The Financial Accounting Standards Board (FASB) published a proposed accounting standard update that would defer the sunset date of the reference rate reform guidance (Topic 848) and amend the definition of Secured Overnight Financing Rate (SOFR) swap rate to include SOFR term as a U.S. benchmark interest rate (Topic 815). The feedback period for both updates will close on June 06, 2022.
Deferral of the sunset date of Topic 848. In 2020, FASB had issued accounting standards update on reference rate reform, which provides optional guidance, to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The objective of the guidance was to provide relief during the temporary transition period. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. Thus, to ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the amendments in the proposed Accounting Standards Update would defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities would no longer be permitted to apply the relief in Topic 848.
Amendments to the definition of SOFR. In 2018, FASB issued accounting standards update on derivatives and hedging (Topic 815), which added the term secured overnight financing rate (SOFR) overnight index swap rate (SOFR swap rate) to the master glossary of the FASB accounting standards codification. In a previous update, FASB stated that the definition of the SOFR swap rate was specific to the Overnight Index Swap (OIS) rate based on SOFR and that it would monitor the developments of the forward-looking, term-based version of the SOFR rate (SOFR term) and consider including SOFR term as a benchmark interest rate in the future. Based on the developments of SOFR term in the marketplace, the proposed Accounting Standards Update would amend the definition of the SOFR swap rate to include other versions of SOFR, such as SOFR term, as benchmark interest rates under Topic 815.
Keywords: Americas, US, Banking, Reference Rate Reform, Accounting Standards Update, Topic 848, Securities, Derivatives And Hedging, Topic 815, SOFR, SOFR Term, Benchmark Interest Rates, Benchmark Reforms, FASB
The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.
The European Council and the European Parliament (EP) reached a provisional political agreement on the Corporate Sustainability Reporting Directive (CSRD).
The Prudential Regulation Authority (PRA) launched a consultation (CP6/22) that sets out proposal for a new Supervisory Statement on expectations for management of model risk by banks.
The European Commission (EC) published the Delegated Regulation 2022/954, which amends regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.
The European Insurance and Occupational Pensions Authority (EIOPA) published two consultation papers—one on the supervisory statement on exclusions related to systemic events and the other on the supervisory statement on the management of non-affirmative cyber exposures.
Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)
The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.
The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.
The Basel Committee on Banking Supervision (BCBS) issued principles for the effective management and supervision of climate-related financial risks.