Featured Product

    ESMA and ISDA Respond to Post-Implementation Review on IFRS 9 Standard

    The International Swaps and Derivatives Association (ISDA) and the European Securities and Markets Authority (ESMA) issued a letter each, in response to the request for information from the International Accounting Standards Board (IASB) on post-implementation review of the classification and measurement requirements in the financial instruments standard IFRS 9. ESMA and ISDA both support the post-implementation review and suggest certain improvements that can be implemented, with ISDA mostly covering aspects that have direct or indirect relevance for derivatives.

    Additionally, ISDA notes that two aspects of IFRS 9 classification and measurement, which its members think warrant the Board’s particular consideration, relate to contractual cash flow characteristics as follows: 

    • For financial assets with environmental social and governance (ESG) features (such as those included in certain lending arrangements), the members recommend this is considered as part of either the loan’s variable profit margin, or a normal lending arrangement. This is consistent with how the members consider these features in the context of meeting their externally published ESG targets and accommodating the needs of borrowers to commit to similar ESG related targets. Recognition of such lending arrangements at amortized cost also ensures that the most decision-useful information on the ESG lending is presented to users of the financial statements.
    • Contractually linked instruments is an area in which the members consider that the existing guidance does not meet the objectives for which it was developed. It would benefit from clarification of key definitions and the addition of examples and guidance to better indicate how it should be applied. Consideration should also be given for revising the scope of instruments captured by this guidance.

    In its letter, ESMA strongly supports post implementation review as an opportunity to assess how issuers apply in their financial statements the IFRS requirements and how these can be further improved to address any issues that may challenge consistent application, enforceability, and usefulness to users of financial statements. ESMA calls on IASB to provide more guidance on the assessment of whether sales of financial assets are compatible with the business model “held to collect” and the change in the objective of the entity’s business model. It recommends that IASB provide additional guidance and/or examples to assess whether the cash flows of certain assets with sustainability features are cash flows that are solely payments of principal and interest. Considering the increasing importance of this issue, ESMA believes that it should be addressed by IASB in a timely manner outside the post-implementation review. ESMA also recommends for IASB to provide further explanations on assessing when modified financial instruments shall be derecognized, including the criteria for derecognition and practical examples illustrating the application of those criteria. ESMA would welcome further guidance on the question of whether conditions attached to the interest rate should be reflected in the estimates and revisions of expected future cash flows when determining the effective interest rate. ESMA emphasizes that certain fact patterns related to the classification of non-derivative financial instruments as held for trading may warrant further guidance from IASB. The answers to the request for information, as included in Appendix to the letter, are based on the evidence from supervision and enforcement activities undertaken by European enforcers on financial statements, as discussed within the European Enforcers Coordination Sessions (EECS) and the Financial Institutions Task Force (FITF).


    Related Links 

    Keywords: International, Europe, EU, Banking, IFRS 9, Financial Instruments, Post Implementation Review, Credit Risk, Reporting, Sustainable Finance, ESG, Lending, Derivatives, ISDA, IASB, ESMA

    Featured Experts
    Related Articles

    BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks

    The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.

    March 13, 2023 WebPage Regulatory News

    OSFI Finalizes on Climate Risk Guideline, Issues Other Updates

    The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.

    March 12, 2023 WebPage Regulatory News

    BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending

    BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.

    March 03, 2023 WebPage Regulatory News

    HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks

    The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.

    March 02, 2023 WebPage Regulatory News

    BCBS Report Examines Impact of Basel III Framework for Banks

    The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.

    February 28, 2023 WebPage Regulatory News

    PRA Consults on Prudential Rules for "Simpler-Regime" Firms

    Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.

    February 28, 2023 WebPage Regulatory News

    DNB Publishes Multiple Reporting Updates for Banks

    DNB, the central bank of Netherlands, updated the list of additional reporting requests and published additional data quality checks and XBRL-Formula linkbase documents for the first quarter of 2023.

    February 28, 2023 WebPage Regulatory News

    NBB Sets Out Climate Risk Expectations, Issues Reporting Updates

    The National Bank of Belgium (NBB) published a communication on climate-related and environmental risks, issued an update on XBRL reporting

    February 24, 2023 WebPage Regulatory News

    EBA Updates Address Securitization Standards and DGS Guidelines

    The European Banking Authority (EBA) published the final draft of the regulatory technical standards that set out conditions for assessment of homogeneity of the underlying exposures in simple, transparent, and standardized (STS) securitizations.

    February 21, 2023 WebPage Regulatory News

    FSB Publishes Letter to G20, Sets Out Work Priorities for 2023

    The Financial Stability Board (FSB) published a letter intended for the G20 Finance Ministers and Central Bank Governors, highlighting the work that FSB will take forward under the Indian G20 Presidency in 2023

    February 20, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8793