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January 16, 2019

The PRA Executive Director Victoria Saporta wrote a letter to CFOs of select firms informing them about the good disclosure initiative of the Taskforce on Disclosures about Expected Credit Loss (ECL). This letter was sent to the firms that nominated themselves to participate in the ECL initiative of the Taskforce. PRA encouraged these firms to make as much progress as possible in adopting the recommendations of the Taskforce in their next annual report. PRA will from time to time ask these firms to provide an update on their adoption plans and for a progress report against those plans. PRA expects these firms to be looking to adopt the recommendations of the report in full.

The letter highlighted the importance of good market disclosure about IFRS 9 expected credit loss accounting (ECL) at accounting period-ends. There seems to be a widespread agreement that such disclosures need to be comprehensive, appropriately focused, and at the right level of granularity, in addition to being reliable and noticeably similar from firm to firm. However, there seems to be much less agreement on what those terms mean in practice. Thus, PRA had decided, last year, to ask preparers and market participants to work together (as the Taskforce on Disclosures about Expected Credit Loss) to try to reach a consensus on what good disclosure looks like. PRA, FCA, and the Financial Reporting Council have since been sponsoring the Taskforce’s work. The Taskforce’s first report on recommendations on a comprehensive set of IFRS 9 ECL disclosures was published in November 2018. Although the Taskforce believes all the recommendations could be adopted in full within two or three years, it accepts that not all firms will be able to provide all the disclosures described in full initially. In this letter, PRA includes additional comments on two matters the report specifically mentions as areas on which the Taskforce might develop more detailed recommendations in due course—that is, disclosures for measurement uncertainty and sensitivity and disclosures for the use of Monte Carlo approaches.

 

Related Link: Letter

Keywords: Europe, UK, Banking, Accounting, ECL, Disclosures, IFRS 9, Taskforce, FCA, FRC, PRA

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