Featured Product

    ESMA Sets Out Common Enforcement Priorities for 2020 Financial Reports

    October 28, 2020

    ESMA issued the annual statement that sets out the common enforcement priorities for the 2020 annual financial reports of listed companies. The 2020 enforcement priorities for financial statements, prepared in accordance with International Financial Reporting Standards (IFRS), reflect the need to provide adequate transparency about the consequences of the COVID-19 pandemic; this is expected to affect several areas of the 2020 annual financial reports. The key areas include the application of IFRS 9 on financial instruments and IFRS 7 on disclosures related to financial instruments, including general considerations for risks arising from financial instruments, focus on liquidity risk, and specific considerations related to the application of IFRS 9 for credit institutions when measuring expected credit losses (ECL). The statement also highlights the requirements to disclose non-financial information about the impact of the COVID-19 pandemic on non-financial matters and risks related to climate change, taking into account physical and transition risks.

    In the statement, ESMA highlighted the importance of fulfilling the disclosure objective in IFRS 7 and, to this end, of preparing the required disclosures in relation to risks arising from financial instruments and, in particular, those related to liquidity risk and the sensitivities to market risks. ESMA reminded issuers to disclose how financial risks arise and how they are managed, taking into account the specific objectives, policies, and processes put in place to address those risks. Issuers shall also be required to disclose the financial risk concentrations, including quantitative information required by IFRS 7 and information on how such concentrations are measured. Such qualitative disclosures shall accompany quantitative information to enable users of financial statements to get an overall picture of the nature and extent of risks arising from financial instruments. ESMA also highlighted that, in the context of liquidity risk disclosures, issuers should provide transparency of any arrangements that take the form of supply chain financing or, more specifically, reverse factoring transactions which may give rise to liquidity risks. ESMA reminded issuers that have benefitted from forbearance or payment moratoria measures that this fact should be clearly disclosed, along with the features of any such measures to enable users to understand any risks that may stem from their discontinuation.

    Additionally, ESMA reminded issuers that, when measuring ECL in accordance with IFRS 9, issuers shall reflect in an unbiased way the significant uncertainty that characterizes the current economic environment by taking into account all reasonable and supportable information about past events, current conditions, and forecast of future economic conditions that is available without undue cost and effort. In the current context and, most notably, when ECL models are subject to changes in response to changing circumstances, issuers should focus on the specific disclosure requirements on their approach to measuring ECL. ESMA also noted that, when post-model adjustments are used in the estimate of ECL, transparency should be provided on the rationale and methodology underlying these adjustments, their impact on the ECL estimate, and the specific risks they aim at capturing which were not, in full or in part, factored in the ECL model. ESMA reminded issuers to explain the changes in loss allowance by classes of financial instruments compared to the previous period. ESMA also noted that issuers shall explain how significant changes in the gross carrying amount of financial instruments contributed to changes in the loss allowance. 

    ESMA highlighted the importance of providing disclosures on credit risk exposures and on the related risk concentrations. In particular, issuers should provide granular information on their exposures and their quality. In doing so, ESMA emphasizes the importance of providing separate explanation of any exposures, concentrations, and any significant variations linked to COVID-19 as well as to other specific factors or events. ESMA recommended that credit institutions disclose the basis on which support measures, for example debt moratoria, have been granted to borrowers or debtors and their effects in the financial statements. ESMA also reminded issuers that IFRS 7  requires the disclosure of information on the financial effect of credit enhancements and the extent to which it has mitigated credit risk. It is important to perform and, where relevant, disclose the sensitivity analyses of staging and calculation of ECL that is representative of the credit risk profile of financial instruments. 

     

    Related Links

    Keywords: Europe, EU, Banking, Accounting, Disclosures, COVID-19, IFRS 9, Financial Instruments, IFRS 7, Climate Change Risk, ESG, Liquidity Risk, Credit Risk, ECL, ESMA

    Featured Experts
    Related Articles
    News

    EC Issues Regulation on Adjustments to K-Factor Coefficients Under IFR

    The European Commission (EC) published a report summarizing responses to the targeted consultation on the supervisory convergence and the single rulebook in the European Union (EU).

    January 20, 2022 WebPage Regulatory News
    News

    OSFI Issues Results of Pilot on Climate Risk Scenario Analysis

    The Office of the Superintendent of Financial Institutions (OSFI) published an update on the discussion paper that intended to engage federally regulated financial institutions and other interested stakeholders in a dialog with OSFI, to proactively enhance and align assurance expectations over key regulatory returns.

    January 20, 2022 WebPage Regulatory News
    News

    ECB Issues Opinions on Green Bonds Standard and CRR Proposals

    The European Central Bank (ECB) published its opinion on a proposal for a regulation on European green bonds, following a request from the European Parliament.

    January 19, 2022 WebPage Regulatory News
    News

    ESRB Explores Policy Response to Risks Arising from Digitalization

    The Advisory Scientific Committee (ASC) of the European Systemic Risk Board (ESRB) published a report that explores the expected impact of digitalization on provision of financial and banking services, and proposes policy measures to address the risks stemming from digitalization.

    January 18, 2022 WebPage Regulatory News
    News

    EU Authorities Address COVID-19 Reporting, MCD, and PSD2 Issues

    The European Banking Authority (EBA) announced that the guidelines on the reporting and disclosure of exposures subject to measures COVID-relief measures shall continue to apply until further notice.

    January 17, 2022 WebPage Regulatory News
    News

    FI Publishes Multiple Regulatory and Reporting Updates

    The Swedish Financial Supervisory Authority (FI) announced that the capital adequacy reporting as at December 31, 2021 must be done by February 11, 2022.

    January 17, 2022 WebPage Regulatory News
    News

    BSP Tackles Aspects of Lending and Islamic, Open & Sustainable Finance

    The Central Bank of the Philippines (BSP) issued communications covering developments related to online lending platforms, open finance framework and roadmap, and on the expected regulations in the area sustainable finance.

    January 16, 2022 WebPage Regulatory News
    News

    US Agencies Issue Regulatory Updates, FDIC Launches Tech Sprint

    The Board of Governors of the Federal Reserve System (FED) published the final rule that amends Regulation I to reduce the quarterly reporting burden for member banks by automating the application process for adjusting their subscriptions to the Federal Reserve Bank capital stock, except in the context of mergers.

    January 13, 2022 WebPage Regulatory News
    News

    EBA Issues Guide on Bank Resolvability, Consults on Transferability

    The European Banking Authority (EBA) published its assessment of risks through the quarterly Risk Dashboard and the results of the Autumn edition of the Risk Assessment Questionnaire (RAQ).

    January 13, 2022 WebPage Regulatory News
    News

    MFSA Publishes CRD5 Updates and Supervisory Priorities for 2022

    The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0.

    January 13, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 7875