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In October 2017, the IASB issued Prepayment Features with Negative Compensation (Amendments to IFRS 9) ('the Amendments'), which were initially issued as an exposure draft ED/2017/3 in April 2017.
The Amendments, effective for annual periods beginning on or after 1 January 2019 with earlier application permitted, propose a change to IFRS 9 for particular financial assets that would otherwise have contractual cash flows that are solely payments of principal and interest but do not meet that condition only as a result of a negative prepayment feature. Specifically, for a financial asset that contains a prepayment option that may result in the payment of a reasonable negative compensation amount, the Amendments require the financial asset to be measured at amortised cost or at FVOCI, subject to the assessment of the business model in which it is held.
EFRAG has submitted its Endorsement Advice relating to the Amendments for use in the EU and EEA. EFRAG assesses that the Amendments meet all technical endorsement criteria of the IAS Regulation and are conducive to the European public good. It therefore recommends their endorsement.
Full endorsement advice letter