ESMA published a letter to IASB as a response to the IASB exposure draft on interest rate benchmark reform. ESMA supports the IASB initiative to provide, in a staged approach, a timely response to the increasing level of uncertainty about the possible financial reporting impact of the long-term viability of some interest rate benchmarks. Additionally, ESMA issued a letter to European Financial Reporting Advisory Group (EFRAG) on the draft comment letter of EFRAG on the IASB exposure draft on interest rate benchmark reform. Appendices to the letters set out detailed comments on the exposure draft of IASB.
The response letter to IASB highlights the following key points:
- ESMA agrees with the proposals set out in the exposure draft to amend old and new standards on financial instruments, namely IAS 39 and IFRS 9. The proposals address the issues that affect the application of hedge accounting requirements in the period before the replacement of an existing interest rate benchmark with an alternative interest rate, by setting out well-specified exceptions to the relevant requirements in IFRS 9 and IAS 39.
- ESMA recommends that IASB should consider providing clarifications about limitations on the application of the proposed exceptions, which are included in the basis for conclusions of the exposure draft, as amendments to the accompanying authoritative guidance of both IFRS 9 and IAS 39. This would promote consistent application and facilitate both implementation and enforceability of the proposed changes.
- ESMA urges IASB to proceed rapidly toward finalization of the proposed amendments, so that they can be applicable for the preparation of the 2019 annual financial statements.
- ESMA concurs with IASB that there are other issues that might affect financial reporting when an existing interest rate benchmark is replaced with an alternative benchmark as part of a second phase. ESMA highlighted that addressing these "post-replacement" accounting issues is urgent and, therefore, encourages IASB to address these aspects as soon as possible.
In the view of ESMA, the next phase of the proposed changes should consider and address issues that relate, among others, to the application of the guidance on de-recognition and modification of financial instruments, the implications for the determination of fair value, and the implications on hedge accounting of changes in the contractual terms and in the contractual documentation.
Keywords: International, Europe, Accounting, Banking, IFRS 9, IAS 39, Financial Instruments, Hedge Accounting, IBOR, Interest Rate Benchmark, IASB, ESMA
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
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.
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.
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.
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.
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.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
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.
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 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.