by Regulation RR, also known as “Risk Management for Foreign Exchange Swaps and Forwards,” is a regulation issued by the Federal Reserve Board in the United States. The regulation applies to large U.S. bank holding companies and systemically important foreign banking organizations that are subject to the Federal Reserve’s supervision.
Regulation RR applies to large U.S. bank holding companies (BHCs) and systemically important foreign banking organizations (SIFBOs) that are subject to the Federal Reserve’s supervision. It applies to the foreign exchange swap and forward activities of these companies. These activities include the exchange of one currency for another at a fixed date in the future, at a rate agreed upon today.
The regulation applies to all aspects of foreign exchange swap and forward activities, including the execution, clearing, settling, and accounting for these transactions. It also applies to the risk management systems and procedures that companies use to monitor and manage the risks associated with these activities.
The regulation is designed to ensure that large U.S. bank holding companies and systemically important foreign banking organizations have robust risk management systems in place to monitor and manage the risks associated with their foreign exchange swap and forward activities. It also aims to increase the transparency and accountability of these companies, and to reduce the risk of financial loss due to these activities.
It’s important to note that the regulation RR applies to large U.S. bank holding companies and systemically important foreign banking organizations regardless of their size, type or location, and it applies to all aspects of foreign exchange swap and forward activities, including the execution, clearing, settling, and accounting for these transactions.
The main provisions of Regulation RR include:
- Risk management requirements: covered companies must establish and maintain robust risk management systems to monitor and manage the risks associated with their foreign exchange swap and forward activities.
- Documentation requirements: covered companies must document their foreign exchange swap and forward transactions and maintain records of the transactions for at least five years.
- Risk management reports: covered companies must submit reports to the Federal Reserve on a regular basis that describe their risk management systems and the risks associated with their foreign exchange swap and forward activities.
- Stress testing requirements: covered companies must conduct stress tests to assess the potential impact of extreme market conditions on their foreign exchange swap and forward activities.
- Capital and margin requirements: covered companies must maintain sufficient capital and margin to support their foreign exchange swap and forward activities.
