The guidelines on the treatment of structural FX under Article 352(2) of Regulation (EU) No 575/2013 (CRR) refer to the maximum open position or maximum net open position as the FX risk position neutralising the sensitivity of the capital ratio to movements in the exchange rate.

There are elements denominated in FX currency that may affect the capital ratio to movements in the exchange rate. Several of these elements do not have an accounting impact and/or are not part of the RWA, such as deductions of prudential filters from the own funds accounting amount. Examples are Additional Value Adjustments or Excess of minority interests denominated in FX currency among other.

The EBA guidelines EBA/GL/2020/09 mention in paragraph 107 that “In particular, the maximum net open position that can be exempted is defined as the amount of FX risk position that neutralises the sensitivity of the capital ratio to movements in the exchange rate.“ which may indicate that these regulatory deductions from own funds should be considered in the maximum open position.

This is also contemplated in paragraph 111 of the EBA Guidelines when defining the assessment of sensitivity:

“Accordingly, when the sensitivity of the capital ratio to the FX rate is assessed for the purpose of calculating the maximum open position that can be recognised as structural, the capital ratio should be that without considering any own funds requirements for FX risk”

It is not clear if the formula prescribe in paragraph 114 includes these deductions in the CET1 as it is defined as “the Common equity Tier 1 of the institution (expressed in the reporting currency)”. But it is clear that this paragraph links the position to be excluded with the ratio hedge formula, even more so if the management policy is the full immunization of the ratio.

In paragraph 117 certain elements that do not impact CET1 but that lead to losses that do not impact CET1 are to be excluded from the net open position as long as they are structural. The same could be understood for deductions from the numerator of the capital ratio with no losses affecting CET1 such as Additional value adjustments or minority interest deductions.

“As part of the consultation, some respondents identified another case of positions that do not impact the CET1, although included in the net open position in the foreign currency. The example was provided of some positions arising from minority interests that do not impact the CET1….” That is, it is referring to the excess of minorities. “…. The EBA agrees with the analysis provided by those respondents; hence, the guidelines have been amended, specifying that all positions leading to gains or losses that do not impact the CET1 are to be excluded from the net open position as long as they are structural (i.e. they are not subject to the cap imposed by the maximum open position). In other words, all those positions are to be treated as items that were deducted from the CET1 in the context of the structural FX framework”