Shearman & Sterling LLP | Financial Regulatory Developments Focus | European Banking Authority Publishes Guidelines on Uniform Disclosure of IFRS 9 Transitional Arrangements
Financial Regulatory Developments Focus
  • European Banking Authority Publishes Guidelines on Uniform Disclosure of IFRS 9 Transitional Arrangements
    The European Banking Authority has published a final Report and final Guidelines on uniform disclosures under the Capital Requirements Regulation regarding the transitional period for mitigating the impact of the introduction of International Financial Reporting Standard 9 (known as IFRS 9) on own funds.

    IFRS 9, which applies for accounting periods beginning January 1, 2018, will require the measurement of impairment loss allowances to be based on an expected credit loss accounting model rather than on an incurred loss accounting model. The application of IFRS 9 could lead to a sudden significant increase in expected credit loss provisions and consequently to a sudden decrease in an institution's Common Equity Tier 1 capital. For this reason, institutions that prefer not to recognize the full impact of IFRS 9 (or analogous ECL models) immediately have the option of phasing in implementation of IFRS 9 over a transitional period.

    IFRS 9 is being implemented in the EU through a regulation amending the CRR which sets out transitional provisions. The amending Regulation applied directly across the EU from January 1, 2018. A firm that uses the transitional arrangements must publicly disclose its own funds, capital ratios and leverage ratios both with the application of the transitional arrangements and also on a "fully-loaded" basis, i.e., as if the transitional arrangements had not been applied.

    The EBA's Guidelines set out a uniform disclosure format to enable institutions to make IFRS 9 (or analogous ECL) disclosures in a consistent and comparable way during the transitional period. The Guidelines will be published on EBA's website, and national regulators must then notify the EBA within two months if they intend to comply with the guidelines. These notifications will also be published on the EBA's website.

    View the final Guidelines.

    View the CRR IFRS amending Regulation.