3B.1 Firms intending to exclude from the calculation of net open currency positions any positions which are taken in order to hedge against the adverse effect of the exchange rate on its ratios in accordance with Article 92(1) of the Required Level of Own Funds (CRR) Part are expected to demonstrate that they meet the requirements for granting of the relevant permission by providing the PRA with confirmation that they meet the minimum standards set out in paragraphs 3B.3-3B.9 below. Firms should read Article 325a1 of the Market Risk: General Provisions (CRR) Part before applying for this permission.

3B.2 If a firm has a permission under any of these Articles but ceases to be able to provide assurance of a particular position which is currently within its permissions, a capital add-on may be applied and a rectification plan agreed. If a firm is unable to comply with the rectification plan within the mandated time frame, further supervisory measures may be taken. This may include a variation of permissions so that the firm is no longer allowed to exclude those hedging positions from the calculation of net open currency positions for which it does not meet the minimum standards.

Minimum standards

3B.3 Firms should confirm that the structural foreign exchange (FX) positions are deliberately taken in order to protect capital adequacy ratios against adverse movements in FX rates and are of a non-trading or structural nature.

3B.4 Firms should confirm that mismatches resulting in an open position are avoided as far as possible and that positions are accounted for so that capital ratios are protected.