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.
Keywords: International, Europe, Accounting, Banking, IFRS 9, IBOR, Interest Rate Benchmark, Disclosures, Financial Instruments, COVID-19, IASB, ESMA
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleEBA Examines Impact of COVID Crisis on Banking Sector in EU
The European Commission (EC) published three Delegated Regulations (2021/2153, 2021/2154, and 2021/2155) to supplement the Investment Firms Directive (IFD or Directive 2019/2034).
The Financial Stability Board (FSB) published a report that presents results of the sixth non-bank financial intermediation monitoring exercise in the Americas.
The Bank for International Settlements (BIS) published the December issue of the Quarterly Review, which analyzes the non-bank financial intermediation mechanisms that could undermine financial stability.
The Bank of England (BoE) opened the Alternative Liquidity Facility, or ALF, for deposits from the participating UK-based Islamic banks for the first time.
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
The European Banking Authority (EBA) launched three consultations on technical aspects of the revised framework capturing interest rate risks for banking book (IRRBB) positions, with the comment period ending on April 04, 2022.
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
The European Banking Authority (EBA) published the sample of banks for the mandatory Basel III monitoring exercise, which will refer to the December 2021 data.
The Board of Governors of the Federal Reserve System (FED) is adopting a proposal to revise and extend for three years the Complex Institution Liquidity Monitoring Report (FR 2052a) for banks.
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.