In accordance with Art. 354 (5) CRR, only unmatched positions in closely correlated currencies form part of the overall net open position in accordance with Article 352 (4) CRR. Yet, according to Art. 352 (4) CRR positions in the reporting currency do not count to the institution 19s overall net foreign-exchange position. Against this background, it is not clear whether the matched part of a position in a currency that is closely correlated to the institution 19s reporting currency may be treated according to Art. 354 CRR, thereby attracting a privileged own funds charge, as this might be seen as an implicit inclusion of a position in the institution 19s reporting currency in the foreign exchange position.
Assume that EUR is the reporting currency of an institution and, furthermore, that this institution has matched positions (i.e. positions of opposite sign) in two closely correlated currencies which are both foreign currencies for the institution (e.g. long position in USD and short position in GBP). If both currencies appreciate (which they will do simultaneously in most cases as they are closely correlated), the institution will tend to gain on the long (USD) position at the same time when it loses on the short (GBP) position. Those gains and losses will tend to compensate each other (albeit not completely), so that the potential 1cnet economic loss 1d is limited both in absolute and relative terms. This justifies a lower own funds charge for such matched positions (4%, 1,6% or even 0% according to Art. 354 (1), (4) or (6) CRR).
Alternatively, consider matched positions in the reporting currency (EUR, long) and a closely correlated foreign currency (GBP, short). If the foreign currency (GBP) appreciates, the resulting loss will not be offset by gains in the reporting currency (EUR). On the other hand, the potential loss is limited in absolute terms by the fact that both currencies are closely correlated, so that the volatility of the exchange rate will be low, thereby causing generally low losses (compared to a situation of two completely uncorrelated currencies, where the volatility of the exchange rate will be higher and where potentially large gains and losses have therefore to be anticipated).