This document presents the regulatory technical standards (RTS) on the treatment of structural foreign exchange positions, aiming to harmonize their interpretation and application within the EU. It addresses the requirements related to the calculation of the maximum net open position and the exclusion of foreign exchange risks from capital requirements. The changes made compared to previous guidelines aim to reduce…
The document is the final report of the Draft Regulatory Technical Standards (RTS) on the treatment of structural foreign exchange positions (Structural FX) pursuant to Article 104c of Regulation (EU) No 575/2013 (CRR). It was published by the European Banking Authority (EBA) in 2025. The scope covers regulatory requirements applicable to European financial institutions concerning the management of structural FX risks on their capital ratios, focusing on harmonizing the application of the provision within the European Union. The document comprises 90 pages, of which approximately the first 41 pages were provided for the synthesis.
- Subject: The document addresses the Regulatory Technical Standards for the treatment of structural foreign exchange positions (Structural FX) under Article 104c of the CRR, aiming to harmonize their application within the EU.
- Importance: The structural FX provision impacts banks' capital requirements, but its application has been heterogeneous across jurisdictions and institutions, justifying regulatory clarification.
- Main findings:
- The RTS broadly reproduce the guidelines (GLs) published in 2020 by the EBA, with some key modifications: removal of the currency eligibility threshold, possibility to consider only credit risk capital requirements to calculate the maximum position, clarifications on the exclusion of FX risk positions from capital requirements, and specific treatment of illiquid or sanctioned currencies.
- The structural position must be a deliberate net long risk taken to cover the sensitivity of capital ratios to exchange rate movements, managed within an appropriate risk management framework.
- Only banking book positions (excluding trading book) are eligible, and internal positions between banking and trading book are excluded except in specific cases.
- The calculation of the maximum exempted position is based on a standardized formula considering the sensitivity of the CET1 ratio to exchange rate variations, with possible simplifications under conditions.
- Non-monetary positions at historical cost and those generating gains or losses not affecting CET1 may be excluded without a cap.
- The RTS impose a strict governance, documentation, monitoring, and reporting framework, with a minimum strategy duration of 6 months.
- Conclusions: The RTS aim to ensure consistent, prudent, and transparent application of the treatment of FX structural positions, limiting regulatory arbitrage risks and ensuring effective supervision.
- Recommendations: Institutions must establish a clear, documented, and management-approved risk management framework, demonstrate that positions are structural and taken to cover ratio sensitivity, calculate the maximum position according to the defined formula or its simplifications, and comply with reporting and monitoring requirements imposed by competent authorities.
- Issue: Article 352(2) of the CRR relating to FX structural positions has been subject to divergent interpretations among Member States and institutions, leading to non-uniform application.
- Stakes: Harmonize the interpretation and implementation of this provision to ensure consistent prudential treatment within the EU, avoiding undercapitalization risks linked to poorly managed structural FX positions.
- Objectives: Develop Regulatory Technical Standards (RTS) to specify eligibility conditions, calculation methods for the maximum exempted position, risk management criteria, and reporting requirements.
- Scope: The RTS apply to institutions subject to the CRR, covering FX structural positions related to CET1, Tier 1, and total capital ratios, both at individual and consolidated levels.
- Limits: The document focuses on banking book positions, excludes trading book positions, and addresses only positions deliberately taken to cover the sensitivity of ratios to exchange rate variations.
Regulatory treatment of FX structural positions:
- Article 104c CRR allows, under conditions and with competent authority approval, the exclusion from capital requirements of FX positions taken to cover the sensitivity of capital ratios to exchange rate movements (p. 4-5).
- The eligible position must be a net long risk, reducing ratio volatility, excluding net short positions which increase sensitivity (p. 9-11).
- Only banking book positions are eligible; trading book positions are excluded to avoid restrictions on negotiability (p. 15).
- Positions are classified as type A (investments in consolidated subsidiaries with identical reporting currency) and type B (other structural positions), facilitating supervisory analysis (p. 16-18).
Calculation of the maximum exempted position:
- The maximum exempted position corresponds to the amount of FX risk neutralizing the sensitivity of the CET1 ratio (or Tier 1/total capital) to exchange rate variations, calculated via a standardized formula incorporating CET1, RWA excluding FX, and exchange rates (p. 23-25).
- Institutions may simplify this calculation by considering only credit risk RWAs if predominant, without overestimating the maximum position (p. 25).
Exclusion of positions from capital requirement calculations:
- If the structural position is below the maximum position, it is fully excluded from the net open position calculation (p. 26).
- In case of over-hedging, only the maximum position is excluded; the surplus remains subject to requirements (p. 26-27).
Specific treatment of non-monetary elements and gains/losses outside CET1:
- Non-monetary elements at historical cost (e.g., holdings in subsidiaries) do not vary with exchange rates and may be excluded without a cap (p. 27-28).
- Positions generating gains or losses not affecting CET1 are also excluded without limit (p. 28).
Risk management and governance framework:
- The framework must be approved by the board of directors, clearly defining the objective of sensitivity reduction, strategy (at least 6 months), acceptable loss limits, and position categorization criteria (p. 18-22).
- Positions must be managed consistently, with precise documentation of excluded positions, and continuous monitoring (p. 19-22).
- Any substantial modification must be notified to authorities, who may withdraw authorization in case of non-compliance (p. 21-22).
Reporting and monitoring:
- A quarterly reporting template is provided for authorized FX structural positions, covering all concerned currencies and applicable to all calculation approaches (p. 28-29).
- This reporting will be integrated into the European regulatory ITS reporting framework from 2027 (p. 29).
Additional technical provisions:
- Internal positions between banking and trading book are excluded unless offset by external transactions compliant with Article 106 CRR (p. 10, 33-34).
- For institutions using a base currency different from the reporting currency, the base currency is treated as the reporting currency in calculating structural positions (p. 6).
- The exclusion of structural positions applies both at individual and consolidated levels, with a specific request for each level (p. 6-7).
- The structural position must be consistent with the group’s overall strategy, notably in the absence of offset permission between entities (p. 12-14).
- Established facts:
- The treatment of FX structural positions is now framed by harmonized RTS reproducing and specifying the 2020 guidelines (p. 3-4).
- The structural position must be a deliberate net long risk taken to cover the sensitivity of capital ratios to exchange rate variations (p. 9-11).
- Only banking book positions are eligible; trading book positions and uncompensated internal positions are excluded (p. 15, 33-34).
- The maximum exempted position is calculated by a standardized formula considering CET1, RWA excluding FX, and exchange rates, with possible simplifications (p. 23-26).
- Non-monetary elements at historical cost and positions generating gains or losses outside CET1 are excluded without a cap (p. 27-28).
- Assumptions:
- The structural position is stable over a minimum period of 6 months (p. 22-23).
- Institutions apply rigorous and documented management of structural positions in accordance with the RTS (p. 18-22).
- Interpretations:
- The removal of the currency eligibility threshold aims to avoid distortions and facilitate application (p. 3).
- The possibility to consider only credit RWAs for calculating the maximum position aims to reduce operational burden without significant impact on capital (p. 3, 25).
- Uncertainties:
- The precise impact on capital requirements will depend on individual institutions’ strategies and competent authority approvals (p. 3).
- The management of short positions at solo level to cover consolidated risk requires thorough supervisory analysis (p. 12-14).
- The RTS finalize a clear and harmonized regulatory framework for the treatment of FX structural positions, ensuring consistent application within the EU.
- Institutions must demonstrate that their FX structural positions are deliberately taken to cover the sensitivity of capital ratios, that they are net long, in the banking book, and managed within an approved risk management framework.
- The calculation of the maximum exempted position must follow the standardized formula, with possible simplifications under strict conditions.
- Non-monetary positions at historical cost and those generating gains or losses outside CET1 benefit from specific treatment without a cap.
- Institutions must ensure rigorous monitoring, document their structural positions, and comply with quarterly reporting requirements.
- Any substantial modification of strategy or positions must be notified to authorities, who have the power to withdraw authorization in case of non-compliance.
- The framework aims to prevent regulatory arbitrage and ensure the stability of capital ratios against exchange rate fluctuations.
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