How are the major trading currencies to be determined under Article 400(2)(f) of the CRR? Clarification is needed on what is to be considered a major trading currency under Article 400(2)(f).
In Article 400(2)(f) it's written that institutions may exempt all the exposures if these are overnight transactions and are not denominated in a major trading currency.
Articles 400(2)(f), 400(3) and 493(3)(f) of Regulation 575/2013 (CRR) provide for a discretion, respectively, for competent authorities or Member States (for a transitional period) to fully or partially exempt exposures to institutions from the application of Article 395(1) of the CRR provided that those exposures do not constitute such institution's own funds, do not last longer than the following business day and are not denominated in a major trading currency.
This exemption is not directly applicable, but at the discretion of the national competent authority under Article 400(2), in accordance with the conditions set out under Article 400(3) of the CRR, or the Member State under Article 493(3)(for a transitional period). Hence, it is left to the competent authority or the Member State to decide whether or not the exemption is made available in their jurisdiction.
The assessment as to whether or not a currency is to be considered as a non-major currency needs to be done for each currency separately by taking into account the rationales for allowing this exemption, such as insufficient diversification, non-convertibility, and insufficient use of the currency in principal exchange markets. In small currency areas, institutions may not be able to reduce exposures to other institutions at the end of the business day under the large exposures limit owing to these factors.
Update 26.03.2021: This Q&A has been reviewed in the light of the changes introduced to Regulation (EU) No 575/2013 (CRR) and continues to be relevant.