EBA Published Final Draft RTS on Treatment of Non-Trading Book Positions Subject to Foreign Exchange Risk or Commodity Risk under FRTB

December 03, 2020 -The European Banking Authority (EBA) published final draft Regulatory Technical Standards (RTS) on how institutions must calculate the own funds requirements for foreign-exchange and commodity risk stemming from banking book positions under the FRTB standardised and internal model approaches.

In accordance with the revised Capital Requirements Regulation CRR2 (Regulation (EU) 575/2013), institutions are required to calculate own funds requirements for market risk for:

  • positions held in the trading book
  • positions held in the banking book (i.e. non-trading book) bearing foreign exchange (FX) or commodity risk


The final draft RTS specify that institutions can use either the last available accounting value or the last available fair value as a basis for calculating the own funds requirements for non-trading book positions subject to FX risk. While institutions are not expected to perform a full revaluation of non-trading book positions attracting FX risk, according to the final draft RTS they must update the FX component of those positions. The updates must be completed monthly for institutions using the standardised approach (SA) for capitalising the FX risk stemming from the banking book and daily for those using the internal model approach (IMA).

 The draft RTS also outline the treatment for non-monetary items held at historical cost that may be impaired due to changes in the relevant exchange rate. Institutions capitalising the FX risk stemming from those items under the alternative SA must follow a specific methodology. Institutions that capitalise the FX risk of those positions using the alternative IMA are required to directly model the risk of impairment due to changes in the relevant exchange rate.

Regarding non-trading book positions attracting commodity risk, institutions must use the last available fair value when calculating the corresponding own funds requirements. The fair value must be updated monthly where the own funds requirements for those positions are calculated using the alternative SA and daily where they are calculated using the alternative IMA.

The final draft RTS also define how institutions must calculate changes in hypothetical profit and loss (HPL), actual profit and loss (APL) and risk theoretical profit and loss (RTPL) for the purpose of the backtesting and profit and loss (P&L) attribution requirements.

For more information please visit: EBA website

Jurisdiction: European Union


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