6 Risk Mitigation Accounting—Proposed amendments to IFRS 9 and IFRS 7 Project Update

17 September 2026 Agenda Paper 6

Executive Summary

Project Type: Influencing

Project Scope: Significant

Purpose of the paper

The purpose of this paper is to:

• update Board Members on the latest stakeholder feedback gathered; and
• seek Board Members’ views on the key UKEB messages on Risk Mitigation Accounting to be shared at the October 2026 IASB’s Accounting Standards Advisory Forum (ASAF) meeting.

Summary of the Issue

The IASB published the Exposure Draft (ED) Risk Mitigation Accounting—Proposed amendments to IFRS 9 and IFRS 7 with a revised¹ comment deadline 30 November 2026.

As part of its influencing work, the UKEB published its Draft Comment Letter (DCL) and related Invitation to Comment on 28 April 2026 for public consultation. The UKEB comment deadline is 21 October 2026.

The UKEB’s influencing work to inform the Board’s final comment letter to the IASB is ongoing.

Decisions for the Board

1 Do Board Members:

1. Have questions or comments on the key aspects presented in this project update?
2. Have any additional matters they believe should be considered for inclusion in the UKEB Final Comment Letter?

2 Do Board Members have any feedback in relation to the UKEB’s key messages for the October 2026 ASAF meeting?

Recommendation

Not applicable.

Background: Risk Mitigation Accounting—Proposed amendments to IFRS 9 and IFRS 72

The implementation of IFRS 9 Financial Instruments aimed to introduce improved hedge accounting requirements. However, it did not provide a solution for complex risk management situations where risks are managed dynamically. In such cases entities were permitted to continue applying IAS 39 Financial Instruments: Recognition and Measurement³.

The IASB has noted that entities find it challenging to account for their dynamic risk management activities. The current requirements are not designed for such situations, and the constraints make it difficult for entities to faithfully represent the economic effect of such risk management activities⁴.

In response, on 3 December 2025, the IASB published the Exposure Draft (ED) IASB/ED/2025/1 Risk Mitigation Accounting—Proposed amendments to IFRS 9 and IFRS 7, with a revised comment period ending on 30 November 2026. The ED aims to provide a more faithful representation of the entity’s economic position for such risk management activities. The scope of the ED is limited to interest rate repricing risk⁵, in instances where entities meet the criteria to demonstrate that this risk is being managed dynamically.

Consistent with the existing hedge accounting requirements of IFRS 9, the proposed requirements are voluntary. The IASB proposes to withdraw IAS 39 when the proposed amendments are available for use.

The IASB is also conducting field tests of the proposals with results due on 30 November 2026.

A summary of the proposed changes can be found in the IASB’s snapshot document.

Project Update

1 The Board agreed at its February 2026 meeting that, given the complex nature of the IASB’s proposals, along with the timeline for comments and fieldwork permitted by the IASB, the DCL would reflect early stakeholder views as well as initial Board and Secretariat analyses. It was expected that views would evolve as the project progressed.

2 As a result, the Board observed that the Final Comment Letter (FCL) may differ significantly from the DCL as more information becomes available including the results from stakeholders’ fieldwork.

3 Subsequent to the publication of the DCL, the Secretariat has been conducting stakeholder outreach activities and desktop research. Stakeholder engagement so far has included:

1. Ongoing engagement with the UKEB’s Financial Instruments Working Group, including a roundtable on RMA, held on 3 June 2026. Members of the Financial Instruments Working Group as well as other interested stakeholders from a range of backgrounds (such as risk management and treasury) attended the roundtable and shared interim feedback on the UKEB’s DCL and the IASB’s ED. A meeting summary has been published on the UKEB website.
2. Raising awareness of the IASB’s proposals with the UKEB’s Advisory Groups (i.e. the Academic Advisory Group, the Accounting Firms and Institutes Advisory Group, the Investor Advisory Group, the Preparers Advisory Group and the Rate-regulated Activities Technical Advisory Group).
3. Stakeholder meetings with a number of organisations including UK banks, building societies, insurers, relevant industry bodies, accounting firms and institute, a hedge accounting software provider and a regulator.

4 The Secretariat’s observations below focus on key aspects of the proposals and potential solutions that the Secretariat plans to explore with the Board in greater detail in October 2026. The observations in this paper are not intended to present a comprehensive analysis of all the IASB’s proposals. The Secretariat’s work is ongoing; we anticipate that further information will be received over the coming months as stakeholders finalise their field-testing activities.

1. Objective and scope of Risk Mitigation Accounting

Summary of feedback received

Objective

5 The discussion at the June 2026 RMA Roundtable⁶ and qualitative interviews with stakeholders conducted thus far indicate that stakeholders continue to support the IASB’s aim to better represent in the financial statements the effects of a company' activities to mitigate interest rate repricing risk.

6 However, stakeholders have expressed a spectrum of views as to whether the proposals, as currently drafted, would reflect the economics of organisations’ risk management practices. Views also differ on how best to achieve that objective; some stakeholders strongly advocate for building on the current proposals while others suggest considering alternatives.

7 Certain areas have been identified as needing further work or clarification. [Refer to section ‘Technical aspects of the model’ below].

8 In addition, cost and complexity concerns over the proposed RMA model have been expressed by affected entities of varying sizes.

9 HSBC, which is listed in the UK and a number of other capital markets, has already submitted feedback to the IASB⁷ noting that, while the bank supports the IASB’s underlying objective of better reflecting dynamic risk management activities in IFRS financial statements, it does not consider the proposed RMA model in the ED to be operationally viable. The letter “recommend[s] the IASB does not proceed to finalise the proposals in their current form and that re-exposure is necessary”⁸. The letter also suggested alternatives to the proposals for the IASB to consider. [Refer to section ‘Withdrawal of IAS 39 and Transition to RMA’ below]

Usefulness of information

10 Most stakeholders considered that for entities that elected to apply the proposed RMA, the proposed disclosure requirements would result in an improvement to financial reporting compared to current practice. However, some stakeholders have expressed concerns or raised questions in relation to:

1. comparability of information across entities;
2. disclosure of potentially commercially sensitive information;
3. complexity for consolidated reporting for large and complex organisations (e.g. for those groups where some, but not all, consolidated entities or business units would be applying the proposed RMA); and
4. the linkage between accounting and prudential disclosures.

11 Most stakeholders who have provided feedback on this aspect of the proposals do not agree with expanding disclosure requirements to entities in scope that elected not to apply the proposed RMA (as proposed in the ED paragraph 33A).

Secretariat’s observations

12 The Secretariat has raised awareness of the IASB’s proposals with non-financial entities through various routes, including by highlighting to members of the UKEB’s Advisory Groups (as noted in paragraph 3 above). However, so far, the Secretariat has not been able to identify any non-financial entities with an interest in applying the proposed RMA.

13 The engagement with UK banks, building societies and insurers is ongoing and is focused on seeking their feedback on the IASB’s proposals, including the results of their fieldwork where applicable. Stakeholder feedback will inform the refinements that may be needed to the UKEB’s overall key messages.

Technical aspects of the model

14 A key consideration is whether the proposed amendments can be practically implemented and audited. Stakeholder feedback has indicated the following technical aspects of the model as needing further work or clarification.

2. Risk Mitigation Objective and Benchmark Derivatives

Summary of feedback received

Risk Mitigation Objective

15 Further clarity is needed on the intended application of the IASB’s proposed model to certain risk management practices, such as those involving duration hedges.

16 Stakeholders that have provided feedback on this topic consider that the requirement in the ED paragraph 7.4.1 that the Risk Mitigation Objective (RMO) shall not exceed the amount of Net Repricing Risk Exposure (NRRE) in any repricing time band will not allow them to reflect their organisation’s risk management strategy.

17 For example, HSBC⁹ considers this requirement could drive the accounting further away from risk management principles and add a level of operational complexity that does not reflect risk management. They note that one implication is that small timing mismatches across adjacent time bands would be identified by the proposed model as ‘over-hedging’ and could lead to unnecessary remedial actions for accounting purposes, even though the identified over-hedge may only be temporary or transitory.

Benchmark Derivatives

18 Stakeholders consider it an imperative that the IASB provides further clarity in relation to the proposed requirements for Benchmark Derivatives; in particular, given the interaction of Benchmark Derivatives and the proposed ‘backstop’ test. [See section ‘Risk Mitigation Adjustment’ below]

19 For example, the ED paragraph 7.4.6 requires entities to adjust benchmark derivatives to capture the effects of ‘unexpected changes’ when the NRRE is reduced below the RMO specified at the beginning of the period. Stakeholders have indicated that different views are emerging as to what unexpected changes are and how they should be reflected in the proposed RMA model.

20 HSBC¹⁰ has indicated that applying the concept of Benchmark Derivatives to a dynamic NRRE within a given time band would introduce significant judgement, extraordinary operational complexity and potential volatility in capital and earnings. For example, they observe that the volume of adjustments to Benchmark Derivatives is likely to be substantial for larger behavioural portfolios¹¹.

Secretariat’s observations

21 The Secretariat notes the continued concerns from stakeholders over the clarity and mechanics of the proposals on Risk Mitigation Objective and Benchmark Derivatives. The Secretariat proposes to reflect the concerns raised in the FCL, to further enhance related comments already included in the DCL.

22 The Secretariat will continue exploring possible solutions or clarifications to the requirements in this area, such as:

1. whether RMA could accommodate both under-hedging and over-hedging across adjacent repricing time bands to the extent they offset each other; or
2. whether the requirement to restrict the risk mitigation objective to the amount of NRRE by each repricing time band could be removed.

3. Risk Mitigation Adjustment

Summary of feedback received

Departure from the Conceptual Framework of Financial Reporting (Conceptual Framework)

23 The departure from the Conceptual Framework has not been a key focus of stakeholder feedback thus far. A number of attendees at the June 2026 RMA Roundtable¹² did not support the UKEB’s recommendation in the UKEB’s DCL for the IASB to articulate more clearly why and how the departure from the Conceptual Framework is justified for the new model.

Risk Mitigation Adjustment Excess

24 Stakeholders continue to support having a ‘backstop’ test in the proposed RMA model 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.

25 As stakeholders continue to progress in their analyses and fieldwork, some of them have raised concerns over:

1. A lack of guidance over what triggers the quantitative comparison¹³ within the proposed assessment, which also leads to concerns over the ‘backstop’ test being triggered more frequently than intended. This includes a lack of clarity on how credit risk interacts with the proposed requirements.
2. The quantitative comparison potentially requiring excess amounts to be recognised in profit or loss immediately even when the risk mitigation activity is fully effective.
3. The prohibition of the reversal of excess amounts recognised in profit or loss in future periods, especially when the unexpected changes to the net repricing risk exposure are expected to be temporary.

Secretariat’s observations

26 Based on the work performed to date, the Secretariat proposes the following updates to the FCL.

Departure from the Conceptual Framework

27 Hedge accounting is an exception to the normal recognition and measurement requirements in IFRS¹⁴. The proposed recognition of the risk mitigation adjustment as an asset or a liability on the balance sheet could be considered as similar to existing fair value hedge accounting requirements, whereby the carrying amount of the hedged item on the balance sheet is adjusted for the hedging gain or loss¹⁵.

28 Furthermore, concerns regarding a potential departure from the Conceptual Framework have not featured in stakeholder outreach. Stakeholders have instead focused on whether the proposals faithfully represent risk management activities and can be applied operationally. Therefore, the Secretariat proposes removing paragraphs A35 and A36 of the DCL from the FCL.

Risk Mitigation Adjustment Excess

29 The Secretariat notes the continued concerns from stakeholders over the clarity and mechanics of the risk mitigation adjustment excess test. The Secretariat proposes to reflect the concerns raised in the FCL, some of which has already been reflected in the DCL.

30 As the proposed requirements in this area interact closely with those on risk mitigation objective and benchmark derivatives, the Secretariat will also continue exploring possible solutions in this area with stakeholders over the next few months. However, this may prove difficult given:

1. stakeholders continue to be at different stages of their analyses and fieldwork;
2. the risk mitigation adjustment excess test has to be able to act as a reasonable ‘backstop’ while not requiring a significant level of tracking; and
3. the test has to function appropriately for a variety of interest rate repricing risk management practices.

4. Withdrawal of IAS 39 and Transition to RMA

Summary of feedback received

Withdrawal of IAS 39

31 As noted above, from the discussion at the June 2026 RMA Roundtable¹⁶ and qualitative interviews with stakeholders conducted thus far, cost and complexity concerns over the proposed RMA model have been expressed by affected entities of varying sizes.

32 Stakeholders have expressed that IAS 39 should not be withdrawn without a viable accounting solution in place. It was noted at the UKEB’s RMA roundtable that the macro fair value hedge model in IAS 39 is predominantly used by small UK banks and building societies. It would be challenging for these entities to transition to the proposed RMA and the current requirements in Chapter 6 of IFRS 9 do not seem to offer them a solution if IAS 39 was to be withdrawn.

33 A solution suggested at the June 2026 RMA roundtable was to incorporate elements of the proposed RMA model into the Chapter 6 hedge accounting requirements of IFRS 9. For example, it was suggested that the ability to hedge forecast transactions and demand deposits modelled as fixed rate exposures on a portfolio basis could be explored as part of the IASB’s post-implementation review of IFRS 9—Hedge Accounting.

34 HSBC’s comment letter to the IASB also included the following suggestions:

1. Extending the UK/EU carve-out version of IAS 39 into IFRS and thus extending it to other jurisdictions that adopt IFRS accounting standards¹⁷.
2. A business model inspired approach to accounting for qualifying derivatives used in the banking book¹⁸.

35 The Secretariat is currently exploring whether there is wider stakeholder support for any of the above solutions, and the extent to which they are viable.

Transition

36 Given the complexity of the proposed RMA model and other concerns noted above, stakeholders continue to emphasize the need for a longer than normal transition period.

37 Stakeholders also observed that further application guidance is needed in relation to transition to the proposed RMA, for example, when transitioning with non-zero fair value designated derivatives.

Secretariat’s observations

38 Based on the work performed to date, the Secretariat proposes the following updates to the UKEB DCL.

Withdrawal of IAS 39

39 The cost and complexity concerns raised by stakeholders and the need for a viable accounting solution if IAS 39 were to be withdrawn are consistently being raised by stakeholders. The Secretariat proposes to enhance the existing point in the DCL to reflect this additional feedback. The Secretariat will also continue exploring possible solutions in this area with stakeholders over the next few months.

Transition

40 The Secretariat do not propose substantial updates to this topic in the FCL as the feedback from stakeholders remain largely consistent with the comments in the DCL.

Questions for the Board

1 Do Board Members:

1. Have questions or comments on the key aspects presented in this project update?
2. Have any additional matters they believe should be considered for inclusion in the UKEB Final Comment Letter?

October 2026 ASAF meeting

41 The purpose of the October 2026 ASAF meeting is for the IASB team to:

1. confirm to ASAF members that there had been no changes to common feedback themes gathered through stakeholder engagement activities to-date compared to those presented by the IASB staff at the ASAF July 2026 meeting; and
2. seek further information from ASAF members on:
   1. the level of engagement by companies in their jurisdictions that still apply IAS 39 hedge accounting requirements;
   2. the progress of comment letters preparation and the results of fieldwork conducted in their jurisdictions; and
   3. any new insights emerging from the latest fieldwork.

UKEB’s key messages

42 The Secretariat’s suggested key messages to convey at the ASAF meeting are presented in the paragraphs below.

43 There has been limited engagement with UK stakeholders since the July 2026 ASAF meeting since the period overlaps with interim reporting and summer holidays for a significant number of UK stakeholders.

44 As a result, the UKEB’s key messages remain largely similar to those expressed in the July 2026 ASAF meeting:

1. The UKEB continues to support the IASB’s aim to better represent in the financial statements the effects of a company’ activities to mitigate interest rate repricing risk.
2. However, the UKEB is concerned about:
   1. the potential costs and operational viability of the proposals for entities of varying sizes;
   2. the lack of clarity around key technical aspects of the proposed RMA model such as the risk mitigation objective; benchmark derivatives; and risk mitigation adjustment excess. This lack of clarity could potentially result in unintended consequences; and
   3. the potential impact to affected entities if IAS 39 is withdrawn.

45 In light of the concerns raised on the proposed RMA model, some alternatives have been suggested by UK stakeholders which the UKEB is in the process of exploring. For example, the UKEB is aware of HSBC’s comment letter and are gauging if there is wider support in the UK for their feedback.

46 There continues to be active engagement by a number of large UK banks, insurers and building societies on the ED. The UKEB is only aware of large UK banks participating in fieldwork, with entities at various stages of this work.

47 The UKEB’s assessment is ongoing and stakeholder feedback, including further fieldwork results, will inform its final position in the FCL.

Question for the Board

2 Do Board Members have any feedback in relation to the UKEB’s key messages for the October 2026 ASAF meeting?

Next Steps

48 The Secretariat will continue to engage with UK stakeholders such as:

1. the Financial Instruments Advisory Group at its 22 September 2026 meeting;
2. large UK banks and insurers; and
3. relevant industry bodies, including the Building Societies Association.

Timeline

49 The expected high-level timeline of this project, including key activities and milestones, is as follows:

Footnotes

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

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