EBA consults on draft Technical Standards on closely correlated currencies and on appropriately diversified indices

25 June 2013

The European Banking Authority publishes today two consultation papers on draft Implementing Technical Standards (ITS) to identify (i) a list of relevant closely correlated currencies for the purposes of calculating the capital requirements for foreign-exchange risk; and (ii) a list of relevant appropriately diversified indices for the purposes of calculating the capital requirements for equity risk. The consultations of both draft ITS run until 8 September 2013.

Draft ITS on closely correlated currencies

These draft ITS provide a list of relevant closely correlated currencies. Currencies are considered to be closely correlated if they meet the specific criteria set out in Article 354 of the Capital Requirements Regulation (CRR). Positions in currency pairs that are deemed to be closely correlated are subject to lower capital requirements.

Each one of the currency pairs assessed by the EBA is the result of a combination between a list of 11 EU and 37 non-EU currencies. The EBA expects to update this list on a yearly basis incorporating any additional relevant currencies as well as the latest available market data. Furthermore, these ITS envisage the possibility of an exceptional and urgent update of the list when market developments require such a review.

The EBA is requested to submit the final draft ITS on closely correlated currencies to the European Commission by 1 January 2014.

Draft ITS on appropriately diversified indices

These draft ITS list relevant exchange traded and appropriately diversified indices for which specific risk incorporated in a stock index can be ignored. The list is based on the following criteria:

  • Number: the index must comprise a minimum number of equities;
  • Concentration: None of the equities or concentration of equities must significantly influence the volatility of the index;
  • Diversification: the index must comprise equities that are diversified both from a geographical and economical perspective.

The EBA expects to update this list on a yearly basis and to assess any additional indices identified as relevant by 30 September of each year.

The EBA is requested to submit the final draft ITS on appropriately diversified indices to the European Commission by 1 January 2014.

Consultation process

Comments to both consultations can be sent to the EBA by clicking on the "send your comments" button on the respective consultation page. Please note that the deadline for the submission of comments is 8 September 2013.

All contributions received will be published following the close of the consultations, unless requested otherwise.

A public hearing covering a number of Binding Technical Standards on market risk, including the ITS on closely correlated currencies and the ITS on appropriately diversified indices, will take place at the EBA premises on 17 July 2013 from 10:00 to 13:00, UK time. To register for the public hearing, click here.

Background

The EBA has developed these draft ITS on the basis of the final legislative texts of the Capital Requirements Regulation (CRR) produced after the Trialogue agreement and adopted by the Council on 20 June 2013.