Article 27 | Delegated Regulation 2024/1085

Article 27 - Assessment of foreign exchange risk factors

Article 27

Assessment of foreign exchange risk factors

1. When assessing an institution’s compliance with the requirements set out in Article 325bh(1), point (d), of Regulation (EU) No 575/2013 in relation to the modelling of foreign exchange risk, competent authorities shall:

(a)	require the institution to provide a list of all the currency pairs towards which the institution’s portfolio is sensitive and, for each of those currency pairs, to clarify whether that currency pair is subject to the spot exchange rate only, or other risk factors, including implied volatilities;

(b)	require the institution to provide a sensitivity analysis of its portfolio towards each currency pair referred to in point (a);

(c)

based on the information referred to in points (a) and (b), verify whether the basis risk between any couple of currency pairs is implicitly captured by either of the following:

(i)	the fact that the two currency pairs are modelled directly;

(ii)	the fact that a basis representing the difference between those two currencies pairs is included in the internal-risk measurement model;

(d)	assess the extent to which the institution considers the risk linked to unpegging events for non-free floating currency pairs, and where such risk is material, how it is monitored;

(e)	assess whether the risk in changes in foreign-exchange curves is duly captured as required by Article 29 of this Regulation;

(f)	assess whether vega risk related to foreign-exchange risk is duly captured as required by Article 30 of this Regulation.

2. By way of derogation from paragraph 1, point (a), competent authorities may require an institution to provide the information referred to in that point for the most relevant currency pairs only, and perform the assessment set out in that paragraph 1 on those data.

CHAPTER 1 - GENERAL PROVISIONS (Article 1-4)

CHAPTER 2 - ASSESSMENT OF QUALITATIVE REQUIREMENTS (Article 5-21)

CHAPTER 3 - ASSESSMENT OF THE INTERNAL RISK-MEASUREMENT MODEL USED TO COMPUTE THE EXPECTED SHORTFALL RISK MEASURE AND THE STRESS SCENARIO RISK MEASURE (Article 22-44)

SECTION 1 - Overview of the assessment (Article 22)

SECTION 2 - Assessment of the internal risk measurement model’s risk factors set-up and properties (Article 23-33)

Subsection 1 - Assessment of the internal risk measurement model’s risk factors set-up (Article 23-31)Article 23 - Assessment of the internal risk-measurement model’s coverage of the risk Article 24 - Assessment of general interest rates risk factors Article 25 - Assessment of equity risk factors Article 26 - Assessment of credit spread risk factors Article 27 - Assessment of foreign exchange risk factors Article 28 - Assessment of commodity risk factors Article 29 - Assessment of curves Article 30 - Assessment of implied volatility surfaces Article 31 - Assessment of correlation risk factors

Subsection 2 - Assessment of the risk factors properties (Article 32-33)

SECTION 3 - Assessment of proxies and data quality (Article 34-35)

SECTION 4 - Assessment of compliance with requirements relating to the back-testing and profit-loss attribution test (Article 36-38)

SECTION 5 - Assessment of compliance with requirements relating to the treatment of foreign-exchange and commodity risk in the non-trading book (Article 39)

SECTION 6 - Assessment of the calculation of the expected shortfall risk measures and the stress scenario risk measure (Article 40-44)

CHAPTER 4 - ASSESSMENT OF THE INTERNAL DEFAULT RISK MODEL USED TO COMPUTE THE ADDITIONAL OWN FUNDS REQUIREMENT FOR DEFAULT RISK (Article 45-52)

CHAPTER 5 - FINAL PROVISIONS (Article 53)

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Article 27 - Assessment of foreign exchange risk factors

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