EBA publishes final standards on structural foreign exchange

The European Banking Authority (EBA) has published its final Regulatory Technical Standards (RTS) on structural foreign exchange (FX) under the Capital Requirements Regulation (CRR). These standards aim to improve clarity, consistency, and supervisory convergence in applying structural FX provisions across the European Union.

The final RTS maintain the overall approach of existing EBA Guidelines, with targeted enhancements for a more harmonised and transparent framework. Key elements include:

• Maximum open position computation: Institutions may consider only credit risk own funds requirements when determining the position that neutralises sensitivity to capital ratios, where credit risk is the main driver of ratio variability.
• Clarifications on risk positions: The RTS provide further guidance on how institutions should remove FX risk positions from own funds requirements.
• Policies for illiquid currencies: Dedicated provisions are introduced for currencies that are illiquid in the market, including those affected by Union restrictive measures.

Legal basis and background:

Article 104c of Regulation (EU) No 575/2013 (CRR) mandates the EBA to develop draft RTS specifying:

• The risk positions an institution can deliberately take to hedge against adverse FX movements affecting capital ratios.
• How to determine the maximum amount that can be waived and how to exclude this amount in different approaches.
• The criteria for an institution’s risk management framework to be considered appropriate for the treatment of structural FX positions.

More information is available on the official EBA website.