The Basel Committee on Banking Supervision released its “Supervisory guidance on the use of the fair value option for financial instruments by banks”, a paper providing banking supervisors with guidance on this topic. The paper focuses on supervisors' expectations for key policy positions and for sound risk management, valuation and control practices. While this supervisory guidance refers specifically to the fair value option in IAS 39, the Committee believes that the principles should be generally applicable to similar fair value option approaches that exist or are being considered in other accounting regimes.
The supervisory guidance is not intended to set forth additional accounting requirements beyond those established by the IASB. Instead, this supervisory guidance addresses such matters as bank risk management and capital assessment issues, and thus should not be in conflict with the IASB's accounting and disclosure guidance on the fair value option.
The guidance is principles-based and is structured around seven principles about supervisory expectations relevant to the use of the fair value option, and supervisory evaluation of risk management, controls and capital adequacy. The paper addresses such matters as bank risk management and capital assessment issues.