Directive 2006/48/EC of the European Parliament and of the council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast) (Text with EEA relevance) (repealed) (c. 48)

ANNEX VIII U.K. CREDIT RISK MITIGATION

PART 3 U.K. Calculating the effects of credit risk mitigation

2. UNFUNDED CREDIT PROTECTION U.K.

2.1. Valuation U.K.

84. Where unfunded credit protection is denominated in a currency different from that in which the exposure is denominated (a currency mismatch) the value of the credit protection shall be reduced by the application of a volatility adjustment H_FX as follows: U.K.

G* = G x (1-H_FX)

where:

G is the nominal amount of the credit protection,

G* is G adjusted for any foreign exchange risk, and

H_fx is the volatility adjustment for any currency mismatch between the credit protection and the underlying obligation.

Where there is no currency mismatch

G* = G