Draft Comment Letter - Risk Mitigation Accounting Proposed amendments to IFRS 9 and IFRS 7

[Dr Andreas Barckow] Chairman International Accounting Standards Board Columbus Building 7 Westferry Circus Canary Wharf London E14 4HD

[XX November 2026]

Dear [IASB Chair]

1The UK Endorsement Board (UKEB) welcomes the opportunity to comment on the International Accounting Standards Board’s (IASB) Exposure Draft (ED) Risk Mitigation Accounting—Proposed amendments to IFRS 9 and IFRS 7. To develop our [draft] response, our work [to date] has included in-house research and [initial] consultations with stakeholders in the UK, including preparers, accounting firms and users of accounts. [This work continues and will inform our final comment letter.]

2We welcome the IASB’s efforts to address challenges entities face in faithfully representing the economic effects of dynamic repricing risk management activities in financial statements in a way that provides useful information to users of financial statements. However, the UKEB is not yet in a position to provide a clear view as to whether the proposals in the IASB’s ED, as drafted, will achieve their objectives.

3Given the variety of dynamic interest rate repricing risk management activities undertaken in practice, it is important to understand if the current proposals will achieve their objectives in a way that can:

1. be justified within the context of principle-based IFRS Accounting Standards;
2. be implemented in practice without undue cost or effort; and
3. provide more useful information to users of financial statements, compared with current practice.

4UK stakeholder feedback, including the results of fieldwork, will be key to assessing whether this is the case. Therefore, the UKEB intends to analyse the results of UK stakeholders’ fieldwork (due to the IASB on 30 November 2026) before providing any final view on the IASB’s proposals.

5This letter, together with the detailed comments in the Appendix, reflects the UKEB’s interim views and is intended to contribute constructively to the IASB’s efforts in developing high-quality IFRS Accounting Standards. These views are likely to evolve as further information becomes available from stakeholder field-testing that is currently underway. In the Appendix, we set out areas where we believe further work, clarification or additional guidance is required. The most significant points we would like to highlight at this stage are presented in the paragraphs that follow.

Objective

6The IASB proposes to introduce Risk Mitigation Accounting (RMA) with an objective for financial statements to better represent the economic effect of an entity’s risk management activities, if the entity manages repricing risk on a net basis.

7However, we observe that full alignment between accounting and risk management practices is unlikely to be achievable when RMA is implemented. Interest rate environments differ across jurisdictions and, although there are common features to various approaches to interest rate risk management, there is no single, consistent approach to managing repricing risk among banks. As a result, we expect that RMA cannot achieve a full reflection of all aspects of repricing risk management in the financial statements.

8[While some degree of misalignment might be unavoidable, further work is needed to assess whether the IASB’s proposals, as currently drafted, could still reflect the underlying risk management objectives in a way that it is both able to be implemented without undue cost or effort (which might include some change to existing risk management practices), and provides useful information to users of financial statements. This work should also consider the potential implications for IFRS reporters (including smaller banks and other entities) that are currently applying IAS 39 Financial Instruments: Recognition and Measurement, with or without the ‘carve-out’ included in UK-Adopted International Accounting Standards¹.]

9Moreover, we observe that RMA, as currently proposed, departs from the Conceptual Framework for Financial Reporting (Conceptual Framework), as the recognition of the risk mitigation adjustment on the balance sheet would not be consistent with the definition of an asset or a liability in the Conceptual Framework. We consider that the IASB needs to offer a better articulation of its rationale and justification for proposing such a departure.

10[Further work is therefore needed to assess whether any such departure is justified to fulfil the objective of risk mitigation accounting by providing more useful information on repricing risk activities to users of financial statements, in a manner that is operational without undue cost or effort.]

Scope

11The scope of the proposed amendments is entities that manage repricing risk on a net basis using derivatives, such as banks. Insurers and corporates with large treasury functions may also be captured within this scope.

12[While we support an approach that is not restricted to a specific industry, we note that the proposed model was developed primarily with certain banking risk management practices in mind. Further work is required to assess the full extent of the scope and whether the proposed amendments would be suitable for the other types of entities in scope. This is particularly so given the disclosure obligations on those entities in scope that choose not to apply the RMA requirements. Preliminary stakeholder feedback indicates for example that there appear to be considerable challenges in applying the proposals, as currently drafted, for UK insurers.]

Risk Mitigation Adjustment Excess

13We have identified a number of technical matters in the proposed amendments, which are discussed in more detail in the Appendix [that require further assessment]. The most significant of these relates to the risk mitigation adjustment excess test. In principle, we support the proposed requirement for entities to assess, at each reporting date, if the risk mitigation adjustment might not be fully realised over the mitigated time horizon. [However, the extent to which the proposals would achieve their intended outcome remains to be seen at this stage. Early stakeholder feedback has identified that the proposals in this area may not work as intended in certain scenarios.]

Transition

14Given the complexity of RMA, we believe that a longer timeline for transitioning to RMA (or to general hedge accounting requirements under Chapter 6 of IFRS 9 Financial Instruments if an entity elected to do so) may be warranted if and when the proposed amendments are finalised.

15Further detail and responses to the IASB’s specific questions about the ED are included in the Appendix to this letter.

If you have any questions about this response, please contact the project team at [email protected].

Yours sincerely,

Paul Lee
Chair
UK Endorsement Board

About the UKEB: The UK Endorsement Board is responsible for endorsement and adoption of IFRS Accounting Standards for use in the UK and therefore is the UK’s National Standard Setter for IFRS Accounting Standards. The UKEB also leads the UK’s engagement with the IFRS Foundation on the development of new standards, amendments and interpretations.

About IFRS in the UK: Approximately [11,000] entities in the UK prepare their financial statements in accordance with IFRS Accounting Standards (Source: HMRC, October 2025). These figures are unconsolidated and include both listed and unlisted entities². Of these entities, approximately [1,400] have equity listed on UK regulated markets, the London Stock Exchange³ and the Aquis Exchange⁴.

About this letter: This letter is intended to contribute to the Foundation’s due process. The views expressed by the UKEB in this letter are separate from, and will not necessarily affect the conclusions in, any endorsement and adoption assessment on new or amended international accounting standards undertaken by the UKEB.

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Appendix A: Questions on IASB/ED/2025/1 Risk Mitigation Accounting—Proposed amendments to IFRS 9 and IFRS 7

Question 1—Objective and scope of risk mitigation accounting (Section 7.1)

The IASB proposes that: a) the objective of risk mitigation accounting be for financial statements to represent the economic effect of an entity’s risk management activities if the entity manages repricing risk on a net basis. b) risk mitigation accounting be applied on a voluntary basis. However, an entity would be permitted to apply risk mitigation accounting if, and only if, the entity mitigates repricing risk on a net basis and the entity’s business and risk management activities have the characteristics specified in paragraph 7.1.4. c) an entity be required to document formally how it will apply risk mitigation accounting.

Paragraphs BC11–BC37 of the Basis for Conclusions explain the IASB’s rationale for these proposals.

Do you agree with these proposals? Why or why not? If you disagree with any of these proposals, please explain what you would suggest instead and why.

Objective

A1We support RMA’s objective for financial statements to better represent the economic effect of an entity’s risk management activities, if the entity manages repricing risk⁵ on a net basis. We also support the additional objective of providing information about the purpose and effect of derivatives used to mitigate repricing risk.

A2However, as the IASB acknowledges, full alignment between accounting and risk management practices is unlikely to be achievable, as each is likely to have differences in their objectives⁶.

A3Interest rate environments also differ across jurisdictions. Although there are common features in approaches to interest rate risk management, there is no single, consistent approach for managing repricing risk across banks. As a result, we do not expect the proposed RMA could reflect every bank’s existing risk management practices.

A4For example, the items that are eligible for inclusion in the RMA underlying portfolios might not be fully aligned to an entity’s risk management practice. Differences in eligible items would then have a knock-on effect on the identification of the designated derivatives related to those eligible items for purposes of the proposed RMA. (Refer also to our response in Question 4).

A5While such misalignment might be unavoidable, further work is needed to understand whether the proposed RMA could still reflect the underlying risk management objectives in a way that is both able to be implemented without undue cost or effort (which might include some change to existing risk management practices), and provides useful information to users of financial statements.

A6A particular area of focus should be the potential implications for small and medium sized organisations, for which the application of the proposed RMA could be particularly challenging.

Credit risk

A7The proposals make it clear that the effect of credit risk should not dominate the changes in the fair value of the designated derivatives. However, the proposals are silent in relation to the consideration of the effects of credit risk in the determination of an entity’s net repricing risk exposure⁷.

A8The UKEB interprets the absence of detailed guidance in the ED to indicate that in determining an entity’s net repricing risk exposure, the entity will consider the effects of credit risk in accordance with its risk management strategy. We recommend the IASB make this consideration explicit in the proposed amendments.

A9If that is not the IASB’s intended interpretation, we suggest further clarification and guidance, including how credit risk is intended to interact with the various aspects of RMA, such as the underlying portfolios, net repricing risk exposure, benchmark derivatives, the risk mitigation adjustment and discontinuation.

Voluntary application

A10We support the proposed approach for entities to be permitted, but not required, to apply RMA, if they meet the criteria to be in scope of the proposals. The approach proposed by RMA is complex, and entities should be allowed to consider the likely costs and benefits of applying the proposals. Such an approach would be consistent with the existing voluntary application of hedge accounting requirements in IFRS 9 and IAS 39.

Scope

A11The scope of the proposed amendments is entities that manage repricing risk on a net basis using derivatives. Entities including banks, insurers and corporates with large treasury functions could fall within this scope.

A12While we support an approach that is not restricted to a specific industry, we are aware that the proposed model was developed with banks’ risk management practices in mind. Further work needs to be undertaken to assess whether the proposed model would be suitable for non-banks. Preliminary stakeholder feedback indicates, for example, that there appear to be considerable challenges in applying the proposals, as currently drafted, for UK insurers. (See further information in Question 11 below).

Level of application

A13In principle, we support the IASB proposal to require entities to apply RMA at the level at which the entity mitigates the repricing risk arising from underlying portfolios in accordance with its risk management activities.

A14However, this might give rise to application challenges given that within a single organisation risk mitigation may take place at several levels. For example, risk mitigation may take place first at a subsidiary (or branch) level and subsequently at a higher consolidated level. Further work is needed to understand the practical implications of this requirement.

Formal documentation

A15We support the proposed requirement for an entity to formally document how it would apply the RMA requirements for each subset of underlying portfolios that is separately managed for repricing risk on a net basis.

A16However, as noted above, the proposed RMA may result in a risk mitigation strategy for accounting purposes that may not be fully aligned with an entity’s existing risk management practices. Therefore, without any adjustment to its risk management practices an entity may be required to maintain dual formal documentation of their risk management strategy - for risk management and for accounting purposes - respectively. Further work will inform the likely complexity and additional operational burden for entities and/or the desirability and practicality of adjusting existing risk management practices to align with the accounting model.

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Question 2—Underlying portfolios (paragraphs 7.2.1–7.2.4)

The IASB proposes that risk mitigation accounting be applied based on underlying portfolios—that is, portfolios of financial instruments that expose an entity to repricing risk. The IASB proposes that financial instruments be eligible for inclusion in underlying portfolios only if they are: a) financial assets classified as subsequently measured at amortised cost or fair value through other comprehensive income (in accordance with paragraphs 4.1.2 or 4.1.2A of IFRS 9 Financial Instruments); b) financial liabilities classified as subsequently measured at amortised cost (in accordance with paragraph 4.2.1 of IFRS 9); or c) future transactions that could result in the recognition or derecognition of financial instruments specified in (a) or (b).

The IASB is also proposing that an entity apply risk mitigation accounting only to its exposure to repricing risk that is not otherwise mitigated. However, if a financial instrument is designated as a hedged item for a risk other than repricing risk, the hedged exposure would be eligible for inclusion in underlying portfolios.

Paragraphs BC38–BC63 of the Basis for Conclusions explain the IASB’s rationale for these proposals.

Do you agree with these proposals? Why or why not? If you disagree with any of these proposals, please explain what you would suggest instead and why.

Underlying portfolios

A17We generally support the proposed amendments related to underlying portfolios, including allowing the inclusion of financial instruments that give rise to repricing risk only on a portfolio basis (e.g. demand deposits). However, we think there are certain aspects below which can be clearer.

Potential improvement on the clarity of the proposals

Future transactions

A18Our understanding of the proposed amendments is that the list of future transactions that are eligible for inclusion in the underlying portfolios described in paragraph 7.2.4 of the ED is meant to be an exhaustive list. Therefore, we believe the clarity of this paragraph can be improved by replacing the word “include” with “are”.

Pipeline mortgages

A19We understand that there is typically a swap programme in place to determine both the rate and the term underpinning fixed rate mortgage offers made in the UK. It is in this context that we agree with the proposed amendments that such forecast transactions can be treated as fixed rate exposures, even though the bank may not yet be committed to the rate, to the extent their volume meets the highly probable criterion on a portfolio basis. This is based on our understanding of paragraph B7.2.5 of the ED and paragraph BC55 of the Basis for Conclusions and this is the approach that appears to be taken in the Illustrative Examples⁸, particularly paragraph IE193(b).

A20However, this treatment is not clear from the wording of the ED. We also believe that it would be clearer if the above context were provided in the ED as an example of when a fixed rate future transaction is highly probable.

Demand deposits

A21We consider that the Illustrative Examples, specifically paragraph IE197(d), can be clarified by explaining that a portion of customer deposits repayable on demand can be treated as fixed rate exposures to the extent they are expected to be insensitive to interest rate changes.

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Question 3—Determining the net repricing risk exposure (paragraphs 7.2.5–7.2.10)

The IASB proposes that an entity determine the net repricing risk exposure by aggregating the repricing risk arising from underlying portfolios by repricing time bands based on expected repricing dates. The expected repricing date is the earlier of the dates on which financial instruments in the underlying portfolios are expected to be settled or to reprice.

The IASB also proposes that the entity determine the net repricing risk exposure in a manner that is consistent with how it makes risk management decisions, including with regard to: a) the basis on which the entity aggregates the repricing risk arising from underlying portfolios and determines the repricing time bands (based on expected repricing dates); and b) the measure the entity uses to quantify the repricing risk exposure in each repricing time band.

Paragraphs BC64–BC69 of the Basis for Conclusions explain the IASB’s rationale for these proposals.

Do you agree with these proposals? Why or why not? If you disagree with any of these proposals, please explain what you would suggest instead and why.

A22While the proposed amendments require an entity to determine the net repricing risk exposure (NRRE) consistently with how its risk management decisions are made, early stakeholder feedback suggests that the proposed requirements to quantify the NRRE and restrict the risk mitigation objective to be within the amount of NRRE in each repricing time band may not align with certain risk management strategies. Clarification in the proposed amendments from the IASB is needed to alleviate concerns in this area.

A23For example, early stakeholder feedback indicates that the proposed amendments may not be a good fit when a present value per basis point⁹ measure is used for risk management purposes, which we understand is a risk management measure used in the UK.

A24This type of risk management may not be reflected within RMA when the maturity dates of the designated derivative (e.g. an interest rate swap) and the relevant financial instruments that underlie the NRRE are in adjacent repricing time bands since the risk mitigation objective would exceed the NRRE in the repricing time band where the designated derivative matures.

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Question 4—Designated derivatives (Section 7.3)

The IASB proposes that only interest rate derivatives with a party external to the reporting entity that are used to mitigate the entity’s repricing risk in accordance with its risk management strategy be eligible to be included as designated derivatives.

Paragraphs BC70–BC77 of the Basis for Conclusions explain the IASB’s rationale for these proposals.

Do you agree with these proposals? Why or why not? If you disagree with any of these proposals, please explain what you would suggest instead and why.

A25We generally support the IASB’s proposals in relation to designated derivatives, noting that they are broadly similar to existing hedge accounting requirements for hedging instruments under Chapter 6 of IFRS 9.

A26However, we think there is a lack of clarity on how RMA functions when non-linear designated derivatives, such as options, are used to mitigate repricing risk. For example, there does not appear to be guidance on how the time value of options are accounted for under the proposed model.

A27As noted above, the proposed RMA may result in a risk mitigation strategy for accounting purposes that may not be fully aligned with an entity’s existing risk management practices; such misalignment might be unavoidable.

A28From an operational perspective, where there are differences between the items being risk managed in practice and the items eligible for inclusion for accounting purposes (i.e. in the RMA underlying portfolios), we believe there may be application challenges in identifying the relevant designated derivatives to be included in or excluded from RMA (e.g. in cases where a single derivative was used to manage the net repricing risk arising from a combination of eligible and ineligible items). [Further work needs to be undertaken to understand the extent of such application challenges].

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Question 5—Risk mitigation objective and benchmark derivatives (paragraphs 7.4.1–7.4.7)

The IASB proposes that an entity: a) specify a risk mitigation objective that is consistent with the amount of repricing risk the entity mitigates using designated derivatives, but does not exceed the amount of net repricing risk exposure in each repricing time band; b) construct benchmark derivatives to replicate the timing and amount of repricing risk as specified in the risk mitigation objective; and c) adjust the amount of repricing risk represented by the benchmark derivatives if unexpected changes in financial instruments included in underlying portfolios reduce the net repricing risk exposure to an amount below the risk mitigation objective specified at the beginning of the period.

Paragraphs BC78–BC87 of the Basis for Conclusions explain the IASB’s rationale for these proposals.

Do you agree with these proposals? Why or why not? If you disagree with any of these proposals, please explain what you would suggest instead and why.

A29We support a risk mitigation objective that is consistent with the amount of repricing risk the entity mitigates using designated derivatives. However, as noted in our response to Question 3, further work is needed to assess the implications of the requirement that the risk mitigation objective does not exceed the amount of net repricing risk exposure in each repricing time band and whether this proposed requirement would be suitable for certain risk management strategies applied in the UK.

A30In addition, we support the use of benchmark derivatives that represent the timing and amount of repricing risk specified in the risk mitigation objective. Conceptually, benchmark derivatives are similar to the ‘hypothetical derivatives’ currently used in cash flow hedge accounting¹⁰.

A31However, we recommend that the IASB consider providing additional guidance in relation to the construction of benchmark derivatives, for example, the determination of the repricing date for a benchmark derivative within a repricing time band (e.g. at the beginning, middle point or end, or other approach).

A32In particular, further clarity is needed as to the intended interpretation of the requirement in ED B7.4.8, which states that benchmark derivatives can only include features that are present in both the designated derivatives and the repricing risk represented by the risk mitigation objective (the latter of which is required to be evidenced by the entity’s designated derivatives¹¹).

A33This is particularly relevant for the construction of benchmark derivatives when the underlying portfolios contain optionality (e.g. mortgage loans with an option for the borrower to prepay). In our view, the benchmark derivative should reflect the entity’s expectations on borrowers’ prepayments irrespective of whether the entity is using options as its designated derivatives for risk management purposes. If that is not the IASB’s intended interpretation, we recommend enhancing the clarity of the proposed requirements.

A34Other areas where we consider further guidance would be welcome are:

1. the acceptable approaches for adjusting the benchmark derivatives to capture the effects of ‘unexpected changes’ in the underlying portfolios, and
2. examples of circumstances when the operational simplification (in proposed paragraph B7.4.14 that allows an entity to deem the unexpected changes to have occurred at the time when the risk mitigation objective was last specified) could be applied.

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Question 6—Recognising and measuring the risk mitigation adjustment (paragraphs 7.4.8–7.4.14)

The IASB proposes that an entity: a) recognise the risk mitigation adjustment in the statement of financial position based on the lower of: i. the cumulative gains or losses on the designated derivatives; and ii. the cumulative change in the fair value (present value) of the benchmark derivatives; b) recognise in profit or loss the amount accumulated as the risk mitigation adjustment in the same periods during which the repricing differences arising from the financial instruments in the underlying portfolios affect profit or loss; c) assess, at each reporting date, whether there is an indication that the risk mitigation adjustment might not be realised in full over the mitigated time horizon; and d) recognise immediately in profit or loss a reduction in the amount accumulated as the risk mitigation adjustment if it exceeds the present value of the net repricing risk exposure as at the reporting date.

Paragraphs BC88–BC116 of the Basis for Conclusions explain the IASB’s rationale for these proposals.

Do you agree with these proposals? Why or why not? If you disagree with any of these proposals, please explain what you would suggest instead and why.

Risk mitigation adjustment

Departure from the Conceptual Framework

A35The Basis for Conclusions, specifically paragraph BC92(a) states that the alternative to recognising the risk mitigation adjustment as an asset or a liability would involve volatility in other comprehensive income and thus would not faithfully represent the economic phenomenon of risk management activities. However, it does not explain why and how the proposals faithfully represent the economic effect of an entity’s repricing risk management activities in its financial statements.

A36Therefore, we recommend that the IASB articulate more clearly why and how the departure from the Conceptual Framework is justified for the new model to achieve its objectives. In particular, the IASB should address why this departure is justified where financial assets subsequently measured at fair value through other comprehensive income are included in the underlying portfolios, which may lead to the overstatement or understatement of net assets on the balance sheet.

Recognition and Measurement

A37We support recognising only the effective portion of the risk mitigation activities by measuring the risk mitigation adjustment based on the lower of the cumulative gains or losses on the designated derivatives and the cumulative change in the fair value (present value) of the benchmark derivatives.

A38We also support the release of the risk mitigation adjustment in the same periods during which the repricing differences arising from the financial instruments in the underlying portfolios affect profit or loss as this reflects the economic effect of an entity’s risk management activities.

A39The above proposed features of the new model draw from existing requirements on cash flow hedge accounting¹² and therefore would be expected to function in a similar manner.

A40However, we believe that paragraph 7.4.8 of the ED could be clearer. The release of the risk mitigation adjustment to profit or loss, including any excess amounts recognised, could mean that the risk mitigation adjustment on the balance sheet is not always measured at the lower of the cumulative gains or losses on the designated derivatives and the cumulative change in the fair value (present value) of the benchmark derivatives. We recommend that the IASB address this through redrafting of the proposed amendment.

A41As a simple illustrative example, at the end of a financial reporting year, assume the following for an entity applying the proposals:

1. the risk mitigation adjustment is recognised as an asset measured at £100 million based on the ‘lower of’ requirement;
2. the release of the risk mitigation adjustment in the year amounts to £20 million credit in profit or loss and a debit to the risk mitigation adjustment asset; and
3. an excess amount of risk mitigation adjustment of £10 million has been newly determined and recognised as a loss in the income statement immediately.

A42In the above example, the entity has a resulting risk mitigation adjustment debit balance of £110 million at the reporting date, which is different from the recognition of a £100 million asset in accordance with paragraph 7.4.8 of the ED.

Risk mitigation adjustment excess

A43We support the proposed requirement for entities to assess if the risk mitigation adjustment might not be realised in full over the mitigated time horizon at each reporting date. Given the complexity and the dynamic nature of the relevant interest rate risk management activities, a ‘backstop’ test is important to ensure that material amounts of risk mitigation adjustment, which cannot be realised over the mitigated time horizon, do not remain on the balance sheet.

A44It remains to be seen whether the proposed amendments in this area function as intended. We have heard an early stakeholder view that there are certain scenarios where the proposed requirements could lead to counterintuitive results.

A45A relatively simple example is when an entity enters into a derivative (e.g. interest rate swap) for risk mitigation purposes after interest rates have moved instead of when the relevant items in the underlying portfolio were originated. If the interest rates then revert back to their original level, performing the quantitative comparison¹³ within the proposed assessment could lead to recognising excess amounts immediately even when the risk mitigation activity is fully effective.

A46Whilst a change in interest rates would probably not trigger¹⁴ the quantitative comparison above on its own, unexpected changes in the wider underlying portfolio could trigger the test if such changes cannot be fully reflected via adjustments to the benchmark derivatives and the entity assesses that the risk mitigation adjustment might not be fully realised over the mitigated time horizon.

A47In light of the above issue, we recommend that the IASB explore potential alternatives or solutions to this issue since it is important that the risk mitigation adjustment excess test functions appropriately as a ‘backstop’ test.

A48In relation to the determination of the present value of the NRRE, we also believe additional clarity is needed to explain the rationale for the method of adjustment for variable-rate excess in paragraph IE228 of the Illustrative Examples.

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Question 7—Discontinuation of risk mitigation accounting (Section 7.5)

The IASB proposes that an entity discontinue risk mitigation accounting prospectively from the date on which the entity’s risk management strategy changes—that is, when the entity changes how it manages repricing risk, including a change to the mitigated rate.

The IASB also proposes that an entity that discontinues risk mitigation accounting recognise the amount accumulated as the risk mitigation adjustment in profit or loss: a) on a systematic and rational basis over the mitigated time horizon, if the repricing differences arising from the financial instruments in underlying portfolios are still expected to affect profit or loss; or b) immediately, if the repricing differences arising from the financial instruments in underlying portfolios are no longer expected to affect profit or loss.

Paragraphs BC117–BC126 of the Basis for Conclusions explain the IASB’s rationale for these proposals.

Do you agree with these proposals? Why or why not? If you disagree with any of these proposals, please explain what you would suggest instead and why.

A49We agree with the IASB’s conclusion¹⁵ to prohibit voluntary discontinuation of RMA to avoid an entity applying RMA purely to achieve favourable accounting outcomes. This is consistent with the requirements in IFRS 9 that prohibit voluntary de-designation of a hedging relationship and the discontinuation of hedge accounting when the risk management objective for a particular hedging relationship remains the same, and all the other qualifying criteria are met.

A50As a result, we support prospective discontinuation of RMA only if the entity changes its risk management strategy. However, further work is needed to confirm if further application guidance might be needed to identify circumstances that represent a change to an entity’s risk management strategy versus those that do not.

A51We support the proposed accounting for the discontinuation of RMA, that is, that the accounting for the amount accumulated as the risk mitigation adjustment would vary depending on whether the repricing differences from the financial instruments in the underlying portfolios are still expected to affect profit or loss.

A52In addition, we recommend the IASB provides clarity as to whether an assessment of potential risk mitigation adjustment excess should be conducted upon discontinuation of risk mitigation accounting and thereafter until the entire risk adjustment has been released.

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Question 8—Effective date and withdrawal of IAS 39 (Section C1 of Appendix C to IFRS 9)

The IASB proposes that an entity be permitted to apply the requirements for risk mitigation accounting from the beginning of the annual reporting period starting on or after [the date the requirements are issued].

The IASB also proposes that an entity discontinue applying the hedge accounting requirements in IAS 39 Financial Instruments: Recognition and Measurement at the earlier of: a) the date on which the entity first applies the requirements for risk mitigation accounting; and b) annual reporting periods beginning on or after [the date on which IAS 39 is withdrawn].

Paragraphs BC127–BC128 of the Basis for Conclusions explains the IASB’s rationale for these proposals.

Do you agree with the proposal to withdraw IAS 39? Why or why not? If you disagree, please explain what you would suggest instead and why. If the IASB decides to withdraw IAS 39, do you have any information for the IASB to consider in determining the withdrawal date, for example the time that is likely to be needed to transition from IAS 39?

A53The proposed approach to RMA is complex, especially when coupled with the potential simultaneous transition of other types of hedge accounting (i.e. on individual hedges in accordance with IAS 39 or IFRS 9).

A54As a result, [early] stakeholder feedback has expressed the need for a longer timeline to implement the proposed amendments.

A55A thorough cost benefit analysis, including the potential impact on IFRS reporters (including smaller banks and other entities), should be performed before making a decision on the withdrawal of IAS 39.

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Question 9—Transition (Section C2 of Appendix C to IFRS 9)

The IASB proposes that: a) an entity apply the proposed requirements for risk mitigation accounting prospectively; b) an entity be permitted to revoke its previous designation of financial assets or financial liabilities as measured at fair value through profit or loss, if those financial instruments will be included in underlying portfolios that the entity uses to determine the net repricing risk exposure; c) an entity making the transition from IAS 39 discontinue hedge accounting for all hedging relationships and apply paragraphs 6.5.10 and 6.5.12 of IFRS 9 to the related hedge adjustments; d) an entity making the transition from the hedge accounting requirements in Chapter 6 of IFRS 9 be permitted to discontinue hedge accounting for hedging relationships in which the hedged items are financial instruments that will be included in the underlying portfolios in accordance with paragraph 7.2.1; and e) an entity be exempt from disclosing the quantitative information required by paragraph 28(f) of IAS 8 Basis of Preparation of Financial Statements in the reporting period in which the entity first applies the amendments.

Paragraphs BC129–BC147 of the Basis for Conclusions explain the IASB’s rationale for these proposals.

Do you agree with these proposals? Why or why not? If you disagree with any of these proposals, please explain what you would suggest instead and why.

A56We support a prospective application of the proposed RMA model. However, further transition application guidance is needed to address certain aspects, such as dealing with off-market derivatives on transition to the proposed model.

A57We support permitting entities to revoke their previous designation of financial assets or liabilities as measured at fair value through profit or loss, if those financial instruments will be included in underlying portfolios.

A58In addition, we consider that entities should be permitted to irrevocably designate financial instruments as measured at fair value through profit or loss if the conditions in IFRS 9 paragraphs 4.1.5 or 4.2.2(a) are met on transition. We believe that this could provide an accounting alternative for entities that choose not to apply hedge accounting.

A59We support exempting entities transitioning to RMA from disclosing the quantitative information required by paragraph 28(f) of IAS 8. In our view, requiring such disclosures would be inconsistent with the proposed prospective application of RMA (as noted in the IASB’s Basis for Conclusions BC146).

A60We also believe that matters arising out of the IASB’s Post-implementation Review of IFRS 9–Hedge Accounting should be considered in the context of RMA to the extent they are relevant, since:

1. some features in the proposed RMA model draw from existing hedge accounting requirements under Chapter 6 of IFRS 9; and
2. certain aspects of the proposed amendments are intended to work together with Chapter 6 hedge accounting (e.g. hedged exposures).

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Question 10—Disclosure requirements (proposed amendments to IFRS 7)

The IASB is proposing new presentation and disclosure requirements to be included in IFRS 7 Financial Instruments: Disclosures.

Paragraph 30E would require an entity to present separately from other line items: a) the risk mitigation adjustment, either as part of the entity’s assets (when it has a debit balance) or as part of its liabilities (when it has a credit balance) in the statement of financial position; and b) the amount of the risk mitigation adjustment recognised in profit or loss during the period in the statement of comprehensive income.

Paragraphs 30F–30P would require an entity that applies risk mitigation accounting to disclose information that enables users of financial statements to understand: a) how the entity manages repricing risk according to its risk management strategy; b) how the entity’s risk management activities could affect the amount, timing and uncertainty of its future cash flows; and c) how risk mitigation accounting has affected the entity’s statement of financial position and its statement of comprehensive income.

Paragraph 33A would apply to entities whose business and risk management activities have the characteristics specified in the proposed paragraph 7.1.4 of IFRS 9 but that choose not to apply risk mitigation accounting. Such entities would be required to provide a qualitative explanation of how they manage repricing risk.

Paragraphs BC148–BC171 of the Basis for Conclusions explain the IASB’s rationale for these proposals.

Do you agree with these proposals? Why or why not? If you disagree with any of these proposals, please explain what you would suggest instead and why.

A61We support the proposals to require separate presentation of the risk mitigation adjustment in the primary financial statements as this would provide users with better information on the effects of the entity’s repricing risk management activities.

A62We also support requiring specific qualitative and quantitative disclosures in relation to the new model although the proportionality of such proposed disclosures will need further assessment, including whether they would provide useful information to users of financial statements.

A63We note, however, that there is no explicit requirement to:

1. disclose and explain the cause of the recognition of risk mitigation adjustment excess in the reporting period, if material; and
2. how this has affected the expected profile of the release of the risk mitigation adjustment to profit or loss.

We believe this information would be useful to the users of the financial statements.

A64We also recommend that the IASB consider the scope of RMA carefully such that the qualitative disclosures required by paragraph 33A of the ED do not have unintended consequences, such as significantly increasing the costs of financial reporting for entities that do not adopt dynamic interest rate repricing risk management strategies. This is a change from existing disclosure requirements on hedge accounting in IFRS 7 Financial Instruments: Disclosures where similar disclosures are not currently required if general hedge accounting is not applied.

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Question 11—Risk management strategy

The questions below relate specifically to entities that issue insurance contracts as defined in IFRS 17 Insurance Contracts. When answering these questions, respondents should assume that insurance contract assets and liabilities are eligible to be included in underlying portfolios in accordance with paragraph 7.2.1.

Based on the proposals in this Exposure Draft: a) please describe the extent to which your risk management strategy and activities align with, or differ from, the descriptions in paragraphs 7.1.1–7.1.2; and b) please describe the extent to which your business and risk management activities align with, or differ from, the characteristics described in paragraph 7.1.4.

Would the proposals for risk mitigation accounting in this Exposure Draft achieve the IASB’s objective of better representing in the financial statements the economic effects of your activities for managing repricing risk compared with the currently available accounting options? Please explain why or why not, and what you would suggest instead.

A65Based on our limited outreach, we understand that UK insurers typically hedge their capital position on a regulatory basis and, unlike UK banks, their IFRS financial statements do not form the starting point for their regulatory position.

A66Therefore, it is unclear at this stage whether the proposals achieve the objective of better representing in the financial statements the economic effects of UK insurers’ repricing risk management activities compared with the currently available accounting options.

A67We believe this is an area that requires much further consideration and we would encourage the IASB to focus on ensuring the new model is suitable for banks first before considering it for insurers.

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the timing of when financial instruments reprice to benchmark interest rates; and

the amount of financial instruments that reprice in a particular period.