FASB Clarifies Scope of Guidance on Reference Rate Reform
FASB issued an Accounting Standards Update (ASU) that clarifies the scope of the guidance on reference rate reform (Topic 848). The Accounting Standards Update clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The Update also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments in this Update became effective immediately for all entities.
FASB had issued, in March 2020, the guidance on reference rate reform, with the aim to ease the potential accounting burden expected when global capital markets move away from the London Interbank Offered Rate (LIBOR), the benchmark interest rate banks used for short-term loans. That guidance provided temporary, optional expedients and exceptions for applying accounting guidance to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. Some stakeholders have questioned whether Topic 848 can be applied to derivative instruments that do not reference a rate that is expected to be discontinued but that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The stakeholders indicated that the modification, commonly referred to as the “discounting transition,” may have accounting implications and raised concerns about the potential need to reassess previous accounting determinations related to those derivatives and about the possible hedge accounting consequences of the discounting transition. In response to the stakeholder concerns about potential diversity in practice, FASB decided to clarify the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848.
Related Links
Effective Date: January 07, 2021
Keywords: Americas, US, Banking, Securities, Reference Rate Reform, Interest Rate Benchmarks, Accounting Standards Update, LIBOR, Topic 848, Derivatives, FASB
Previous Article
APRA Further Reduces CLF, Releases Feedback Template for ARS 220Related Articles
PRA and FPC Finalize Changes to Leverage Ratio Framework in UK
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
CFPB Proposes Rule on Small Business Lending Data Collection
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
PRA Decides to Maintain O-SII Buffers for Another Year
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
FSB Report Assesses Implementation of Recommendations on Stablecoins
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
APRA Updates Loan Serviceability Expectations for Home Lending
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
CPMI and IOSCO Consult on Guidance on Stablecoin Arrangements
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
EBA and EIOPA Set Out Work Priorities for 2022
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
MFSA Issues Reporting Updates and Guidance for Banks
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
EC Publishes Decision on List of Equivalent Third Countries Under CRR
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC Rule on Contractual Recognition of Write-Down and Conversion Powers
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.
