The PRA has published a Dear CEO letter it has sent to firms concerning transitional arrangements for capital impact of International Financial Reporting Standard (IFRS) 9 expected credit loss accounting.
In the Dear CEO letter the PRA notes that the Basel Committee on Banking Supervision and the European legislative bodies have examined the case for transitional arrangements to be applied to the impact of IFRS 9 expected credit loss accounting on credit institution’s regulatory capital. The Dear CEO letter also notes that it is likely that the Capital Requirements Regulation (CRR) will be amended to establish such arrangements in the European Union and that based on the current draft legislative texts for amending the CRR, it appears probable that the use of these arrangements will be at the option of the individual firm.
Against this background, the purpose of the Dear CEO letter is to:
- summarise the rationale for transitional arrangements;
- outline the main features of the transitional arrangements which have been considered within Europe thus far;
- set out the PRA’s views on UK firms using the arrangements;
- note the tight timeframes within which UK firms will probably need to make a final decision; and
- request a response on whether the firm intends to use the transitional arrangements.