Publication date: 15 March 2016
The EBF welcomes the consultation and appreciates the high level of documentation of each change. It is very helpful to understand the main objectives of each template.
However, in our opinion, there are many examples of new data within the proposed templates that are not required by or not consistent with the requirements of IFRS 9 or IFRS 7 (as amended for IFRS 9). Taken collectively they present a considerable additional burden to the already demanding data and systems requirements needed to comply with IFRS 9.
- IFRS 7 does not require quantitative disclosure where there were significant concerns about banks being able to provide gross carrying amount information in a tabular form that reconciles to the balance sheet (IFRS 9 Basis for Conclusions BCE.166). In particular, the 12.2 requiring transfer information for gross carrying amount, creates a burden for preparersthat is not justified with the objective of providing better information.
- Movements in allowances table (template 12.1): The production of a loss allowance movements table places high demands on finance and risk systems and having different prescribed headings between IFRS and FINREP is operationally onerous. In addition, the guidance in Annex V 131 on ‘changes due to origination and acquisition’ is too restrictive and does not take account of how revolving products should be treated.
- Requirement to separately disclose partial and total write offs directly to the P&L (template 4.4.1, 12.1): There is no requirement of IFRS 9/IFRS 7 to split partial and total write-offs. In addition, the definition of a ‘write-off’ is not aligned between IFRS 9 and FINREP.
- Requirement to split collectively assessed and individually assessed provisions (template 12.1): We do not support the mandatory requirement to separately present the movement in provision by stage based on whether it is collectively or individually assessed. The forward looking nature of IFRS 9 impairments could result in a collective element being applied to all or many assets (i.e. a specific asset has a loss allowance that comprises both individual and collective assessments), as such, we believe the distinction between collective and individual provisions is not a useful or meaningful concept under IFRS 9. While it is true that collective/individual has little meaning in IFRS 9 context, since Basel defines something with an individual impairment to be defaulted really means that by definition a stage 1 or stage 2 ECL calculation is collective only.
- Requirement to disclose gross asset movements and transfers (templates 4.3.1, 9.1.1, 12.2): IFRS 7 requires an explanation of significant movements of in gross assets only (not a full tabular reconciliation). Also table 9 may not work because IFRS 7 (B8E) does not necessarily require that allowance with respect to drawn balances and provision with respect to undrawn commitments are separately presented.
- Requirement to disclose stages by days past due (template 7.1): The need to disclose days past due has been removed from IFRS 7 as it has been superseded by the staging of assets (underpinned by days past due) in IFRS 9. This information it is not required by IFRS. Requirement to separately report FVTPL changes due to credit risk (templates 4.2.1, 4.2.2): The FINREP templates require separate disclosure of FVTPL sub-categories and changes in relation to credit risk for certain sub-categories. This is beyond the reporting requirements of IFRS 9.
- Requirement to disclose debt instruments held for sale (templates 18 and 19): This is not a requirement of IFRS 9/IFRS 7.The validation rules facilitate the understanding of the interpretation of the different reporting items by the authorities and have been an important tool in the previous processes of implementing FINREP or changes to FINREP. The availability of the validation rules to FINREP IFRS 9 only after the end of the consultation period makes the full review and assessment of the draft ITS more challenging.
In some of the new FINREP templates “opening balance” should be reported. We would welcome a clear statement that opening balance for the first reporting period after transition refers to the initial IFRS 9 figures at transition, as stated at the EBA public hearing. FINREP should not extend the requirements beyond what is being required by IFRS 9 at transition.
We would appreciate a confirmation that the FINREP reports are based on a year-to-date perspective rather than a quarter-to date view.
FINREP IFRS 9 will imply major changes to banks processes and IT systems in preparation of their financial reporting to the supervisory authorities. To facilitate the process of implementing FINREP IFRS 9 we suggest that a “freeze period’ of at least one year is established before the expected application date of 1 January 2018, when no new changes to the ITS on supervisory reporting regarding FINREP will be introduced.
Finally, we would suggest that a Q&A tool is established by EBA on its website on the draft ITS to facilitate the implementation of the FINREP IFRS 9.