The European Commission has published a report on the effect of the revised International Accounting Standard (IAS) 19 on the volatility of own funds of credit institutions and investment firms. According to Article 36(1)(e) of the Capital Requirements Regulation (CRR), credit institutions and investment firms shall deduct defined benefit pension fund (DBPF) assets on their balance sheet from Common Equity Tier 1 (CET1) items. The Commission was mandated under Article 519 CRR to produce a report on whether the revised IAS 19 in conjunction with the deduction of net pension assets as set out in Article 36(1)(e) would lead to undue volatility of institutions’ own funds.
In the report, the Commission concludes that IAS 19, in conjunction with the DBPF assets set out in Article 36(1)(e) CRR and the changes in the net pension liabilities, will not lead to undue volatility of firms’ own funds. As a result, the Commission views the CRR treatment as it stands appropriate and will not table a legislative proposal.