EC Adopts Financial Reporting Changes Arising from Benchmark Reforms
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates. Regulation 2021/25 amends Regulation 1126/2008 and relates to the adoption of certain international accounting standards in accordance with Regulation 1606/2002; these accounting standards are IAS 39 and IFRS 9, which are the old and new standards on financial instruments; IFRS 4 on insurance contracts; and IFRS 7 on disclosures of financial instruments. Regulation 2021/25 shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
In August 2020, as part of the phase 2 of interest rate benchmark reforms, IASB published amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4, and IFRS 16 on leases to address the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates. These amendments provide for a specific accounting treatment to spread value changes of financial instruments or lease contracts due to the replacement of the interest rate benchmark over time, which prevents a sudden impact on Profit or Loss, and prevents necessary discontinuation of hedging relationships as a consequence of the replacement of the interest rate benchmark.
Following a consultation with the European Financial Reporting Advisory Group, EC has concluded that the amendments to IAS 39, IFRS 4, IFRS 7, and IFRS 9 meet the criteria for adoption set out in Article 3(2) of Regulation 1606/2002. Regulation 1126/2008 has, therefore, been amended. The amendments have been described in Article 1 and detailed in Annex to the Regulation 2021/25. The amendments for the IFRS 9 relate to amortized cost measurement, temporary exceptions from applying specific hedge accounting requirements, additional temporary exceptions arising from interest rate benchmark reform, and the effective date and transition. Each company shall apply the amendments from the commencement date of its first financial year starting on or after January 01, 2021.
Related Links
Effective Date: February 03, 2021
Keywords: Europe, EU, Banking, Insurance, Accounting, IFRS 4, IFRS 9, IAS 39, IFRS 7, Insurance Contracts, Financial Instruments, Disclosures, Interest Rate Benchmarks, Reporting, EC
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Previous Article
EBA Issues Erratum for Technical Package on Reporting Framework 3.0Related Articles
BIS Quarterly Review Discusses Developments in Fintech and ESG Space
BIS published the September issue of the Quarterly Review, which contains special features that analyze the rapid rise in equity funding for financial technology firms, the effectiveness of policy measures in response to pandemic, and the evolution of international banking.
BCBS to Consult on Supervisory Practices for Climate Risks by Year-End
The Basel Committee for Banking Supervision (BCBS) met in September 2021 and reviewed climate-related financial risks, discussed impact of digitalization, and welcomed efforts by the International Financial Reporting Standards (IFRS) Foundation to develop a common set of sustainability reporting standards
OCC Identifies Operational Risk Deficiencies in MUFG Union Bank
The Office of the Comptroller of the Currency (OCC) issued a Cease and Desist Order against MUFG Union Bank for deficiencies in technology and operational risk governance.
EC Rule on Contractual Recognition of Write Down and Conversion Powers
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
ECB to Consider Climate Risks When Reviewing Collateral Framework
In a response to the questions posed by a member of the European Parliament, the President Christine Lagarde highlighted the commitment of the European Central Bank (ECB) to an ambitious climate-related action plan along with a roadmap, which was published in July 2021.
SRB Provides Update on Approach to Prior Permissions Regime
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
APRA Issues Further Guidance on Application of Securitization Standard
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
ACPR Publishes Corrective Version of RUBA Taxonomy
The French Prudential Control and Resolution Authority (ACPR) published the corrective version of the RUBA taxonomy Version 1.0.1, which will come into force from the decree of January 31, 2022.
Nordea Bank and EIB Sign Agreement to Fund Green Projects in Nordics
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
APRA Publishes FAQs on Capital Treatment of Overseas Subsidiaries
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
