Implementation accounting standard IFRS 9, due at the start of 2018, is revealing itself to be a transformational event for the banking industry, according to Wolters Kluwer.
A report by the Netherlands-based global finance, risk and regulatory reporting technology firm suggests that although some bank’s existing finance and risk technology systems may be able to meet some of the new requirements, they are unlikely to meet them all.
To succeed in implementation, banks are therefore being advised to dismantle barriers between departments such as finance and risk, as well as improve data management capabilities in order to make more accurate and longer-term credit assessments.
“These changes will come in handy not just for implementing IFRS 9 but other elements of the new supervisory architecture, too,” said Jeroen Van Doorsselaere, vice president, risk and finance, at Wolters Kluwer and co-author of the paper.
“With so much at stake, introducing IFRS 9 must be an urgent priority across the industry. And yet although many organisations are engaged in intensive preparations, an unsettlingly high proportion, appear nowhere near ready to put the standard into practice.”
IFRS 9 updates International Accounting Standards Board (IASB) guidelines for the treatment of balance-sheet assets and is a replacement for its IAS 39 rubric. The aim of IFRS 9 is to encourage banks to assess credit and risk in a more comprehensive, prospective way that takes myriad internal and external factors into account in order to spot trouble before it arrives.
Notably, the board intends IFRS 9 to be compatible with broader Basel III risk management practices, particularly with its emphasis on a principles-based approach, rather than one that compels institutions to follow a set of hard rules.
“Given the constraints of time and resources, many banks will be compelled to perform triage, focusing on the most urgent matters,” Van Doorsselaere added.
“Before a more comprehensive overhaul, for instance, they may emphasise bridging the gaps between certain key applications, especially those that relate to their main impairment risks, as these are most likely to have a near-term impact on the bottom line.”
When it comes to implementing technology solutions, firms should seek a partner with the well-established methodology necessary to provide support throughout the process, the paper notes. Ultimately IFRS 9 should act as a bridge between departments, driving them to act as one unified organism, producing and consuming information for the benefit of the entire firm, not just for each isolated silo.
In financial terms, after the initial impact of changes to credit risk models have been absorbed, a focus on forward-looking assessments should lead to a more accurate pricing of risk, the paper continues, espousing the opportunities provided by a strategic approach to implementation.
A survey conducted by Capital One suggests around five in six plan to implement new treasury management products and services in the coming year.
The European Central Bank will extend its quantitative easing programme for nine months beyond next March, but scale back the level of bond buying from €80bn to €60bn a month.
The agreement, after three years of debate, raise questions on future investment demand, but Fitch Ratings doesnʼt anticipate major market disruption.
The European Commission fined Credit Agricole, HSBC and JPMorgan Chase a total of €485m for manipulating the price of the financial benchmark.