ESMA published a letter responding to IASB on the exposure draft on the phase 2 of the interest rate benchmark reform. In its letter, ESMA welcomed the IASB initiative to consider as a priority the effects of the reform of the interest rate benchmark (replacement issues) on the financial statements of entities. ESMA also published a letter to the European Financial Reporting Advisory Group (EFRAG) on the draft comment letter of EFRAG on the IASB exposure draft on phase 2 of the interest rate benchmark reform. Annex 1 to both the letters contains suggestions to improve the current draft to ensure consistency and understandability of the proposed amendments to IFRS 9.
In the response letter to IASB, ESMA supported proposals regarding additional disclosures and agrees with the proposed effective date and transition provisions, which would ensure comparability across entities and apply at the relevant period of issuers’ transition to alternative benchmark rates. It also supported the proposals to limit the scope of the amendment to the modifications arising from the interest rate benchmark reform. Additionally, ESMA agreed with the proposal to prescribe a practical expedient to account for the modification of a financial asset or liability that is required by the interest rate benchmark reform. ESMA encouraged IASB to
- clearly exclude the possibility that this amendment can be applied by analogy to circumstances other than those for which they were developed
- include, in addition to those proposed in paragraph 6.9.4, examples of modifications of a financial asset or financial liability, which would not meet the conditions described in paragraph 6.9.3 of the exposure draft
Other proposals that ESMA supported involve accounting for the amendment of the designation of qualifying hedging relationships and relate to the designation of risk components and portions. In light of the market disruption linked to the COVID-19 pandemic, ESMA recommended in the letter that IASB continue to monitor future developments of alternative rate markets to assess whether it may become necessary to extend the 24-month temporary relief period for the separately identifiable assessment, since the establishment of sufficiently liquid alternative rate markets could take longer than currently envisaged.
Keywords: International, Europe, Accounting, Banking, IFRS 9, IBOR, Interest Rate Benchmark, Disclosures, Financial Instruments, COVID-19, IASB, ESMA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleEBA Examines Impact of COVID Crisis on Banking Sector in EU
FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.
ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.
ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.
EBA published the annual report on asset encumbrance of banks in EU.
MAS revised the guidelines that address technology and cyber risks of financial institutions, in an environment of growing use of cloud technologies, application programming interfaces, and rapid software development.
FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.
EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.
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.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.