Instruction No. 94-05 of March 14, 1994, on the Accounting for Foreign Currency Transactions, as Amended by Instruction No. 2009-02 of June 19, 2009

OFFICIAL TEXTS OF THE BANKING COMMISSION Instruction No. 94-05 of March 14, 1994 (consolidated version as of 19/06/2009)

Article 1 Spot foreign exchange operations where the parties do not defer settlement, known as "value day," mentioned in the second paragraph of Article 2 of the aforementioned amended Regulation No. 89-01, are recorded in the balance sheet accounts upon their realization, without prior off-balance sheet registration.

Spot foreign exchange operations with a period of grace, referred to in the second paragraph of Article 2 of the aforementioned amended Regulation No. 89-01, forward foreign exchange operations referred to in the third paragraph of the same regulation, as well as foreign currency loan or borrowing operations, are recorded from their commitment date "on the off-balance sheet elements of the SITUATION table corresponding to foreign currency operations."

Upon delivery of the currencies, the off-balance sheet accounts are settled, and the operations are recorded in the establishment's balance sheet.

When, for legal or commercial reasons, the establishment considers it necessary to move a client's or correspondent's account on the same day as the commitment, the counterpart of the entries is recorded in an "unavailable" account merged with each concerned account during the accounting closing.

Article 2 Among forward foreign exchange operations, financial swap operations performed in two different currencies, known as "currency swaps," which involve the exchange of principal and payment of interim interest between the contracting parties, are subject to off-balance sheet registration for their principal amount. These provisions do not apply to interest rate swap operations, known as "interest rate swaps," performed in the same currency.

The amount of foreign currencies (or euros) to be delivered and foreign currencies (or euros) to be received under financial swap operations is recorded "in the off-balance sheet elements of the SITUATION table corresponding to 'Forward Foreign Exchange Operations'."

Establishments must be able to identify within the "'Forward Foreign Exchange Operations' off-balance sheet element" the amounts corresponding to financial swap operations and those corresponding to other forward foreign exchange operations, among which are operations involving exchange in two different currencies, known as "cash swaps" or "currency swaps." They must also distinguish operations conducted with financial institutions and with the clientele.

Uncoupled foreign currency income and expenses mentioned in Article 8 of the aforementioned amended Regulation No. 89-01 are "recorded respectively in the elements 'Coupled Uncoupled Foreign Currency Interest Receivable' and 'Coupled Uncoupled Foreign Currency Interest Payable' included in the SITUATION table."

Article 3 Premiums related to the purchase and sale of foreign exchange option contracts, referred to in the third paragraph of Article 4 of the aforementioned amended Regulation No. 89-01, are listed respectively "in the elements 'Purchased Foreign Exchange Rate Conditional Instruments' and 'Sold Foreign Exchange Rate Conditional Instruments' of the SITUATION table."

These premiums must be identified in a manner that allows distinction between different categories of operations, notably based on the hedging criterion defined in Article 9 of the aforementioned amended Regulation No. 89-01 and Article 11 of the present instruction.

Pursuant to the third paragraph of Article 3 of the aforementioned amended Regulation No. 89-01, exchange positions induced by the management of foreign exchange option contracts are tracked in specific foreign exchange position accounts, denominated in each of the currencies used.

Article 4 In application of Article 5 of the aforementioned amended Regulation No. 89-01, the market rate used for the valuation of asset, liability, or off-balance sheet elements is determined based on the interbank rate observed on the market at the date of the regulatory situation closing.

The remaining forward rate, referred to in the same article, is used for the valuation of forward foreign exchange operations known as "dry" forwards and for the valuation of forward foreign exchange operations performed as a hedge for another forward foreign exchange operation.

Article 5 For the application of the provisions of Article 6 of the aforementioned amended Regulation No. 89-01 regarding the definition of liquid markets, liquidity is assessed based on the operating conditions of these markets for a duration at least equal to that of a fiscal year.

Article 6 Results on foreign exchange operations determined in accordance with Articles 6 and 10 of the aforementioned amended Regulation No. 89-01 are listed "in the CPTE_RESU table in the elements 'Losses on Foreign Exchange and Arbitrage Operations' and 'Gains on Foreign Exchange and Arbitrage Operations'."

The counterpart of income and expenses resulting from the conversion of spot and forward foreign exchange operations recorded off-balance sheet is recorded respectively on the asset and liability side "of the SITUATION table in the element 'Suspense Accounts'." Latent gains resulting from foreign exchange operations on currencies traded on markets whose liquidity cannot be considered sufficient, within the meaning of Article 6 of the aforementioned amended Regulation No. 89-01, are not recognized in the income statement.

Latent losses resulting from foreign exchange operations on currencies traded on markets whose liquidity cannot be considered sufficient are subject, where applicable, to a provision up to the amount of the net risk incurred.

Article 7 For the application of the third paragraph of Article 5 of the aforementioned amended Regulation No. 89-01: – the differences resulting from the conversion of investment securities and holdings in subsidiaries and affiliates, denominated in foreign currencies and financed in euros, are recorded in an "Exchange Rate Differences" account attached to the main account of the concerned securities; when preparing accounting situations for the Banking Commission, the attached account is grouped with the main concerned account. However, if the securities are to be sold or redeemed during the following fiscal year, a provision must, where applicable, be established up to the amount of the latent exchange loss; – the differences resulting from the conversion of investment securities and holdings in subsidiaries and affiliates, denominated and financed in foreign currencies, are accounted for symmetrically; – the differences resulting from the consolidation of foreign branches into the head office's accounting are recorded in the element "Exchange Rate Differences."

Article 8 Differences related to operations whose exchange rate risk is borne by the State, pursuant to the second paragraph of Article 6 of the aforementioned amended Regulation No. 89-01, are recorded "in Creditor or Debtor Difference Accounts" included in the element "Suspense Accounts" of the SITUATION table."

OFFICIAL TEXTS OF THE BANKING COMMISSION Instruction No. 94-05 of March 14, 1994 (consolidated version as of 19/06/2009)

Article 9 The calculation of provisions for depreciation of investment securities is performed by comparison between the acquisition cost in foreign currencies and the market price in foreign currencies of the concerned securities.

Article 10 Results arising from value variations of firm or conditional foreign exchange financial derivative instruments, determined in accordance with Articles 7 and 10 of the aforementioned amended Regulation No. 89-01, are listed "in the CPTE_RESU table in the elements 'Charges on Foreign Exchange Rate Instruments' and 'Income on Foreign Exchange Rate Instruments'."

The counterpart of income or charges related to foreign exchange financial derivative instruments recorded off-balance sheet is recorded, where applicable, respectively on the asset and liability side "of the SITUATION table in the element 'Suspense Accounts'."

Latent gains related to operations on foreign exchange financial derivative instruments performed on markets whose liquidity cannot be considered sufficient, within the meaning of Article 6 of the aforementioned amended Regulation No. 89-01, are not carried to the income statement.

Latent losses related to operations on foreign exchange financial derivative instruments performed on markets whose liquidity cannot be considered sufficient, within the meaning of the same Article 6, must, where applicable, be subject to a provision for losses and charges, up to the amount of the net risk incurred.

Upon resale, buyback, exercise, or expiration of a foreign exchange option operation, the establishment records in the element "Charges on Foreign Exchange Rate Instruments" or in the element "Income on Foreign Exchange Rate Instruments," as the case may be, the premium recorded in the element "Foreign Exchange Conditional Instruments." When it is a hedging operation, the premium is charged to the income statement according to the procedures provided in Article 12 below.

In the event of the exercise of an option operation, the delivered currencies or underlying financial instruments are subject to their own recording and valuation rules.

Article 11 An operation may be considered a hedging operation, within the meaning of Article 9 of the aforementioned amended Regulation No. 89-01, if it meets the following conditions: – the hedged element or the homogeneous set of elements hedged by this operation must contribute to exposing the credit institution to a risk of exchange rate variation; – the hedging operation must be qualified as such from the outset. It may relate to an asset, a liability, an off-balance sheet commitment, a future operation with a high probability of realization, and more generally a clearly identified exchange position; – the hedged element or the homogeneous set of hedged elements as well as the hedging operation must be denominated in the same currency. When the hedging operation involves the purchase of option contracts, the hedged element or the homogeneous set of hedged elements as well as the underlying financial instrument must be denominated in the same currency.

By way of exception, the sale of option contracts may be treated as hedging operations insofar as they comply with the provisions of Article 9 of the aforementioned amended Regulation No. 89-01 and the conditions described above.

Subject establishments retain the information justifying the qualification of an operation as a hedging operation.

Article 12 The results of hedging operations, evaluated in accordance with Article 10 of the aforementioned amended Regulation No. 89-01, are recorded symmetrically to the recognition of the exchange rate result observed on the hedged operation or on the homogeneous set of hedged elements.

When the hedged operation is not subject to market price valuation, notably if it involves tangible or intangible assets, the principle of symmetry requires recording the results of hedging operations, until their settlement, in a suspense sub-account of the series of suspense accounts opened for each of the homogeneous sets of elements that were the subject of a hedging operation. Upon settlement of the hedging operation, the balance of the suspense sub-account related to this operation is transferred, according to its sign, to the element "Losses to be spread over settled financial instrument hedging contracts" or to the element "Gains to be spread over settled financial instrument hedging contracts." It is then reported to the income statement in accordance with Article 10 of the aforementioned amended Regulation No. 89-01.

The counterpart of income or charges related to hedging operations recorded off-balance sheet is recorded, where applicable, respectively on the asset and liability side "of the SITUATION table in the element 'Suspense Account'."

OFFICIAL TEXTS OF THE BANKING COMMISSION Instruction No. 94-05 of March 14, 1994 (consolidated version as of 19/06/2009)

Article 13 Guarantee deposits received by a subject establishment, in the context of its interventions on organized markets for foreign exchange financial derivative instruments on behalf of its clientele, are recorded "in the SITUATION table in the element 'Various Creditors'."

Guarantee deposits paid by an establishment, in the context of its interventions on organized markets for foreign exchange financial derivative instruments, are recorded "in the SITUATION table in the element 'Various Debtors'."

Accounting must distinguish, on the one hand, guarantee deposits constituted for operations performed on behalf of the clientele, and, on the other hand, those constituted for operations performed on own account.

Article 14 Establishments must be able to identify the different commitments resulting from operations on foreign exchange financial derivative instruments, for their nominal value and based on their maturity date, at least according to the following criteria: transactions performed on organized markets and similar or over-the-counter, contract underlying assets, purchase or sale of contracts, market or hedging operations, firm or conditional operations.

Establishments record commitments related to operations on foreign exchange financial derivative instruments in "an element attached to the element 'Financial Derivative Instrument'."

Article 15 The unnetted cumulative nominal values of foreign exchange financial derivative instrument contracts are listed on "the IFT_ENGAG table" and allocated according to the nature of the market, the purpose of the operation, and the firm or conditional nature of the instrument.

Results on foreign exchange financial derivative instrument contracts are listed on "the RESU_IFT_ table" with the same allocation.

Article 16 This instruction repeals and replaces Instruction No. 89-04 of August 19, 1989 of the Banking Commission, as amended by Instruction No. 90-03 of July 12, 1990.