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
Previous ArticleEBA Single Rulebook Q&A: Second Update for December 2019
HM Treasury notified that, after considering all responses, the government intends to bring forward further legislation, when the Parliamentary time allows, to address issues identified in the consultation on supporting the wind-down of critical benchmarks.
EIOPA launched the 2021 stress test for the insurance sector in EU.
UK authorities jointly published the third edition of Regulatory Initiatives Grid setting out the planned regulatory initiatives for the next 24 months.
EC is requesting feedback on the proposed Commission Delegated Regulation on the content, methodology, and presentation of information that large financial and non-financial undertakings should disclose about their environmentally sustainable economic activities under the Taxonomy Regulation.
OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.
Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.
ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.
EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.
ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.
BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.