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    EBA and ESMA Clarify Accounting Implications of COVID-19 Measures

    EBA and ESMA issued statements to address certain accounting implications of the economic support and relief measures adopted by EU member states in response to the COVID-19 crisis. The statement by ESMA covers measures, such as moratoria on repayment of loans, that have an impact on the calculation of expected credit losses in accordance with IFRS 9. EBA extended comment period for the ongoing consultations and clarified a number of interpretative aspects on the functioning of the prudential framework in relation to the classification of loans in default, the identification of forborne exposures, and their accounting treatment.

    ESMA provides guidance to issuers and auditors on the application of IFRS 9 (the Financial Instruments standard), specifically regarding the calculation of expected credit losses and related disclosure requirements. While the statement addresses solely financial reporting aspects, ESMA has coordinated with EBA, which issued a statement on the prudential framework in light of COVID-19 measures from March 25, 2020. Both statements are consistent regarding financial reporting. Furthermore, before publishing this statement, ESMA actively engaged with the services of EC to coordinate the response in this area. ESMA explains that, for further information on the audit of financial statements in the context of COVID-19, entities can refer to the CEAOB statement from March 25, 2020. EBA also highlighted that when applying the IFRS 9 international accounting standard, institutions are expected to use a certain degree of judgment and distinguish between borrowers whose credit standing would not be significantly affected by the current situation in the long term and those who would be unlikely to restore their creditworthiness. 

    In its statement, EBA also reminds financial institutions about their consumer protection obligations, temporarily lifts some reporting obligations for payment service providers, and calls on payment service providers to raise their contactless payment thresholds to the legal limit. As a follow-up to its decision to support banks’ focus on key operations and to limit any non-essential requests in the short term, EBA reviewed all ongoing activities requiring inputs from banks in the next months and decided to:

    • Extend the deadlines of ongoing public consultations by two months
    • Postpone all public hearings already scheduled to a later date and run them remotely via teleconference or similar means
    • Extend the remittance date for funding plans data
    • Extend the remittance date for the Quantitative Impact Study (QIS) based on December 2019 data, in coordination with BCBS

    The following are the ongoing consultations whose deadline EBA has extended by two months:

    • Discussion Paper on the future changes to the EU-wide stress test (extended to June 30, 2020)
    • Consultation paper to update the identification methodology of global systemically important institutions (August 05, 2020)
    • Draft Guidelines on the appropriate subsets of sectoral exposures to which competent or designated authorities may apply a systemic risk buffer in accordance with Article 133 (5)(f) of Directive 2013/36/EU (July 13, 2020)
    • Draft Guidelines under Articles 17 and 18(4) of EU Directive 2015/849 on customer due diligence and money laundering/terrorist financing risk factors (July 06, 2020)
    • Consultation paper on draft regulatory technical standards on the treatment of non-trading book positions subject to foreign-exchange risk or commodity risk (June 10, 2020)

     

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    Keywords: Europe, EU, Banking, Securities, COVID 19, IFRS 9, Expected Credit Loss, SICR, Financial Instruments, Stress Testing, Systemic Risk, ESMA, EBA

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