IASB sets out new risk mitigation accounting model for interest rate risk
This week the International Accounting Standards Board (IASB) proposed a new Risk Mitigation Accounting model designed to better reflect how financial institutions manage interest rate risk across their portfolios. The proposals come as part of a consultation that aims to align accounting more closely with actual risk management practice.
The model responds to feedback from banks and investors that current hedge accounting rules struggle to capture dynamic, portfolio based interest rate risk management. The IASB sets out a single approach that ties risk mitigation activities more clearly to their effects on profit and future cash flows, and is also consulting on withdrawing IAS 39 Financial Instruments: Recognition and Measurement. The consultation includes an exposure draft, basis for conclusions, examples, implementation guidance and a request for fieldwork using real data.
This work builds on the long running dynamic risk management, or macro hedging, project, under which many institutions have kept IAS 39 alive as a practical bridge between the risk desk and the accounting standard. The new proposals are an attempt to retire that bridge and replace it with a more coherent route through IFRS 9.
If the final model and the IFRS Taxonomy are aligned, digital reports could carry much clearer, tagged information about interest rate risk strategies, exposures and their impact on performance, giving supervisors, investors and analytics tools a cleaner view of how risk is managed.
Readers can explore the exposure draft, supporting material and fieldwork request here.
