June 05, 2019

FASB published a summary of the tentative decisions taken at its Board meeting in June 2019. The purpose of this decision-making Board meeting was to discuss proposed codification improvements to the amendments in FASB Accounting Standards Update No. 2016-13, titled Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Board discussed three issues raised by stakeholders during implementation of the Accounting Standards Update No. 2016-13 and these issues relate to the negative allowances on purchased financial assets with credit deterioration, the negative allowances on available-for-sale debt securities, and the miscellaneous technical improvements for Update 2016-13.

  • The information to be provided by a third party seeking authorization to assess the compliance of securitizations with the STS criteria provided for in Securitization Regulation should enable a competent authority to evaluate whether and, to what extent, the applicant meets the conditions of Article 28(1) of the Securitization Regulation. An authorized third party will be able to provide STS assessment services across EU. The application for authorization should, therefore, comprehensively identify that third party, any group to which this third party belongs, and the scope of its activities. With regard to the STS assessment services to be provided, the application should include the envisaged scope of the services to be provided as well as their geographical scope, particularly the following:

    • To facilitate effective use of the authorization resources of a competent authority, each application for authorization should include a table clearly identifying each submitted document and its relevance to the conditions that must be met for authorization.
    • To enable the competent authority to assess whether the fees charged by the third party are non-discriminatory and are sufficient and appropriate to cover the costs for the provision of the STS assessment services, as required by Article 28(1)(a) of Securitization Regulation, the third party should provide comprehensive information on pricing policies, pricing criteria, fee structures, and fee schedules.
    • To enable the competent authority to assess whether the third party is able to ensure the integrity and independence of the STS assessment process, that third party should provide information on the structure of those internal controls. Furthermore, the third party should provide comprehensive information on the composition of the management body and on the qualifications and repute of each of its members.
    • To enable the competent authority to assess whether the third party has sufficient operational safeguards and internal processes to assess STS compliance, the third party should provide information on its procedures relating to the required qualification of its staff. The third party should also demonstrate that its STS assessment methodology is sensitive to the type of securitization and that specifies separate procedures and safeguards for asset-backed commercial paper (ABCP) transactions/programs and non-ABCP securitizations.

    The use of outsourcing arrangements and a reliance on the use of external experts can raise concerns about the robustness of operational safeguards and internal processes. The application should, therefore, contain specific information about the nature and scope of any such outsourcing arrangements or use of external experts as well as the third party's governance over those arrangements. Regulation (EU) 2019/885 is based on the draft regulatory technical standards submitted by ESMA to EC.

     

    Related Links

    Effective Date: June 18, 2019

    Press Release
  • Proposed Rule 1
  • Proposed Rule 2
  • Proposed Rule 3
  • Presentation on Regulatory Framework (PDF)
  • Presentation on Resolution Plan Rules (PDF)
  • The Board decided that, for entities that have not adopted the amendments in Update 2016-13, the transition requirements and effective dates of the proposed amendments would align with those of the Update 2016-13. For entities that have adopted the amendments in Update 2016-13, the proposed amendments would be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption would be permitted if an entity has already adopted the amendments in Update 2016-13. For entities that have adopted the amendments in Update 2016-13, the proposed amendments would be applied on a modified retrospective basis by means of a cumulative-effect adjustment to the opening retained earnings balance in the statement of financial position, as of the date an entity adopted the amendments in Update 2016-13. The Board directed staff to draft a proposed Accounting Standards Update for vote by written ballot, with a comment period of 30 days.

     

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    Keywords: Americas, US, Banking, Accounting, Tentative Decisions, Accounting Standards Update, Topic 326, Financial Instrument, IFRS 9, Credit Risk, FASB

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