Translation risk when calculating total own fund requirements on consolidated basis using the reporting currency of the consolidated institution

How should the overall own funds requirements be calculated in a consolidated situation for institutions or undertakings, for which Art. 325b(4)(b) CRR applies, i.e. if different institutions or undertakings of the group use different currencies other than the reporting currency of the group?

Pursuant to Art. 325b(4) of CRR, institutions and undertakings shall use the same reporting currency as the reporting currency used to calculate the own funds requirements for market risk on a consolidated basis for the group. In case when the calculation currency (i.e., the currency that the institution is using to calculate its own fund requirements on a solo basis) of institution or undertaking is different from the reporting currency of the consolidated situation it is unclear how the consolidating institution should calculate individual own fund requirements in accordance with Article 325b(4)(b) of CRR and how translation risks between such currency pairs should be considered.  The CRR text does not specify how the translation risk between the reporting currency of the consolidated situation and the calculation currency of the individual group entity should be considered. Therefore, we have identified two possible approaches: a) Approach A : Recalculation of individual entity’s net positions and own fund requirements for market risk with the assumption that the reporting calculation currency of such entity is the reporting currency of the consolidated entity. The recalculation should also include the position in the currency that the institution is using to calculate its local own fund requirements, against the calculation currency. b) Approach B : Converting the resulting individual entity’s own funds requirements into the reporting currency of the consolidated entity using the prevailing spot exchange rate between the calculation currency of the individual entity and the reporting currency of the consolidated entity and not taking into account the translation risk.