Final and translated into the EU official languages
These Guidelines on the application of the structural FX provision aim at setting a regulatory framework on Structural FX as a response to the observed diversity in its application across the EU. In particular, they identify criteria to assist Competent Authorities in their assessment of the structural nature of a foreign-exchange position and whether such position has been deliberately taken for hedging the capital ratio.
The European Banking Authority (EBA) published today its final Guidelines on the treatment of structural FX positions. The aim of these Guidelines is to establish a harmonised framework for the application of the structural FX waiver, which will allow its consistent application going forward. The Guidelines will be applicable from 1 January 2022, one year later than originally envisaged to ensure that institutions have time to prepare for the introduction of the requirements.
The structural FX provision, as laid down in Article 352(2) of the Capital Requirements Regulation (CRR), allows Competent Authorities to authorise, on an ad hoc basis, the exclusion of FX-risk positions deliberately taken by firms to hedge against the adverse effect of exchange rates on capital ratios from the calculation of the net open currency positions where those positions are of a structural nature. Considering that the application of the waiver can have a significant impact on capital requirements, these Guidelines identify objective criteria to assist Competent Authorities in their assessment of the structural nature of a foreign-exchange position and to understand whether such position has been deliberately taken for hedging the capital ratio.
The Guidelines have been developed considering also changes to the market risk framework introduced in the CRR2 and the new structural FX treatment envisaged in the Fundamental Review of the Trading Book (FRTB) standards. As a result, these Guidelines have been designed in a way that institutions will not be required to ask for a new permission once they will switch to the FRTB framework for computing the own funds requirements for market risk.
The EBA has developed the Guidelines on its own initiative, in accordance with Article 16 of its founding Regulation, which mandates the Authority to issue guidelines and recommendations addressed to competent authorities or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.
These Guidelines set out the criteria under which a position in the foreign currency should be considered as structural and taken for the purpose of hedging the capital ratio in accordance with Article 352(2) of Regulation (EU) No 575/2013 (CRR).
In June 2017, the EBA published a Discussion Paper on Structural FX to gather feedback on current stakeholders' practices and interpretations of the Structural FX provision. In January 2019, the final Basel FRTB standards were published setting out a new provision with respect to the Structural FX treatment. In October 2019, the EBA published a Consultation Paper on which these Guidelines are based.
The European Banking Authority (EBA) launched today a consultation on draft Guidelines on the application of the Structural FX provision. These Guidelines aim at setting a regulatory framework on Structural FX to address the observed diversity in its application across the EU. In particular, the guidelines identify criteria to assist Competent Authorities in their assessment of the structural nature of a foreign-exchange position and whether such position has been deliberately taken for hedging the capital ratio. The consultation runs until 17 January 2020.
The concept and specific application of the Structural FX provision, as laid down in the Capital Requirements Regulation (CRR), appears to be subject to several interpretations, across both supervisory authorities and institutions. As a result, the application of this provision can have significant impacts on capital requirements. Accordingly, the EBA is of the view that a more harmonised application and enforcement of this provision is necessary and can be achieved thanks to these Guidelines.
This consultation paper is setting objective criteria that Competent Authorities should consider for the purpose of 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. These guidelines introduce for the first time a detailed regulatory framework around the Structural FX provision and several questions have been included as part of the consultation process to gather feedback around the proposed provisions.
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 17 January 2020. All contributions received will be published following the close of the consultation, unless requested otherwise.
A public hearing will take place at the EBA premises in Paris on 25 November 2019 from 16:00 to 17:30 CET time.
The EBA has developed the draft Guidelines on its own initiative, in accordance with Article 16 of its founding Regulation, which mandates the Authority to issue guidelines and recommendations addressed to competent authorities or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.
In June 2017, the EBA published a Discussion Paper on Structural FX to gather feedback on current stakeholders' practices and interpretations of the Structural FX provision. In January 2019, the final Basel FRTB standards were published setting out a new provision with respect to the Structural FX treatment. Accordingly, these Guidelines have been developed in light of both the feedback on the Discussion Paper and the new international standards.
The European Banking Authority (EBA) launched today a consultation on draft Guidelines on the application of the Structural FX provision. These Guidelines aim at setting a regulatory framework on Structural FX to address the observed diversity in its application across the EU. In particular, the guidelines identify criteria to assist Competent Authorities in their assessment of the structural nature of a foreign-exchange position and whether such position has been deliberately taken for hedging the capital ratio. The consultation runs until 17 January 2020.
The concept and specific application of the Structural FX provision, as laid down in the Capital Requirements Regulation (CRR), appears to be subject to several interpretations, across both supervisory authorities and institutions. As a result, the application of this provision can have significant impacts on capital requirements. Accordingly, the EBA is of the view that a more harmonised application and enforcement of this provision is necessary and can be achieved thanks to these Guidelines.
This consultation paper is setting objective criteria that Competent Authorities should consider for the purpose of 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. These guidelines introduce for the first time a detailed regulatory framework around the Structural FX provision and several questions have been included as part of the consultation process to gather feedback around the proposed provisions.
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 17 January 2020. All contributions received will be published following the close of the consultation, unless requested otherwise.
A public hearing will take place at the EBA premises in Paris on 25 November 2019 from 16:00 to 17:30 CET time.
The EBA has developed the draft Guidelines on its own initiative, in accordance with Article 16 of its founding Regulation, which mandates the Authority to issue guidelines and recommendations addressed to competent authorities or financial institutions with a view to establishing consistent, efficient and effective supervisory practices within the ESFS, and to ensuring the common, uniform and consistent application of Union law.
In June 2017, the EBA published a Discussion Paper on Structural FX to gather feedback on current stakeholders’ practices and interpretations of the Structural FX provision. In January 2019, the final Basel FRTB standards were published setting out a new provision with respect to the Structural FX treatment. Accordingly, these Guidelines have been developed in light of both the feedback on the Discussion Paper and the new international standards.