Featured Product

    PRA Letter on Transitional Arrangements for Capital Impact of IFRS 9

    September 25, 2017

    The PRA published a letter on transitional arrangements for capital impact of the International Financial Reporting Standards (IFRS) 9 expected credit loss (ECL) accounting. Sam Woods, the Deputy Governor of Prudential Regulation, wrote this letter to CEOs; in the letter, he summarized the rationale for transitional arrangements, outlined the key features of the transitional arrangements that have been considered in Europe thus far, set out views of the PRA on UK firms using the arrangements, noted the tight timeframes within which UK firms will likely need to make a final decision, and requested a response on whether a firm intends to use the transitional arrangements.

    The letter identifies the need for transitional arrangements, as ECL provisioning will be sensitive to expectations of the future economic conditions. If, following transition to IFRS 9, firms give significant weight to adverse economic scenarios, there could be unanticipated large increases in provisions. Further, ECL provisioning is a completely new concept and the way it works in practice—including its volatility, pro-cyclicality, and effect on banks’ behaviorscan be gauged only in the light of experience. The letter further highlighted the EC proposal to amend the Capital Requirements Regulation (CRR), to establish IFRS 9-related transitional arrangements in November 2016 and that the European Council and European Parliament adopted the draft legislative texts around mid-2017.

     

    The PRA encourages UK firms to use them from the first day of IFRS 9 application, provided that the final CRR amendment establishes transitional arrangements broadly similar to those being considered. Subject to the need for sufficient resilience at the end of the transitional period, the PRA intends that all aspects of supervision of a firm using the transitional arrangements would be performed using transitional data on capital resources and not fully loaded figures. Since stress tests should reflect how stress would be experienced in reality, such tests will fully take account of transitional arrangements. The final amendment to the CRR may not become available until the end of 2017. The PRA advises firms to arrange for their boards to be in a position, if necessary, to make a final decision on the use of transitional arrangements in a compressed timescale across the year-end.

     

    Related Link: PRA Letter (PDF)

    Keywords: Europe, UK, Banking, Accounting, IFRS 9, Transitional Arrangements, ECL, CRR, PRA

    Featured Experts
    Related Articles
    News

    EU Amends IFRS 9 Rule, Changes Concern Interest Rate Benchmark Reforms

    EU published Regulation 2020/34 regarding the International Accounting Standard (IAS) 39 and International Financial Reporting Standards (IFRS) 7 and 9.

    January 16, 2020 WebPage Regulatory News
    News

    FDIC and OCC Issue Statement on Heightened Cyber Security Risk

    In response to the heightened cyber-security risk facing the financial services industry and other critical business sectors, FDIC and OCC issued an interagency statement on heightened cyber-security risk.

    January 16, 2020 WebPage Regulatory News
    News

    BoE and FCA Outline Next Steps for LIBOR Transition in 2020

    BoE, FCA, and the Working Group on Sterling Risk-Free Reference Rates (RFRWG) have published a set of documents that outline the LIBOR transition priorities and milestones for 2020.

    January 16, 2020 WebPage Regulatory News
    News

    BCRA Updates Regulation on Capital Requirements and Information Regime

    BCRA updated the rules on minimum capital requirements for financial entities and on certain aspects of the information transparency regime for quarterly and annual supervision.

    January 16, 2020 WebPage Regulatory News
    News

    BIS to Expand Central Bank Membership

    BIS is to expand its central bank membership base and to increase collaboration in its work as a forum for international cooperation and as a hub for central banks and other financial authorities.

    January 14, 2020 WebPage Regulatory News
    News

    EIOPA Issues Technical Specifications for Market and Credit Risk Study

    EIOPA published the technical specifications, including instructions, for the market and credit risk modeling comparative study for year-end 2019.

    January 13, 2020 WebPage Regulatory News
    News

    FED Publishes FAQs on Tailoring Rules for Banks

    FED released a letter announcing the publication of an initial set of frequently asked questions (FAQs) in response to questions from institutions.

    January 13, 2020 WebPage Regulatory News
    News

    IA of Hong Kong Publishes Stress Testing Scenarios in Relation to ORSA

    IA of Hong Kong published the prescribed scenarios for stress and scenario testing to be used by the authorized insurers conducting general insurance business.

    January 13, 2020 WebPage Regulatory News
    News

    FDIC Letter on Submission of Call Reports by End of January 2020

    FDIC, in a letter to financial institutions, announced that the Consolidated Reports of Condition and Income (Call Reports) for the December 31, 2019 report date must be submitted to the Central Data Repository of the relevant US agencies by January 30, 2020.

    January 13, 2020 WebPage Regulatory News
    News

    EBA Consults on Calculation of Own Funds Requirements for Market Risk

    EBA is consulting on the draft regulatory technical standards for calculation of the own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.

    January 13, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 4489