At its meeting on April 25-27, 2023, the IASB discussed the proposed requirements for determining the risk mitigation intention (RMI), specifically considering how an entity would define managed risk and construct benchmark derivatives. The IASB tentatively decided that (i) the managed risk is the specified interest rate risk an entity manages consistent with its risk management strategy and is therefore the risk an entity’s risk limits are based on; and (ii) the benchmark derivative is calibrated to current market rates of the managed risk to achieve a fair value of zero based on the RMI by repricing period. The IASB also reconsidered and reconfirmed two tentative decisions from previous meetings (i) the RMI is evidenced by the actual amount of interest rate risk by repricing period transferred to a party external to the reporting entity (for example, external to the group or individual entity that is being reported on); and (ii) the repricing periods of the available risk to mitigate are aligned with an entity’s risk management strategy. The IASB considered further a qualifying criterion for determining the current net open risk position (CNOP)—that future transactions can only be designated in the DRM model when they are highly probable. The IASB tentatively decided (i) to require future transactions that are the reinvestment or refinancing of existing financial assets or financial liabilities at the prevailing market interest rate to be included in the CNOP when they are expected to occur; and (ii) all other future transactions must be highly probable to occur in order to qualify for inclusion in the CNOP.

Review the IASB Update and podcast on the Board's Web site.