Foreign exchange risk factors
By way of derogation from paragraphs 1 and 3, an institution may replace, subject to permission from its competent authority, its reporting currency by another currency (“the base currency”) in all the spot exchange rates to express the delta and curvature foreign exchange risk factors where all of the following conditions are met:
the institution uses only one base currency;
the institution applies the base currency consistently to all its trading book and non-trading book positions;
the institution has demonstrated to the satisfaction of its competent authority that:
using the chosen base currency provides an appropriate risk representation for the institution’s positions subject to foreign exchange risks;
the choice of base currency is compatible with the manner in which the institution manages those foreign exchange risks internally;
the choice of base currency is not driven primarily by the desire to reduce the institution’s own funds requirements;
the institution takes into account the translation risk between the reporting currency and the base currency.
An institution that has been permitted to use a base currency as set out in the first subparagraph shall convert the resulting own funds requirements for foreign exchange risk into the reporting currency using the prevailing spot exchange rate between the base currency and the reporting currency.