22 June 2015

FEE: Call for timely endorsement of IFRS 9 on financial instruments

FEE supports EFRAG in asking the EC to request the IASB to defer the effective date of application of IFRS 9 for insurance companies, until the IASB finalises its upcoming insurance contracts standard.

FEE agrees with EFRAG’s assessment that IFRS 9 is an improvement on IAS 39, in FEE´s view in particular with regards to hedge accounting, own credit risk and the new impairment model based on expected credit losses. The latter will generally lead to more timely loss recognition compared to the current incurred loss model under IAS 39, which as noted in the DEA, meets the G20’s request made in the wake of the financial crisis to implement a forward-looking model for loss provisioning by financial institutions.

Given the improvements in reporting mandated by IFRS 9 FEE would welcome its swift adoption. Preparers, and particularly the financial services industry, will need time to implement the requirements of the new standard, but will not be able to begin this process until uncertainty surrounding the endorsement process is resolved.

FEE´s principal comment on the draft endorsement advice relates to the potential deferral of the standard for insurance business activities, while IFRS 4 Phase II is being finalised by the IASB. FEE agrees with EFRAG that the EC should ask the IASB to defer the effective date of application of IFRS 9 for institutions with significant insurance activities, or alternatively identify and assess any other workable solutions to address accounting mismatches that may obscure performance reporting by those institutions.

FEE stresses the importance of having an international solution for this matter. A Europe-only deferral would de facto be a carve-out from full IFRS, which in FEE´s view should generally be avoided as they do not come without consequences. Having said that, FEE recognises that the EC may consider deferral of the standard for institutions with significant insurance business activities within Europe - as a last resort – if the IASB would not introduce such a deferral nor find any alternative workable solution.

FEE believes that any deferral of IFRS 9 should be limited in duration, as it would be undesirable to have a significant new accounting standard, which is generally considered to significantly improve financial reporting for financial instruments, not being adopted by a significant segment of the financial sector in Europe for a prolonged period of time. Any deferral should be optional. 

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