Implementation of non-centrally cleared derivatives deadline extended —BCBS, IOSCO

THE Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO) have agreed to extend the deadline for completing the final two implementation phases of the margin requirements for non-centrally cleared derivatives, by one year.

The two bodies said in a joint statement that they will continue to monitor the impact of the rapid spread of the coronavirus disease on the global financial system.

The BCBS and IOSCO took this decision in light of the significant challenges posed by COVID-19, including the displacement of staff and the need for firms to focus resources on managing risks associated with current market volatility.

This extension will provide additional operational capacity for firms to respond to the immediate impact of Covid-19 and at the same time, facilitate covered entities to act diligently to comply with the requirements by the revised deadline, the statement clarified.

With this extension, the final implementation phase will take place on 1 September 2022, at which point covered entities with an aggregate average notional amount (AANA) of non-centrally cleared derivatives greater than €8 billion will be subject to the requirements. As an intermediate step, from 1 September 2021 covered entities with an AANA of non-centrally cleared derivatives greater than €50 billion will be subject to the requirements.

The Basel Committee and IOSCO said they have published a revised version of the margin requirements to reflect this revision on their websites. The revised publication features no other substantive changes to the margin requirements framework.

The responsibility for developing and maintaining high quality standards resides with the International Accounting Standards Board (IASB), and IOSCO said it welcomes their recent educational materials that address the application of accounting for expected credit losses (ECL) in accordance with IFRS 9 Financial Instruments during the period of economic uncertainty arising from the COVID-19 outbreak.

IOSCO notes that the related IASB release and educational materials do not change, remove nor add to the requirements in IFRS 9.

It noted that high quality financial reporting requires the application of professional judgment to an issuer’s particular circumstances.

“Proper application of professional judgment requires appropriate skills, experience and internal controls. In particular, IFRS 9 does not set bright lines and should not be applied in a mechanistic manner.

“IFRS 9 provides a principles-based framework for applying professional judgment in evaluating forward-looking scenarios when estimating expected credit losses related to financial instruments measured at amortised costs or fair value through Other Comprehensive Income,” the statement read in part.

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