The EBA publishes final draft technical standards on structural foreign exchange

The European Banking Authority (EBA) today published its final Regulatory Technical Standards (RTS) on structural foreign exchange (FX) under the Capital Requirements Regulation (CRR). These standards deliver greater clarity, consistency, and supervisory convergence in the application of structural FX provisions across the EU. The final RTS retain the overall approach of the existing EBA Guidelines, while introducing targeted enhancements to ensure a more harmonised and transparent framework.

Key elements include:

• Maximum open position computation: institutions may consider only credit risk own funds requirements when determining the position that neutralises sensitivity to capital ratios, where credit risk is the main driver of ratio variability.
• Clarifications on risk positions: the RTS provide further guidance on how institutions should remove FX risk positions from own funds requirements.
• Policies for illiquid currencies:  dedicated provisions are introduced for currencies that are illiquid in the market, including those affected by Union restrictive measures.

Legal basis and background

Article 104c of Regulation (EU) No 575/2013 (Capital Requirements Regulation - CRR), mandates the EBA to develop draft RTS specifying (a) the risk positions that an institution can deliberately take in order to hedge, at least partially, against the adverse movements of foreign exchange rates on any of an institution’s capital ratios; (b) how to determine the maximum amount that can be waived, and the manner in which an institution shall exclude this amount for each of the approaches set out in Article 325(1) CRR; (c) the criteria that shall be met by an institution’s risk management framework in order to be considered appropriate as regards the treatment of Structural FX positions.

The structural FX provision has been subject to varying interpretations across jurisdictions and institutions. To address these discrepancies and ensure a harmonised application within the EU, in 2020, the EBA published Guidelines on implementing this provision.