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EFRAG research into dynamic risk management

  • IFRS - EFRAG Image

Jan 30, 2017

On January 30, 2017, the European Financial Reporting Advisory Group (EFRAG) published a report of its findings from a targeted outreach it conducted in 2016 to support the development of a new, high quality macro-hedge accounting solution by the IASB. The outreach was a fact finding exercise focused on gaining a better understanding of banks’ practices in connection with their management of interest rate risk.

In the outreach, 15 banks confirmed that current hedge accounting requirements do not fully accommodate the way a bank manages interest rate risk. Particular challenges are:

  • The use of open portfolios,
  • the fact that interest rate risk is managed using net positions instead of gross positions, and
  • the difficulties of designating particular items as part of a hedge accounting relationship.

While IFRS 9 has addressed some of the above issues, a comprehensive solution for dynamic risk management is still lacking. Therefore, EFRAG's fact finding exercise, which also includes theoretical background to the range of practices employed by banks and considers both the risk management and the accounting perspectives, is meant to help the IASB in developing an improved approach to reporting the effect of dynamic risk management activities in the financial statements.

Review the press release and the outreach report on the EFRAG's website.

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