EY IFRS 9 Classification & Measurement (C&M) Banking Survey assesses banks’ state of readiness for IFRS 9 implementation, with focus on C&M.
As we have now past the adoption of International Financial Reporting Standards (IFRS) 9 Financial Instruments on 1 January 2018 there is a heightened focus on IFRS 9 Classification and Measurement (C&M).
Although the impact of C&M was expected to be less significant compared to impairment, banks have been focused on addressing requests from regulators, auditors and other stakeholders to demonstrate this with documented evidence.
Banks have become aware that despite limited quantitative impacts, the new C&M requirements pose significant challenges in terms of management judgement and increased complexity of key processes such as the granting of loans and new product development processes.
In April 2017, EY performed an IFRS 9 C&M Survey of 60 banking institutions globally. The survey was undertaken to assess the "state of readiness" in the implementation of their IFRS 9 with focus on C&M.
Key highlights of the survey
- Limited reclassifications overall: Out of the limited value reclassified, almost 45% is toward fair value through profit or loss (FVPL), and relates to reclassification from loans and receivables (L&R), held to maturity (HTM), available for sale (AFS) debt instruments to FVPL.
- SPPI impacts - main trigger for reclassifications to FVPL: Almost 65% of banks say that reclassifications to FVPL are solely due to the SPPI test.
- Wide ranges of degree of preparation, correlated with the size of the banks: More than 55% of banks haven’t reached the implementation phase for data & system and operating model.
- Changes in the approval process: Approximately 55% of banks are considering a revised framework for new products.
- Budget significantly lower than that for impairment: C&M budget is lower than €5m for two third of the banks.
IFRS 9 project status: overall state of readiness
Most advanced phases are solely payments of principal and interest (SPPI) and business model (BM) assessments. Regarding data and systems, operating models, and policy, more than half of the sample has not reached the “implementation” status. Very few banks have reached a “complete” status on data and systems and operating models.