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IBOR reform and the effects on financial reporting

Date recorded:

Oral update

The staff provided an update on the IBOR Phase 2 Exposure Draft (ED). The deadline for comments closes on 25 May 2020, but due to the tight deadlines the staff wanted to give the Board a sense of the initial feedback and the likely items they will have to bring back for re-deliberation at the June 2020 meeting. There will be a short period between the comment period ending and the final amendments being published in order to allow for endorsement processes to take place in time for preparers to apply this amendment for this financial year end.

Based on informal discussions, the overall feedback of the ED is supportive and positive. There is an appreciation for the Board’s objective and the way in which they are providing the relief to the preparers whilst ensuring users are provided with useful information about the reform. However the feedback is highlighting the tight deadlines needed to facilitate endorsement in Europe.

The staff summarised the feedback into three groups:

Feedback to provide clarifications on wording

The feedback suggests that people need clarification on both the main wording of the amendment and the Basis for Conclusions on certain areas. Examples of areas include:

  • Changes to hedge designation and the timing of when that needs to happen
  • Clarification on the 24-month grace period for the separately identifiable requirement
  • Solely payment of principal and interest requirement and how this should apply to new rates

Areas which may need to be revisited by the Board for redeliberation

  • Reinstatement of discontinued hedges.
  • Disclosures: The feedback to date is asking what the objective of the disclosures is and whether the information to be provided based on the proposed disclosures will meet this objective. The staff have also spoken to investor groups, who have provided their feedback and this will be taken into account when writing up the June papers.

New items to be discussed due to new developments

Based on developments since the Board’s previous discussions, there will be new issues to analyse. One area relates to the way in which derivatives might be replaced. Clearing houses, instead of modifying existing derivatives contracts, may issue new derivative contracts with the same terms and on the same basis. The staff will analyse this further and will bring it for discussion at the June meeting.

Board discussion

One Board member mentioned that based on discussions with stakeholders there was confusion and push-back on the 24-month grace period for the separately identifiable requirement.

Another Board member asked whether the new items would only be discussed in detail if they did not impact the current timeline. The staff confirmed that. If they do not fit the current timeline, they will be looked at after the amendments are finalised.

The staff said that the comment letter analysis and potential changes will be discussed in the June 2020 meeting.

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