Featured Product

    PRA Letter on Transitional Arrangements for Capital Impact of IFRS 9

    September 25, 2017

    The PRA published a letter on transitional arrangements for capital impact of the International Financial Reporting Standards (IFRS) 9 expected credit loss (ECL) accounting. Sam Woods, the Deputy Governor of Prudential Regulation, wrote this letter to CEOs; in the letter, he summarized the rationale for transitional arrangements, outlined the key features of the transitional arrangements that have been considered in Europe thus far, set out views of the PRA on UK firms using the arrangements, noted the tight timeframes within which UK firms will likely need to make a final decision, and requested a response on whether a firm intends to use the transitional arrangements.

    The letter identifies the need for transitional arrangements, as ECL provisioning will be sensitive to expectations of the future economic conditions. If, following transition to IFRS 9, firms give significant weight to adverse economic scenarios, there could be unanticipated large increases in provisions. Further, ECL provisioning is a completely new concept and the way it works in practice—including its volatility, pro-cyclicality, and effect on banks’ behaviorscan be gauged only in the light of experience. The letter further highlighted the EC proposal to amend the Capital Requirements Regulation (CRR), to establish IFRS 9-related transitional arrangements in November 2016 and that the European Council and European Parliament adopted the draft legislative texts around mid-2017.

     

    The PRA encourages UK firms to use them from the first day of IFRS 9 application, provided that the final CRR amendment establishes transitional arrangements broadly similar to those being considered. Subject to the need for sufficient resilience at the end of the transitional period, the PRA intends that all aspects of supervision of a firm using the transitional arrangements would be performed using transitional data on capital resources and not fully loaded figures. Since stress tests should reflect how stress would be experienced in reality, such tests will fully take account of transitional arrangements. The final amendment to the CRR may not become available until the end of 2017. The PRA advises firms to arrange for their boards to be in a position, if necessary, to make a final decision on the use of transitional arrangements in a compressed timescale across the year-end.

     

    Related Link: PRA Letter (PDF)

    Keywords: Europe, UK, Banking, Accounting, IFRS 9, Transitional Arrangements, ECL, CRR, PRA

    Featured Experts
    Related Articles
    News

    MAS Concludes Blockchain Payments Prototype Shows Commercial Potential

    MAS and Temasek jointly released a report to mark the successful conclusion of the fifth and final phase of Project Ubin, which focused on building a blockchain-based multi-currency payments network prototype.

    July 13, 2020 WebPage Regulatory News
    News

    PRA Publishes Public Working Draft of XBRL Taxonomy 1.2.0 for Insurers

    PRA published a public working draft, or PWD, of version 1.2.0 of the BoE Insurance XBRL taxonomy, along with the related technical artefacts.

    July 13, 2020 WebPage Regulatory News
    News

    CPMI Report Sets Out Building Blocks to Enhance Cross-Border Payments

    CPMI published a report that sets out nineteen building blocks for a global roadmap to improve cross-border payments.

    July 13, 2020 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10

    EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.

    July 10, 2020 WebPage Regulatory News
    News

    APRA Updates Reporting Validation Rules in July 2020

    APRA updated the lists of the Direct to APRA (D2A) validation rules for authorized deposit-taking institutions, insurers, and superannuation entities.

    July 10, 2020 WebPage Regulatory News
    News

    PRA to Partly Apply EBA Guidelines on Disclosures for COVID Measures

    PRA updated the statement that provides guidance to regulated firms on implementation of the EBA guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis.

    July 10, 2020 WebPage Regulatory News
    News

    EBA Updates List of Correlated Currencies Under CRR

    EBA updated the 2019 list of closely correlated currencies that was originally published in December 2013.

    July 10, 2020 WebPage Regulatory News
    News

    ESMA Guides on Securitization Repository Data Consistency Thresholds

    ESMA published the final report on the guidelines on securitization repository data completeness and consistency thresholds.

    July 10, 2020 WebPage Regulatory News
    News

    FASB Proposes to Delay Implementation of Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).

    July 09, 2020 WebPage Regulatory News
    News

    APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis

    APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.

    July 09, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5480