?
Assume that the institution has EUR (long) and BGN (short) positions. The local and reporting currency is HUF. In this case, would the institution be able to match the EUR and BGN positions and apply a 4% capital charge according to the Annex 1 of the Implementing Technical Standards (ITS) on closely correlated currencies? Or the institution only need to consider those foreign currencies which are closely correlated to the reporting currency (HUF)?
The treatment for closely correlated currencies set out in Article 354(1) of Regulation (EU) No 575/2013 (CRR), is irrespective of an institution’s reporting currency.
To illustrate the example provided, assume the institution has a long net open position in EUR of 100 and a net short open position in BGN of -80 (after converting at spot to the institution’s reporting currency), and that EUR and BGN are determined to be closely correlated. The matched position between EUR and BGN is therefore 80. This means that 80 of the overall net foreign-exchange position (100) calculated under CRR Article 352 may be multiplied by 4 % and not by 8 %.
Please also refer to Q&A 2015_2139.