19 November 2015

ESMA: A proper implementation of IFRS 9 requires significant resources

ESMA continues to emphasise the importance of fully implementing IFRS 9 and notably 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.

ESMA highlights that the IASB responded quickly and adequately to EFRAG’s concerns about the different application dates of IFRS 9 and the future standard for accounting for insurance contracts (IFRS 4 Revised). The IASB took the decision to propose amendments to IFRS 4 Insurance Contracts, which implies that IFRS 9 as published in July 2014 is not subject to any changes and thus allows a stable version of the standard to be available for endorsement. This proposal is expected to be published for public consultation in December

2015 and would result in amendments to IFRS 4 by mid-2016.

ESMA reiterates its position that a European carve-out is not a feasible solution for insurance activities in light of their global nature. Furthermore, ESMA highlights the need of extensive additional guidance for any deferral (i.e. additional presentation and disclosure requirements) that is not possible to be added to a standard according to the existing European legal framework. ESMA notes that during the due process on the Draft

Endorsement Advice on IFRS 9, EFRAG received strong messages that a specific European solution should not be pursued. ESMA regrets that this conclusion is not explicitly taken into account in the draft letter as we believe that this important point should be communicated prominently to the EC.

In the context of the draft letter, ESMA notes that proper implementation of IFRS 9 requires significant resources as well as an adequate timeframe and results in significant changes in IT systems. ESMA fears that the uncertainty about the mandatory application date of IFRS 9 might delay these implementation activities and endanger consistent implementation of IFRS 9 in the EU for all entities. Consequently, 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.

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