Update IFRS 9: Current implement challenges and solution approaches

Update IFRS 9: Current implement challenges and solution approaches

Interview with Lars Meyer, Head of Accounting Practice at zeb, ahead of the 6th Annual Banking Risk & Regulation Summit.

What are the key challenges that credit risk professionals face when implementing the standard?

Credit risk professionals have already been involved in creating expected credit loss models for IFRS 9 impairment purposes during the conception phases in most banks. The focus now shifts more to model validation and testing of the implemented approaches during remaining implementation time.

IFRS 9-based forecasting/planning and stress testing activities are further tasks that will require increased involvement of credit-risk experts already by now or within the near future.

Can you outline some of the FINREP requirements for reporting?

FINREP-reporting has been amended due to changes in IFRS 9 requirements: Some templates have been introduced new, some have been amended and some of them were replaced. For example, FINREP reports require an alignment with the new IFRS 9 financial instruments classes; regarding impairment more in-depth information is requested about the reasons for changes in loss provisions (detailed breakdown of delta effects).

Banks have to already comply with these adjustments directly after IFRS 9 first time adoption for Q1 2018 FINREP reporting, so the overall implementation timeline remains challenging.

At what stage do you believe financial institutions should be at in terms of IFRS 9 implementation?

As outlined above IFRS 9 has to be applied by financial institutions for reporting periods starting on 1st of January 2018 onwards. For ensuring a proper first-time adoption, the implementation process should already be in its final stages, allowing the institutions to perform comprehensive parallel runs latest in Q3/Q4 2017.

However, according to our observations, we believe that there will still be some improvements necessary even in 2018, like replacements of short-term workarounds or adjustments in order to resolve audit findings. The EBA stress test 2018 which will be based on IFRS 9 figures could lead to further impact.

How do you see the role of the credit risk professional changing over the next 6-12 months?

The role of credit professionals will change mainly due to the fact that increased co-operation with neighbouring functions such as accounting and regulatory management is inevitable to fulfil new complex, integrated reporting requirements e.g. in terms of IFRS 9 or of BCBS #239.

Analysis and interpretation of reporting results, such as for IFRS 9 impairment figures, will require active involvement of credit risk experts, thus leading to an increased workload.

Moreover, credit risk departments will have to increasingly fulfil the role of an “internal advisor” within the organisation in order to prevent unwanted risk exposures and result impact. From new product design to accounting P&L management: The advice of credit risk professionals will be crucial so this additional capacity demand needs to be taken early into consideration.