3.8 The PRA proposed to introduce new, more prescriptive requirements that determine the scope of positions to which the market risk framework would apply, including:

• restrictions on how firms assign positions to the trading book or non-trading book (which determines whether a position is subject to the market risk or credit risk frameworks respectively);

• limits on when a firm can use internal hedges to transfer risks between the market, credit, and credit valuation adjustment (CVA) risk frameworks; and

• new requirements related to when firms can exempt positions used to mitigate structural foreign exchange (SFX) risk from market risk capital requirements.

3.9 The PRA received seven responses to this section of the CP. The substantive issues raised by respondents related to the assignment of positions to the trading book or non-trading book, the recognition of internal hedges, and a number of technical clarifications as set out below.

Assignment of positions to the trading or non-trading book and recognition of internal hedges

3.10 The PRA proposed to align with the Basel 3.1 standards by introducing new objective requirements to support a more consistent assignment of positions to the trading book or non-trading book. The requirements included safeguards to limit the ability of firms to move positions or related risks between frameworks after initial assignment.