Foreign Currency Exposure Return Guidance Notes

Summary

These are guidance notes from the Bermuda Monetary Authority explaining how licensed banks and deposit companies must complete the Foreign Currency Exposure Return (Form S3), which captures currency and gold assets, liabilities, and forward/futures positions on an unconsolidated basis.

• Frequency and scope: The return is completed quarterly, as at the end of March, June, September and December, on an unconsolidated basis, showing BD$ equivalent values of currency and gold assets, liabilities, forwards and futures.
• Arithmetic checks: Filers must ensure specified column relationships hold (e.g. column 1 minus column 2 equals column 3; columns 3 to 6 sum to column 7; the aggregate net short position equals the sum of bracketed figures).
• Column-by-column instructions: Detailed rules are given for what to include in each of columns 1 to 9, covering spot claims and liabilities, forward purchases/sales, known future income/expense, overseas branch positions, overall net position, structural adjustments, and net dealing position.
• Structural position adjustments: Only premises, fixtures and fittings, and investments in subsidiaries or associates may be treated as structural without prior Authority approval; any other structural classification requires prior reference to the Authority, and a separate schedule must be attached to the S3 Form listing column 8 items.
• Discounting forward positions: Institutions wishing to discount a forward position by the relevant currency interest rate must obtain written agreement from DTD.
• Section 2 (overseas branches): Institutions with overseas branches dealing in foreign exchange must complete Section 2, showing each branch's net position, but may omit branches whose aggregate position (all currencies combined) is less than half a percent of the reporting institution's adjusted capital base.

The guidance is technical and procedural, aimed at ensuring consistent and accurate quarterly reporting of foreign currency exposure to the Authority, feeding into the Capital Adequacy Return and Risk Asset Ratio calculation.

Key obligations

• Licensed banks and deposit companies must complete the Foreign Currency Exposure Return (Form S3) quarterly, as at the end of March, June, September and December, on an unconsolidated basis.
• Filers must ensure the specified arithmetic relationships between columns hold on the completed return.
• Institutions must attach a separate schedule to the S3 Form setting out any items included in column 8 (structural positions) with currency amounts and BD$ equivalents.
• Prior reference to the Authority is required before classifying any item as structural other than premises, fixtures and fittings, or investments in subsidiaries/associates.
• Institutions must obtain written agreement from DTD before discounting a forward position by the relevant currency interest rate.
• Institutions with overseas branches dealing in foreign exchange must complete Section 2 of the return, showing each branch's net position, except branches with an aggregate position below half a percent of the adjusted capital base.
• Once a position is defined as structural it must be reported consistently in column 8 even if this increases the net short open position.

Applies to

banks and deposit companies licensed under the Banks and Deposit Companies Act 1999, Bermuda incorporated institutions with overseas branches dealing in foreign exchange

Deadlines

• end of March, June, September and December each year: Foreign Currency Exposure Return must be completed and submitted quarterly at these dates.