Featured Product

    ESMA Seeks Clarity on Accounting Treatment of TLTRO III in EU

    February 16, 2021

    ESMA has requested clarifications from the IFRS Interpretations Committee on accounting treatment for the third series of the ECB Targeted Longer-Term Refinancing Operations (TLTRO III). In a letter to the Interpretations Committee, ESMA highlights that it has identified diversity in the application of the requirements of IFRS 9 and IAS 20 in relation to the accounting treatment of the TLTRO III transactions by banks. Earlier, in January 2021, ESMA had also issued a public statement with aim of promoting transparency in the IFRS financial statements of banks and had pointed out the existence of diverse practices in the accounting treatment of these transactions by banks.

    In its letter, ESMA seeks clarifications from the IFRS Interpretations Committee, on:

    • how to assess whether the TLTRO III transactions involve loans at a below-market interest rate and, if so, whether the advantage of the below-market rate of interest needs to be accounted for according to the requirements of IFRS 9 or IAS 20.
    • how to assess in which period the benefit of the TLTRO III transactions needs to be recognized, if the advantage of the below-market interest rate needs to be accounted for according to IAS 20.
    • whether it is acceptable, in terms of presentation, to add the amount of the benefit of the TLRTO III loan when calculating the carrying amount of the TLTRO III liability.
    • how to calculate the applicable effective interest rate and whether the changes in estimates of payments due to revised assessment of meeting the eligibility criteria should be accounted for in accordance with paragraph B5.4.6 of IFRS 9 requiring recalculation of the amortized cost of the financial liability or not.
    • how to account for changes in cash flows related to the prior period resulting from the bank’s lending behavior or from changes in TLTRO III conditions by ECB.

    ESMA is of the view that the lack of clarity of the wording of IFRS 9 and IAS 20 leads to divergent practices of the European banks. Given the overall volume of the TLTRO III operations, ESMA believes that this matter may have a material effect on the financial statements of banks and may be widespread across EU. ECB's TLTROs are intended to provide financing to credit institutions. The third TLTRO program, which consists of ten refinancing operations, each with a maturity of three years, started in September 2019. During 2020, certain transaction parameters were modified to support the continued access of bank credit to businesses and households in the face of disruptions and temporary funding shortages associated with the COVID-19 pandemic.

     

    Related Links

    Keywords: Europe, EU, Banking, TLTRO, IFRS 9, COVID-19, ECB, ESMA

    Featured Experts
    Related Articles
    News

    EBA Finalizes Templates for One-Off Climate Risk Scenario Analysis

    The European Banking Authority (EBA) has published the final templates, and the associated guidance, for collecting climate-related data for the one-off Fit-for-55 climate risk scenario analysis.

    November 28, 2023 WebPage Regulatory News
    News

    EBA Mulls Inclusion of Environmental & Social Risks to Pillar 1 Rules

    The European Banking Authority (EBA) recently published a report that recommends enhancements to the Pillar 1 framework, under the prudential rules, to capture environmental and social risks.

    October 31, 2023 WebPage Regulatory News
    News

    BCBS Consults on Disclosure of Crypto-Asset Exposures of Banks

    As a follow on from its prudential standard on the treatment of crypto-asset exposures, the Basel Committee on Banking Supervision (BCBS) proposed disclosure requirements for crypto-asset exposures of banks.

    October 19, 2023 WebPage Regulatory News
    News

    BCBS and EBA Publish Results of Basel III Monitoring Exercise

    The Basel Committee on Banking Supervision (BCBS) and the European Banking Authority (EBA) have published results of the Basel III monitoring exercise.

    October 18, 2023 WebPage Regulatory News
    News

    PRA Updates Timeline for Final Basel III Rules, Issues Other Updates

    The Prudential Regulation Authority (PRA) recently issued a few regulatory updates for banks, with the updated Basel implementation timelines being the key among them.

    October 18, 2023 WebPage Regulatory News
    News

    US Treasury Sets Out Principles for Net-Zero Financing

    The U.S. Department of the Treasury has recently set out the principles for net-zero financing and investment.

    October 17, 2023 WebPage Regulatory News
    News

    EC Launches Survey on G7 Principles on Generative AI

    The European Commission (EC) launched a stakeholder survey on the draft International Guiding Principles for organizations developing advanced artificial intelligence (AI) systems.

    October 14, 2023 WebPage Regulatory News
    News

    ISSB Sustainability Standards Expected to Become Global Baseline

    The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.

    September 18, 2023 WebPage Regulatory News
    News

    IOSCO, BIS, and FSB to Intensify Focus on Decentralized Finance

    Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.

    September 18, 2023 WebPage Regulatory News
    News

    BCBS Assesses NSFR and Large Exposures Rules in US

    The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.

    September 14, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8938