CP17/23 – Capitalisation of foreign exchange positions for market risk

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Responses are requested by Wednesday 31 January 2024.

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Responses can be sent by email to: CP17_23@bankofengland.co.uk.

Alternatively, please address any comments or enquiries to:
Darren Massey and Ioana Neamtu
Prudential Regulation Authority
20 Moorgate
London
EC2R 6DA

1: Overview

1.1 This consultation paper (CP) sets out the Prudential Regulation Authority’s (PRA’s) proposed clarifications and amendments when capitalising foreign exchange exposures under the market risk capital framework. It also sets out the process for seeking permission to exclude Structural Foreign Exchange (SFX) positions from this capital calculation. The PRA has proposed in CP16/22 – Implementation of the Basel 3.1 standards that the existing regulation from the onshored Capital Requirements Regulation (CRR) Article 352 will be moved with amendments to Article 325 in the proposed Market Risk: General Provisions (CRR) Part of the PRA Rulebook.

1.2 The proposals in this CP relate to the post-Basel 3.1 PRA proposed implementation described in CP16/22, and would result in changes to:

• the proposed Article 325 (Approaches for Calculating the Own Funds Requirements for Market Risk) in the proposed Market Risk: General Provisions (CRR) Part of the PRA Rulebook (Appendix 1);^{footnote [1]}
• the proposed supervisory statement (SS) 13/13 – Market Risk from CP16/22 (Appendix 2);^{footnote [2]} and
• the CRR Permission 352(2) supplementary application form (Appendix 3).

1.3 This CP also:

• clarifies that items held on the balance sheet at historical exchange rates (FX) are not to be included as a risk position for the purposes of…