Applying a currency mismatch haircut to OTC derivatives in a netting pool which are in a currency different from settlement currency

For OTC derivative transactions the exposure value shall be calculated in accordance with Chapter 6 of Title II of Part Three of Regulation (EU) No 575/2013 (CRR), as stipulated by Article 111(2) or Article 166(5) of that Regulation, respectively. The minimum requirements for and the effects of contractual netting agreements are taken into account as set out in Section 7 of Chapter 6 and depend on the method applied by the institution for the calculation of the minimum capital requirements for counterparty credit risk for derivative instruments. The CRR does not prescribe a specific capital requirement where the settlement currency of a specific netting agreement differs from the one the derivative exposures included in the netting set are denominated in. Thus there is no requirement to apply a currency mismatch haircut when converting another currency of a derivative exposure into the settlement currency and the exposure at default (EAD) should not be increased by applying a haircut in relation to the potential FX loss. Article 220 CRR sets out the rules for the application of the comprehensive approach to eligible master netting agreements covering repurchase transactions or securities or commodities lending or borrowing transactions or other capital market-driven transactions and cannot be applied to OTC derivative transactions. Please note that Article 223(1) CRR does not apply as it refers to the currency mismatch between settlement and collateral currency as opposed to the currency mismatch between exposure and the settlement currency of the netting agreement (as referred to in the question).