Updated: October 2019
IBOR: We are concerned about splitting the project in two different projects and the limited topics that have
been addressed under Phase I. One important point for the industry is that any proposals should make
clear their scope of application. The Board may be aware that in the case of EURIBOR we do not foresee
a replacement of the benchmark, instead we are considering a change in the estimation methodology,
therefore, we believe that the Boards’ relief is not applicable and the industry will keep the current status
with no accounting. Moreover, the IASB should provide as soon as possible a relief on derecognition,
modification gain or loss and hedge accounting in order to avoid irrelevant impact of a changes in contractual
interests due to the IBOR reform.
Macro-hedging: the new approach being proposed is materially different from the current accounting under
IAS 39 and IFRS 9. Compared to these standards, the new approach will require significant IT developments
and may lead to more volatility in OCI, given that the changes in the value of the hedging instrument will not
be offset in OCI with the hedged item, and in a certain way will provide less flexibility and move away from
current risk management practices carried out by entities. We would suggest the Board to consider in the
future an approach or model that could be a continuity of IFRS 9 requirements for macro-hedges that better
align accounting with risk management.
FICE: the IASB DP has caused some concern among the banking industry, as some entities may not be
convinced that the expected benefits of the IASB’s preferred approach outweigh the costs of its
implementation. We would expect the Board to decide on the project direction taking into consideration the
feedback received and provide a comprehensive analysis on undated or perpetual hybrid securities such
as AT1 instruments and cooperative bank shares.
Impairment model and recycling: ESBG is in favour of the reintroduction of recycling that should also be
subject to impairment (similar to the IAS 39 model but with additional guidance to reduce subjectivity).
IFRS 17: ESBG believes that the standard cannot be endorsed without a solution to the issues mentioned
previously, as certain business models would not be faithfully portrayed under the current requirements of
the standard. Moreover, a deferral of at least two years in the current effective date of IFRS 17 is needed to
ensure a successful implementation.
The IASB decided in October 2018 to consider reopening the standard and explore potential areas of
improvements to IFRS17 and, while targeted improvements have been made, there are still significant issues
not considered. The most critical topics that still have to be addressed, and that were included between the
issues highlighted by the EFRAG, are the IFRS17 requirements related to transition, to the level of aggregation
and to the amortisation of the Contractual Service Margin for certain products with investment related services.
Transition: amendments are necessary in the transition requirements of the standard in order to (a) provide
useful information and correctly reflect how certain business lines, as long-term saving-products, are
managed, and (b) not impair comparability between contracts written before and after the date of transition.
Level of aggregation: annual cohorts and portfolio aggregation by profitability requirement does not portray
the business performance for long-term contracts like annuities and the way insurance contracts are
managed by insurers (pricing, etc.), additionally introducing operational complexity.
Amortisation of the Contractual Service Margin: current requirements do not correctly reflect the
economic performance of certain products with investment-related services.
Reinsurance contracts (ceded or accepted) should be eligible to the variable fee approach (VFA) in order
to avoid mismatch with underlying insurance contracts.
The major points of concern identified by the ESBG members are the following:
New proposed IFRS do not consider the business models that entities have in place; therefore not portraying
faithfully their financial position and limiting the production of useful information.
The need to have enough and reasonable time to implement any new requirement on a timely manner.
Costs of implementing proposed new requirements and the likely ongoing associated costs and benefits of
each new IFRS Standard.
The possible broader economic consequences of new financial reporting requirements, particularly on
IFRS 9 FINANCIAL INSTRUMENTS
Multiple issues related directly or indirectly with IFRS 9 Financial Instruments have been spotted:
Within IASB work plan (standard setting process and research projects)
Within the European Commission and EFRAG work plan
IFRS 17 INSURANCE CONTRACTS
Entities with insurance business face the implementation of IFRS 17 Insurance Contracts facing
several issues. IFRS 17 Insurance contracts sets out the requirements an entity must apply when
accounting for insurance contracts issued and reinsurance contracts entered into. The currently
approved effective date of this standard is 1 January 2021, at which time it will replace IFRS 4
Insurance Contracts, a temporary standard allowing for the continued use of local accounting
practices, whereby insurance contracts are accounted for differently in different jurisdictions.
In December 2018 the IASB tentatively decided to defer the date on which the standard will be first
be applied, in addition to other aspects. Therefore, in the event of this decision being final, the effective
date would ultimately be 1 January 2022 (with a minimum of one-year comparative information).
Implementation of IFRS 17 will standardise the accounting treatment for all insurance contracts, based
on a measurement model using calculation assumptions updated at each reporting date (such as the
discount rate, mortality and survival tables, and other variables). Ongoing implementation projects,
however, have identified the need for more time and for improvements to the standard in order to
address issues that impact on meaningful reporting and introduce significant operational challenges.
International Financial Reporting Standards (IFRS) set common rules so that financial statements can be
consistent, transparent and comparable around the world. IFRS are issued by the International Accounting
Standards Board (IASB). They specify how companies must maintain and report their accounts, defining types
of transactions and other events with financial impact. IFRS were established to create a common accounting
language, so that businesses and their financial statements can be consistent and reliable from company to
company and country to country. The current suite of IFRS consists of 25 IAS, 17 IFRS and 18 Interpretations.
144 jurisdictions require IFRS or 87% of the world. IFRS are designed to bring consistency to accounting
language, practices and statements, and to help businesses and investors make educated financial analyses