This letter sets out the FRC's response to the IASB' discussion paper, which was published in April 2014.

The FRC believes that the paper is a helpful step in the IASB's macro hedge accounting project, as it clearly articulates the risk management approach adopted by some banks in practice and considers the difficult accounting issues raised by this. However, overall they believe that the IASB's proposed Portfolio Revaluation Approach is a step too far in aligning accounting requirements with an entity’s risk management activities.

The FRC encourages the IASB to continue to develop an improved macro hedge accounting model, as this is one of the weaknesses of IAS 39. However, they believe that the approach taken by the IASB is not the most appropriate one. Rather than developing a generally applicable model for macro hedge accounting in isolation from existing accounting principles, they believe that the IASB should identify the barriers that exist in the current framework that prevent more meaningful and flexible macro-hedge accounting. The Board could then consider which of these can be removed, whilst still retaining the overall integrity of the IFRS accounting framework and building on the principles in IFRS 9's general hedge accounting model.

The full comment letter can be downloaded from the FRC website.