PRA publishes IFRS 9 note to non-executive directors

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01 Nov, 2017

The Prudential Regulation Authority (PRA) has published a note entitled ‘Getting ready for IFRS 9’ which is aimed at non-executive directors (NEDs) who sit on the board of firms affected by the implementation of International Financial Reporting Standard (IFRS) 9 ‘Financial Instruments’; particularly those who are also on the audit committee.

The PRA highlights that “it is important that NEDs engage with IFRS 9 and have the support they need to challenge management effectively”. Although IFRS 9 will have implications from an accounting perspective, it will also have wider implications for other aspects of a bank, including considerations relevant to the PRA. The PRA are particularly interested in:

  • the interaction of expected credit loss (ECL) with regulatory capital;
  • the implications of ECL for credit risk management practices; and
  • transparency and disclosure.

With that in mind, the note includes four questions that NEDs should discuss with/challenge their boards on in relation to implementing IFRS 9:

  • What is your firm’s approach to transitional arrangements?
  • Does your board understand the impact of the new provisioning for ECL and how it affects different types of lending and overall capital planning – both in business-as-usual and stressed conditions?
  • Is your firm’s governance upgraded sufficiently to cope with higher volume of forward looking credit risk data?
  • Will disclosures enable investors and other users of financial data to transition effectively to IFRS 9?

It also has a section directed at those NEDs on the audit committee and ‘essential reading’ that NEDs will find helpful.

The full note is available on the PRA website.

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