The EBA guidelines (EBA/GL/2020/09) to structural FX determines the calculation, governance and application requirements of the exemption so that it can be approved by the supervisor.

The EBA Guidelines on the calculation of structural FX leaves the point of calculating the structural position and the offsetting of positions out of the scope of the guides and gives the option for the supervisor to be the one who, based on the arguments of the FX calculation entity determines whether such compensation is appropriate for the purposes of calculating the open exchange position.

This is clearly stated in the introductory part of the guide:

56. Whether the permission in Article 325 has been granted or not does change, however, the own funds requirement for market risk (and accordingly also the FX charge) included in the denominator. In the feedback from the consultation, the EBA was asked to clarify how institutions should calculate the net open position when the permission referred to in Article 325 has not been granted. Although the EBA acknowledges that the level 1 text may leave some room for interpretation around this aspect, it decided not to address this specific point in these guidelines, as it goes beyond their scope; indeed, the provision would also be relevant to institutions not even applying for the structural FX waiver. As a result: 

(i) the EBA will investigate the possibility of addressing this issue using either a Q&A or any other tool that fits the purpose; 

(ii) groups not having the permission under Article 325 to offset positions in all institutions within the group are required to specify how they compute the own funds requirements for FX risk and to clarify how they plan to remove the positions from the net open position if the waiver will be granted.

57. The hedging effect that a position has on the ratio does not depend on whether the permission to offset the positions within the group has been granted or not. For example, the parent bank of a group may enter into a short position to reduce the size of a long position stemming from a subsidiary and in this way reduce the sensitivity of the consolidated ratio with respect to changes in the exchange rate. Such a hedging effect is present regardless of whetherthe permission in Article 325 has been granted or not. This situation is represented in the following example.

60. In general, when the permission in Article 325 has not been granted (or only partially granted), the guidelines specify that a short position at the solo level (i.e. at subsidiary level or parent bank level) can be considered for the exemption at consolidated level only if it has been taken with the sole purpose of hedging the ratio at the consolidated level. In addition, when the permission in Article 325 has not been granted, these guidelines require institutions to specifically describe how they manage positions that at the solo level are short for the purpose of hedging the ratio at a consolidated level.

And also in the legal text of the Guidelines the following is stablished:

25. Where the institution computes the own funds requirements of Regulation (EU) No 575/2013 for market risk on a consolidated basis without having the permission referred to in Article 325 of Regulation (EU) No 575/2013, and the position is net short at the level of one or more of the institutions within the group, the position in those institutions should be managed for the sole purpose of hedging the ratio to be considered eligible for the exemption.

The EBA taking into account all of the above, mentions in their guides that it is understood that for the purposes of article 352.2 it is not mandatory to obtain the authorization of article 325b; however, in the case of entities that do not have it, it is necessary within the scope of the authorization of structural waiver. FX specify to the competent authority how the entity computes the own funds requirements and how they plan to eliminate the position from the net open position.