ALMOST HALF (47%) of chief risk and finance officers at some of Europe’s largest financial institutions are not on course to meet the 2018 IFRS 9 deadline, a new survey reveals.
Commissioned by financial services consultancy Parker Fitzgerald, and conducted in conjunction with the Centre for Finance Professionals (CFP), the results show that over a quarter of those who risk missing the deadline, anticipate a ‘significant’ delay in their compliance with the new accounting rules.
Kick in on New Year’s Day 2018, the IFRS 9 standard was finalised in July 2014 to replace the International Accounting Standard 39, to simplify standard accounting rules and address impairment calculation issues arising during the global financial crisis.
Scott Vincent, managing partner, Parker Fitzgerald, said: “IFRS 9 constitutes a fundamental change to the way financial institutions model and report impairment. It is a major upheaval for both the risk and finance functions, akin in complexity to the original implementation of Basel II, and far more onerous than most firms had anticipated. IFRS 9 poses a major implementation challenge, which is exacerbated by all the other regulatory changes the financial services industry is having to deal with”.
Despite the fact that full compliance with the new IFRS 9 rules is estimated to take between two and three years to complete, the majority of firms have only just started to scale up their programmes.
Over 60% of respondents said they are not even half way there with methodology definition and model development. Another key area for concern is data management, with around 54% saying that they will have to use data never previously used for impairment calculations, forecasting or stress testing. In addition, 9 in 10 programmes have to redevelop their risk and finance database systems.
Simon Wilson, Risk Advisory Services Partner, Parker Fitzgerald said: “IFRS 9 has introduced a number of new complexities, including the concept of significant deterioration in credit risk and a requirement to predict whether or not the risk will change in the future.
“IFRS 9 should create a greater degree of transparency over the performance of a financial institution’s loan books through the introduction of new disclosure requirements that help management, investors and regulators alike understand the drivers of loan performance”.
The potential over complexity imparted by the new rules was a key concern amongst survey respondents, with over 80% saying that a robust solution would be one with a simple process.