Featured Product

    FINMA Introduces New Approach to Expected Credit Losses for Banks

    November 14, 2019

    The Swiss Financial Market Supervisory Authority FINMA is reorganizing the provisions on accounting principles for banks by adjusting the method for forming value adjustments for default risks by adopting new approaches to expected losses or inherent default risks. To achieve this, the existing circular on accounting for banks is being replaced with a principles-based ordinance and a streamlined circular. FINMA has published the new and definitive FINMA Accounting Ordinance and the fully revised “Accounting – banks” circular. The ordinance and circular will come into force on January 01, 2020.

    The Accounting Ordinance contains the fundamental provisions on valuation and recognition while the Circular sets out the current position of FINMA on accounting and disclosure issues. FINMA is issuing these standards in its role as the accounting standard-setter for banks in Switzerland. A transitional period of a maximum of six years is applicable for the formation of value adjustments for expected losses or for any additional value adjustments for inherent default risks. FINMA is changing its approach to forming value adjustments for default risks for non-impaired receivables to tackle weaknesses in the current system, particularly the risk of a procyclical effect due to late impairment charges. The new approaches to the formation of value adjustments for default risks in the Swiss standards are significantly simpler and more principles-based by comparison.

    Furthermore, the new approaches to the formation of value adjustments for default risks are designed to be proportional. Only systemically important banks are required to model the expected losses in detail in their credit portfolios. Those involved in the consultation process particularly welcomed this proportionality and the methodical discretion granted to them. FINMA included individual elements of the explanatory report in the ordinance at the request of those involved in the consultation process. However, it decided not to include more detailed definitions in connection with the new approaches to value adjustments as it was requested to, since this would restrict the intentionally granted freedom in the choice of method and be at odds with the principles-based approach.

     

    Related Links (in German)

    Effective Date: January 01, 2020

    Keywords: Europe, Switzerland, Banking, Accounting, G-SIBs, IFRS 9, Credit Risk, Expected Credit Loss, Proportionality, FINMA

    Featured Experts
    Related Articles
    News

    EU Agencies Update LCR Rule and Macro-Prudential Policy Recommendation

    The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).

    May 23, 2022 WebPage Regulatory News
    News

    EBA Publishes Regulatory Standards to Identify Shadow Banking Entities

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.

    May 23, 2022 WebPage Regulatory News
    News

    EIOPA Examines Physical Climate Risk Exposure, SII Non-Compliance

    The European Insurance and Occupational Pensions Authority (EIOPA) published a report assessing insurers' exposure to physical climate change risks

    May 20, 2022 WebPage Regulatory News
    News

    EC Publishes Results on Review of Web Accessibility Directive

    The European Commission (EC) published the results of a public consultation, held in October 2021, on the review of the Web Accessibility Directive.

    May 19, 2022 WebPage Regulatory News
    News

    NGFS Report Explores Quantification of Climate Risk Differentials

    The Network for Greening the Financial System (NGFS) published two reports to aid central banks and regulators in their oversight of the financial sector and in their central bank operations

    May 19, 2022 WebPage Regulatory News
    News

    MAS Consults on Adjustment Spreads for Conversion of SOR Contracts

    The Monetary Authority of Singapore (MAS) and the SC-STS are jointly consulting, until June 10, 2022, on setting adjustment spreads for the conversion of legacy SOR contracts to SORA reference rate.

    May 18, 2022 WebPage Regulatory News
    News

    OSFI Discusses Benchmark Rate Transition, Sets Out Work Priorities

    The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.

    May 17, 2022 WebPage Regulatory News
    News

    EBA Proposes Standards to Support Secondary NPL Markets

    The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.

    May 17, 2022 WebPage Regulatory News
    News

    EU Confirms Agreement on Rules on Cybersecurity and Banking Resolution

    The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).

    May 13, 2022 WebPage Regulatory News
    News

    EBA Issues Standards for Crowdfunding Service Providers Under ECSPR

    The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.

    May 13, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8206