ESMA Responds to IASB Consultation on Interest Rate Benchmark Reform
ESMA published a letter responding to IASB on the exposure draft on the phase 2 of the interest rate benchmark reform. In its letter, ESMA welcomed the IASB initiative to consider as a priority the effects of the reform of the interest rate benchmark (replacement issues) on the financial statements of entities. ESMA also published a letter to the European Financial Reporting Advisory Group (EFRAG) on the draft comment letter of EFRAG on the IASB exposure draft on phase 2 of the interest rate benchmark reform. Annex 1 to both the letters contains suggestions to improve the current draft to ensure consistency and understandability of the proposed amendments to IFRS 9.
In the response letter to IASB, ESMA supported proposals regarding additional disclosures and agrees with the proposed effective date and transition provisions, which would ensure comparability across entities and apply at the relevant period of issuers’ transition to alternative benchmark rates. It also supported the proposals to limit the scope of the amendment to the modifications arising from the interest rate benchmark reform. Additionally, ESMA agreed with the proposal to prescribe a practical expedient to account for the modification of a financial asset or liability that is required by the interest rate benchmark reform. ESMA encouraged IASB to
- clearly exclude the possibility that this amendment can be applied by analogy to circumstances other than those for which they were developed
- include, in addition to those proposed in paragraph 6.9.4, examples of modifications of a financial asset or financial liability, which would not meet the conditions described in paragraph 6.9.3 of the exposure draft
Other proposals that ESMA supported involve accounting for the amendment of the designation of qualifying hedging relationships and relate to the designation of risk components and portions. In light of the market disruption linked to the COVID-19 pandemic, ESMA recommended in the letter that IASB continue to monitor future developments of alternative rate markets to assess whether it may become necessary to extend the 24-month temporary relief period for the separately identifiable assessment, since the establishment of sufficiently liquid alternative rate markets could take longer than currently envisaged.
Related Links
Keywords: International, Europe, Accounting, Banking, IFRS 9, IBOR, Interest Rate Benchmark, Disclosures, Financial Instruments, COVID-19, IASB, ESMA
Featured Experts
Scott Dietz
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
Anna Krayn
CECL adoption expert; engagement manager for loss estimation, internal risk capability enhancement, and counterparty credit risk management
Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant
Previous Article
FED Revises Supplementary Leverage Ratio Rule and FR Y-9 ReportsRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
