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COVID-19 - Impact on Financial Sector - 25 March 2020

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25/03/2020

Please find below a summary of COVID-19 developments relevant to our clients; these alerts are dedicated to following up on the financial regulators’ responses to the crisis. We wish you and your loved ones well.

If you have any questions please feel free to contact: 

Tom Van Dyck
+32 475 90 90 91
t.vandyck@liedekerke.com

Freya Mareels 
+32 475 25 11 50
f.mareels@liedekerke.com

Wim Dedecker
+32 491 36 03 99
w.dedecker@liedekerke.com

 

25/03/2020

ESMA issues guidance on accounting implications of COVID-19

ESMA has issued a statement to ensure consistent application of International Financial Reporting Standards (IFRS) in the EU and avoid divergence in practice on the application of IFRS 9 Financial Instruments in the specific context of the COVID-19 outbreak. The following guidance has been set out :

 

  • Issuers shall assess whether supportive measures result in modification of the financial assets and whether modifications lead to their derecognition – on the basis of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and IFRS 9 principles.
  • Issuers shall disclose (i) their accounting policy for determining when a modification is substantial if relevant to an understanding of their financial statements, and (ii) judgements made that have the most significant effect on the amounts recognised in their financial statements.
  • Issuers shall assess the significant increase in credit risk (SICR) in light of the support programs applied by governments. In particular, ESMA notes that the measures taken in the context of the COVID-19 outbreak which permit, require or encourage suspension or delays in payments, should not be regarded as automatically having a one-to-one impact on the assessment of whether loans have suffered a SICR, but shall be analysed on a case-by-case basis taking into account all the facts and circumstances.
  • Issuers should assess, on the basis of the Expected Credit Loss (ECL) model in IFRS 9, the extent to which, amongst other facts, the high degree of uncertainty and any sudden changes in the short-term economic outlook are expected to result in impacts over the entire expected life of the financial instrument.
  • Should Member States decide to provide public guarantees on issuers’ exposures, ESMA highlights that such credit enhancements might have an impact on the ECL measurement itself, depending on whether they are considered an integral part of the contractual terms or not.
  • Sufficient disclosure needs to be provided in the interim financial statements, for investors to understand the significant events and transactions occurring since the end of the annual financial reporting period.
     
25/03/2020

EBA provides clarity to banks and consumers on the application of the prudential framework in light of COVID-19 measures

The EBA calls for flexibility and pragmatism in the application of the prudential framework and clarifies that, in case of debt moratoria, there is no automatic classification in default, forborne, or IFRS9 status.

  • The EBA insists on the importance of adequate risk measurement and expects institutions to prioritise individual assessments of obligors’ likeliness to pay when possible.
  • Consumer protection remains a priority and financial institutions should ensure full disclosure and act in the interest of customers, with no hidden charges or automatic impact on credit ratings.
  • Well-functioning payment services are vital at this time, and contactless payments should be stepped up to the threshold allowed under EU law.


Copyright - Please do not quote without permission. Please note that this alert is not a legal advice.