ESMA believes IFRS 9 carve-out for insurance activities "not a feasible solution"

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20 Nov 2015

The European Securities and Markets Authority (ESMA) has commented on the draft letter from the European Financial Reporting Advisory Group (EFRAG) to the European Commission supplementing its endorsement advice on adoption of IFRS 9 'Financial Instruments'.

On 10 November 2015, EFRAG published a draft letter to the European Commission, stating that EFRAG is "not in a position to amend" its endorsement advice on IFRS 9 although the IASB has decided to propose a deferral approach and an overlay approach, both aimed at addressing the mismatch, in December this year. EFRAG argued that any final decisions in the project will be made at the earliest in six to nine months from now and that uncertainty exists as to whether the IASB will provide an appropriate remedy when it makes these final decisions.

In its letter to EFRAG, ESMA emphasises the importance of fully implementing IFRS 9 and of applying the expected loss model to financial assets in a timely manner, as the introduction of the expected loss model responds to an important G20 request following the financial crisis. Even though final amendments to IFRS 4 adressing the mismatch are not to be expected until mid-2016, ESMA highlights that the IASB responded quickly and adequately to EFRAG’s concerns about the different application dates. ESMA states:

ESMA reiterates its position that a European carve-out is not a feasible solution for insurance activities in light of their global nature. [...] In light of the solution for the insurance industry being developed by the IASB, ESMA is of the view that EFRAG should enable endorsement of IFRS 9 in the EU as soon as possible.

Please click for access to the full comment letter on the ESMA website.

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