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IFRS 9 is a complex standard and, regardless of the impact assessment exercises performed by the EBA before its implementation, the post-implementation review is equally important because the full effects of IFRS 9 can be assessed comprehensively only when the standard has been fully implemented by institutions.
The challenge for regulators and supervisors is to ensure a high-quality and consistent implementation of the standard, since the outcome of the expected credit loss (ECL) calculation will directly impact the amount of own funds and regulatory ratios, despite the fact that regulators and supervisors are not in a position to validate the modelling aspects of IFRS 9, in contrast to the current situation in prudential areas such as credit risk or market risk. With this in mind, the EBA will continue monitoring and promoting a consistent application of IFRS 9 as well as working on its interaction with prudential requirements.
The EBA work will be organised around qualitative and quantitative monitoring. While the EBA has already communicated the rationale underpinning the qualitative monitoring, the purpose of this roadmap is to clarify further the next steps with regard to the quantitative monitoring.
An important aspect of the quantitative monitoring is the use of selected indicators extracted from regulatory reporting; these will be used in the monitoring activities to be carried out on a continuous basis. In 20 March 2019, the EBA updated its list of key risk indicators and its methodological guidance on risk indicators, integrating additional indicators based on IFRS 9 information. Another major aspect of the quantitative monitoring is the benchmarking of the modelling techniques used by EU institutions for IFRS 9 purposes.