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
    News

    APRA Publishes Results of Climate Risk Self-Assessment Survey

    The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.

    August 04, 2022 WebPage Regulatory News
    News

    ACPR Publishes Updates Related to CRD IV and Covered Bonds

    The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).

    August 03, 2022 WebPage Regulatory News
    News

    BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs

    The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.

    August 03, 2022 WebPage Regulatory News
    News

    EIOPA Publishes Guidance on Climate Change Scenarios in ORSA

    The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

    August 02, 2022 WebPage Regulatory News
    News

    EBA and ECB Respond to Proposals on Sustainability Disclosures

    The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.

    August 01, 2022 WebPage Regulatory News
    News

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    July 29, 2022 WebPage Regulatory News
    News

    EBA Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News
    News

    EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 29, 2022 WebPage Regulatory News
    News

    EESC Opines on Proposals on CRR and European Single Access Point

    The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).

    July 29, 2022 WebPage Regulatory News
    News

    HM Treasury Publishes Multiple Regulatory Updates in July 2022

    HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.

    July 29, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8423