BoM Issues Guideline on Measurement of Credit Impairment for Banks

By Regulatory News

June 06, 2019

Loss Accounting: IFRS 9, Regulatory Capital

BoM revised the guideline on credit impairment measurement and income recognition for all deposit-taking financial institutions. The guideline outlines the minimum prudential requirements for asset classification, provisioning requirements, and income recognition. The guideline also attempts to provide references, wherever relevant, with the provisions of the accounting standard IFRS 9. The guideline shall come into effect as from January 01, 2020.

The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

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Effective Date: June 18, 2019

Press Release

Proposed Rule 1

Proposed Rule 2

Proposed Rule 3

Presentation on Regulatory Framework (PDF)

Presentation on Resolution Plan Rules (PDF)

This guideline supersedes the guideline on credit impairment measurement and income recognition that was issued in November 2004 and amended in June 2005 and April 2016. Financial institutions are required to provide information to BoM on classification of assets and provisioning in the form and manner prescribed by BoM, no later than 20 working days after the last day of each quarter. Additional burden, if any, due to the prudential requirements in the guideline will be allowed to phase-in for one year from the date of implementation of this guideline, at the discretion of financial institutions.

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Effective Date: January 01, 2020

Keywords: Middle East and Africa, Mauritius, Banking, IFRS 9, Reporting, Credit Risk, Expected Credit Loss, Provision for Expected Loss, NPLs, Regulatory Capital, BoM

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BoM Issues Guideline on Measurement of Credit Impairment for Banks

By Regulatory News

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