EY European IFRS banking conference Minds made for transforming financial services

Friday, 7 June 2019

Agenda and speakers — Friday, 7 June 2019

EY European IFRS banking conferencePage 1

08:30-09:00 Registration

09:00-09:15 Introduction — Michiel van der Lof, EY

09:15-09:45 International Accounting Standards Board (IASB) update — Sue Lloyd, IASB

09:45-10:30 Challenges related to Interbank offer rates (IBOR) — Tony Clifford, EY and Fiona Thomson, Goldman Sachs

10:30-11:00 Break

11:00-11:45 IFRS 9 — What did banks disclose? — Laure Guegan, EY with Tony Clifford, EY and Fabio Fabiani, EY

11:45-12.15 Finance function of the future — Francois Rossouw, EY and Ladislas Tyl, EY

12:15-12:45 Supervisory update — Nic van der Ende, European Banking Authority

12:45-13:45 Lunch

13:45-14:15 Integrated reporting and climate risk — Doug Johnston, EY and Rebecca Self, HSBC

14:15-14:45 IFRS hot topics and accounting in the digital age — Marek Walendowski, EY and Jane Hurworth, EY

14:45-15:15 Break

15:15-15:45 The macro environment and related accounting and reporting impacts — Mark Gregory, EY

15:45-16:15 Inside Brussels — David Doyle, EY

16:15-16:30 Closing comments — Michiel van der Lof, EY

16:30 Drinks reception

The views expressed in this presentation are those of the presenter, not necessarily

those of the International Accounting Standards Board or the IFRS Foundation.

Copyright © 2019 IFRS Foundation. All rights reserved.

IFRS® Foundation

IASB Update

Sue Lloyd

Vice-chair, International Accounting Standards Board

June 2019

3What I will cover

• IBOR reform

• Dynamic Risk Management

• Financial Instruments with Characteristics of Equity

• Recent Interpretations Committee activities

• Primary Financial Statements

• Amendments to IFRS 17

IFRS® Foundation

IBOR reform

5Background

What are IBORs?

What led to the reform?

Potential effects?

Interest rate benchmarks such as interbank offer rates (IBORs) play an

important role in global financial markets. They index a wide variety of

financial products worth trillions of dollars, ranging from mortgages to

derivatives.

Market developments have undermined the reliability of existing

benchmarks. The FSB has recommended reforms. Some jurisdictions

have made progress towards replacing existing benchmarks with nearly

risk-free rates (RFRs).

This has, in turn, led to uncertainty about the future of existing interest

rate benchmarks. Such uncertainties have some market implications

which may also affect entities’ financial reporting.

6Two-phase project

Pre-replacement issuesPhase I

• Issues affecting financial reporting

before the replacement of an

existing benchmark with RFR.

The Board identified two groups of accounting issues:

The Exposure Draft addresses Phase I issues only

Replacement issuesPhase II

• Issues that might affect financial

reporting when an existing

benchmark is replaced with RFR.

The pre-replacement issues are more urgent because they may affect financial reporting

before the reform is enacted and can be addressed without knowing details of RFR.

Therefore, the Board decided to address these issues as a priority.

7Phase I – why the Board is proposing amendments

Uncertainties around timing and

amount of designated future cash flows may

affect some hedge accounting

requirements.

Entities could be required to

discontinue hedge accounting. Entities

may also not be able to designate new relationships.

Discontinuation of hedge accounting solely due to such uncertainties could

produce information that

would not be useful to users of financial

statements.

The Board decided to propose

amending some hedge accounting

requirements during this period

of uncertainty.

Uncertainties arising

from the reform

Potential effects on

financial reporting

What is the

Board’s view? As a result…

Find out more

8Which issues are addressed?

• Reform creates uncertainty about timing/ amount of future cash flows based on IBOR.

• How to consider uncertainty when assessing if future IBOR cash flows are highly probable?

Highly probable requirement

• IFRS 9 requires the existence of an economic relationship; and IAS 39 expectation of offsetting between hedged item and hedging instrument.

• How to consider uncertainties from reform?

Prospective assessments

• If the hedged item is a risk component, then it must be separately identifiable.

• Reform may impact market structure and therefore ability to identify a risk component.

Risk components

Other hedge accounting requirements would not be changed

Until uncertainty is

resolved assume cash

flows based on

interest benchmark do

not change

Separately identifiable

required only at

inception

9Timeline and next steps

Mandatory

effective date

ED

published

Phase I

JAN

2020

Q4

2019 JUN

2019

MAY

2019

Comment

period ends

Publish final Phase I

amendments

Proposed effective date

Annual periods beginning on or after 1 January 2020. Earlier application is permitted. The comment

period and effective date reflects the urgency of this issue.

10Phase II – replacement issues

The staff is currently assessing the potential issues arising in Phase II.

At the time of the Board’s discussions leading to the Exposure Draft, the

specific conditions and details of the replacement RFR have yet to be

finalised.

Therefore, the Board decided to monitor developments in this area and assess

the potential implications as more information becomes available.

Examples of issues raised by stakeholders include:

• Derecognition vs. modification: whether the amended contract should be accounted for as a

modified, derecognised or ‘continuing’ financial instrument and any resulting effects on the effective

interest rate.

• Change in hedge documentation: whether amending hedge documentation to reflect RFR as the

new hedged risk would trigger discontinuation of hedge accounting and resulting effect.

• Non-FI-related implications: whether IBOR reform will impact areas such as lease accounting,

insurance, intangible assets, etc.

IFRS® Foundation

Dynamic Risk Management

12Dynamic Risk Management (DRM)

• Improve information regarding interest rate risk management and how interest rate risk management activities affect the entity’s current and future economic resources

Objective

• Recognition, measurement and presentation aspects of the core model tentatively agreed by the Board

Work completed

• July 2019 – Discuss operational simplifications, disclosure and demonstrate the completed core model

• 2nd Half 2019 – Outreach on core model

Next Steps

13Dynamic Risk Management (DRM)

At this juncture the Board has decided not to issue a formal due process document

Outreach will involve discussions with relevant stakeholders based on tentative decisions to date to obtain feedback on those decisions

The Board will consider the specifics of outreach in the coming months

Based on feedback received, the Board will determine next steps

Outreach

IFRS® Foundation

Financial Instruments with Characteristics of Equity

(FICE)

15FICE—Project Overview

• IAS 32 Financial Instruments: Presentation works well for most financial instruments, but presents challenges for some complex financial instruments

• limited information available to investors about equity instruments other than ordinary shares

• no clear rationale for classification

Problem identified

• articulate classification principles—clear rationale

• propose additional information through presentation and disclosure

Board’s proposals—Discussion Paper 2018

16

Financial Instruments with Characteristics of Equity– Feedback received

• Board’s proposals perceived as a fundamental change from IAS 32 for reasons including:

- use of new terminology that would require significant efforts to assess potential effects and to implement if they were to be finalised

- classification changes for particular types of financial instruments

• General support for: - retaining a binary distinction between liabilities and equity

- standard-setting to address known practice issues but mixed views on how

- disclosure proposals, with particular support from investors

• C