ESMA and EBA Statements to promote consistent application of accounting and prudential supervision standards in the COVID-19 context
Today, the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) have issued separated and coordinated public Statements regarding, respectively, the accounting implications and the prudential framework implications of COVID-19. The two Statements are consistent as regards financial reporting.
ESMA’s Statement on financial reporting aspects
The Statement issued by ESMA today provides guidance on some accounting implications of the economic support and relief measures adopted by EU Member States in response to the COVID-19 outbreak.
By its Statement, the EU Agency purports to promote consistent application of International Financial Reporting Standards (IFRS) in the EU and to avoid divergence in practice on the application of IFRS 9 Financial Instruments in the specific context of the pandemic. According to ESMA, the principles-based nature of IFRS 9 includes sufficient flexibility to faithfully reflect the specific circumstances of the COVID-19 outbreak and the associated public policy measures.
In view of the upcoming periodic information to be published by European issuers, the Statement provides guidance to issuers and auditors on the application of IFRS 9 Financial Instruments, specifically as regards the calculation of expected credit losses and related disclosure requirements. Issuers and their auditors should take this Public Statement into due consideration.
EBA’s Statement on prudential framework aspects
The EBA expresses its support to the measures taken and proposed by national governments and EU bodies to address the adverse systemic economic impact of the COVID-19 pandemic in the form of general moratorium, payment holidays stemming from public measures or industry-wide payment relief initiatives taken by credit institutions.
However, such measures make it necessary to clarify a number of aspects on the functioning of the prudential framework. By today’s Statement, EBA aims to provide clarity to the EU banking sector on how to handle in a consistent manner aspects related to (i) the classification of loans in default, (ii) the identification of forborne exposures and (iii) the accounting treatment.
These clarifications will help ensure consistency and comparability in risk metrics across the whole EU banking sector, which are crucial to monitor the effects of the current crisis. The EBA also reminds financial institutions of their consumer protection obligations, temporarily lifts some reporting obligations for payment service providers (PSPs), and calls on PSPs to raise their contactless payment thresholds to the legal limit.