Dynamic Risk Management (DRM)

Date recorded:

Project plan (Agenda Paper 4)

At this meeting, the IASB will continue its deliberations on Discussion Paper DP/2014/1 Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging. At its May 2022 meeting, the IASB completed the deliberations on the three key challenges identified during 2020 outreach with preparers and decided to move the DRM project to the standard-setting programme.

In this paper, the staff set out the areas and topics that need to be further considered in order to complete the development of the DRM model together with a proposed order of future discussions for the next stage of the project. These areas and topics include the remaining issues highlighted during the 2020 outreach (i.e. matters other than the three key challenges), as well as items the IASB previously decided to discuss in the next phase of the project and potential disclosures.

They are as follows:

  • Eligible items and the determination of the current net open risk position
  • Performance assessment and subsequent unwinding of the DRM adjustment
  • Target profile and its alignment with an entity’s risk management strategy
  • Risk mitigation intention and the construction of benchmark derivatives
  • Designated derivatives
  • Other considerations
  • Presentation and disclosure requirements

There are more topics in the first two areas, and in the staff’s view they are also more significant to the overall result of the DRM model. Therefore, the staff plan to spend more time on them than the remaining areas and topics.

The staff plan to start the preliminary discussions on the first topic in Q4 2022. The project timing on other topics is currently uncertain because the staff may need to conduct further outreach or research before proceeding the deliberations. Furthermore, due to the interactions amongst these topics, the staff envisage there may be a need to assess the linkage of the decisions between different areas as the project progresses.

No decisions were asked of the IASB.

IASB discussion

IASB members were generally supportive of the direction of the project and made the following comments:

  • Given the volume of detail, the staff was asked to provide a pictorial representation of the model
  • It was suggested that the staff should conduct outreach with the non-banking industry
  • The DRM model is about better reflecting the risk management activities, not about an absolute reflection of the risk management activities
  • Illustrative examples would be useful to facilitate consistent application of the model
  • The scope should be kept narrow, and the model should only be available for banks
  • The staff was asked to organise an information session on user needs
  • It should be decided early on whether the model will be voluntary or mandatory
  • Disclosures should be thought about early in the process
  • Hedge accounting terminology should be avoided to make it clear that the DRM model is not a hedge accounting model
  • It must be absolutely clear that the model cannot be analogised to similar transactions (applying IAS 8) to avoid that gaps in the IFRS 9 hedge accounting requirements are filled with the DRM model

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.