Question ID
2024_7162
Legal act
Regulation (EU) No 575/2013 (CRR)
Topic
Market risk
Article
352
Paragraph
2
COM Delegated or Implementing Acts/RTS/ITS/GLs/Recommendations
EBA/GL/2020/09 - Guidelines on the treatment of structural FX under Article 352(2) of CRR
Article/Paragraph
35
Type of submitter
Credit institution
Subject matter
Calculation of the net open position for capital requirements for structural FX risk
Question

In the context of article 352.2, in relation with the consolidated capital calculation for FX risk,  the historical cost at solo basis must be taking into account or not?

Background on the question

In the case of an institution having investments in a subsidiary which is considered at historical cost at solo basis, these investments are not part of the consolidated balance sheet as far as they disappear in the process of consolidation. In the consolidated balance sheet, the investment in the subsidiary is considered as assets and liabilities that only arise during the consolidation process. 

Paragraph 104 of EBA Guidelines on the treatment of structural FX under Article 352(2) of Regulation (EU) No 575/2013 (CRR) makes reference to this issue “This ad hoc treatment is of particular relevance in the context of the structural FX provision applied at the solo level. Indeed, there is the presumption that non-monetary items at historical cost generating an FX risk would mainly be investments in subsidiaries denominated in a foreign currency (i.e. in general, the reporting currency of the subsidiary). Such investments are not part of the consolidated balance sheet, as the investments in the subsidiary (which are assets in the institution owning the subsidiary) net with the capital (i.e. liabilities side) of the subsidiary itself during the consolidation process. As a result, the above-mentioned treatment for non-monetary items at historical cost is deemed to have a limited impact in the context of the structural FX provision at the consolidated level.” And it seems to indicate that the historical cost of the investment has not to be used. 

Submission date
Final publishing date
Final answer

The treatment of investments should be consistent with the level of calculation: consolidated or solo basis.

When calculating FX risk at solo level, the institution have to consider the investment that is at historical cost for FX risk purposes. The FX risk stemming from this item may then be excluded from the net open position in accordance with the provisions set out in the GLs for structural FX. When an institution uses the alternative standardised approach or the alternative internal model approach referred to in Article 325(3)(a)-(b) CRR, institutions shall use the provision set out in Article 1(4)-(5) and Article 3(6) of COMMISSION DELEGATED REGULATION (EU) 2023/1577 as regards to the calculation of the FX risk where the investment is an item meeting the conditions referred to in those articles.

When calculating FX risk at consolidated level, where an investment is fully consolidated, the investment itself should not be considered. The institution should however consider the assets and liabilities stemming from the subsidiary during the consolidation process in the FX risk calculation. Depending on whether the institution has the permission referred to in Article 325b CRR, those positions stemming from the subsidiary may be offset with the positions held by the parent institution.

Status
Final Q&A
Answer prepared by
Answer prepared by the EBA.

Disclaimer

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