UK: Enhanced Disclosure Task Force (EDTF) – What Does This Report Mean For Banks?

Last Updated: 13 January 2016
Article by Mark Rhys, Chris Mather and Claire Stone

Most Read Contributor in UK, August 2017

Uncertainty surrounds the impact that the long-awaited International Financial Reporting Standard (IFRS) 9 will have on bank's financial reporting. Debates are currently taking place between market participants around how banks will interpret key concepts and apply the standard – including the requirement for credit loss estimates to be probability-weighted – in practice. The standard is still subject to endorsement in the EU, but widely expected to be endorsed so that it takes effect for periods commencing 1 January 2018 for EU adopters as for other IFRS 9 reporters.

In the meantime, what information should banks be giving to the markets?

To answer this question, and to help increase understanding of the likely impact that IFRS 9 (and its US equivalent) will have on banks' financial reporting (which in turn affects the level of capital they are required to hold, and hence the return on capital that they generate), the Financial Stability Board (FSB) reconvened the Enhanced Disclosure Task Force (EDTF) earlier this year. The EDTF first met during 2012 when it developed recommendations aimed at improving the quality of banks' risk disclosures. This month they published their second report, 'Impact of Expected Credit Loss approaches on bank risk disclosures'. We have been closely involved in developing this report which has the following implications:

  • Banks with December year ends need to start thinking now about how they will describe their IFRS 9 implementation projects in the 2015 annual reports. Which teams are contributing to the work, the expected timing of different phases of the project, and the governance of the project are all in the spotlight. Information about methodologies and models that banks plan to develop is sought. Banks will find they need to provide much more information than usual for a new accounting standard, as the changes to IFRS 9 are a direct result of the financial crisis, and stakeholders want a much clearer picture of how the changes are being managed and introduced.
  • Additional disclosures and reconciliations are recommended by the EDTF, so banks need to consider whether their implementation plans are on track to capture that information.

Disclosure of emergency liquidity facilities was also considered by the EDTF, which issued a short statement clarifying that its report does not require banks to disclose that they are in receipt of such assistance. This will no doubt be welcomed by a number of central banks, which prefer such assistance to be provided without fanfare.

The FSB is evidently pleased with the work of the EDTF – its newly-established disclosure task force on climate-related risks bears some comparison to the approach taken to enhancing banks' risk disclosures.

Further information can be found in our new briefing paper, 'What the new Enhanced Disclosure Task Force report means for banks'. Our paper IFRS provides clear analysis of the relationship between accounting and regulatory approaches to IFRS 9.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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