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Capital Requirements Regulation (CRR)
Article 325q

Article 325q - Foreign exchange risk factors

Status
In force
Selected consolidated version from
30/09/2021
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Article 325q

Foreign exchange risk factors

1.  
The foreign exchange delta risk factors to be applied by institutions to foreign exchange sensitive instruments shall be all the spot exchange rates between the currency in which an instrument is denominated and the institution’s reporting currency or the institution’s base currency where the institution is using a base currency in accordance with paragraph 7. There shall be one bucket per currency pair, containing a single risk factor and a single net sensitivity.
2.  
The foreign exchange vega risk factors to be applied by institutions to options with underlyings that are sensitive to foreign exchange shall be the implied volatilities of exchange rates between the currency pairs referred to in paragraph 1. Those implied volatilities of exchange rates shall be mapped to the following maturities in accordance with the maturities of the corresponding options subject to own funds requirements: 0,5 years, 1 year, 3 years, 5 years, 10 years.
3.  
The foreign exchange curvature risk factors to be applied by institutions to instruments with underlyings that are sensitive to foreign exchange shall be the foreign exchange delta risk factors referred to in paragraph 1.
4.  
Institutions shall not be required to distinguish between onshore and offshore variants of a currency for all foreign exchange delta, vega and curvature risk factors.
5.  
Where a foreign exchange rate that is the underlying of an instrument i that is subject to own funds requirements for curvature risks neither refers to the institution’s reporting currency nor the institution’s base currency, the institution may divide by 1,5 the corresponding componentsimage andimage set out in paragraph 2 of Article 325g for which xk is the foreign exchange risk factor between one of the two currencies of the underlying and the institution’s reporting currency or the institution’s base currency, as applicable.
6.  
Subject to permission from its competent authority, an institution may divide by 1,5 the components image and image set out in Article 325g(2) consistently for all the foreign exchange risk factors of instruments concerning foreign exchange and subject to own funds requirement for curvature risk, provided that any foreign exchange risk factors based on the institution’s reporting currency or the institution’s base currency, as applicable, that are included in the calculation of those components are shifted simultaneously.
7.  

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:

(a) 

the institution uses only one base currency;

(b) 

the institution applies the base currency consistently to all its trading book and non-trading book positions;

(c) 

the institution has demonstrated to the satisfaction of its competent authority that:

(i) 

using the chosen base currency provides an appropriate risk representation for the institution’s positions subject to foreign exchange risks;

(ii) 

the choice of base currency is compatible with the manner in which the institution manages those foreign exchange risks internally;

(iii) 

the choice of base currency is not driven primarily by the desire to reduce the institution’s own funds requirements;

(d) 

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.



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