IFRS 9 Financial Instruments

The IFRS 9 Financial Instruments accounting standard has had a significant impact on the accounting and risk management of financial institutions for years. Even after its introduction, the need for adaptation remains high – particularly due to increasing regulatory requirements, growing data complexity, and the ongoing digitalization of reporting.

Many institutions are faced with the task of regularly reviewing and further developing their existing IFRS 9 processes – for example, through more efficient models for determining expected credit losses, the automation of valuation processes, or the integration of new technical solutions such as the use of modern data platforms or modeling tools. KPMG supports banks and other financial service providers in holistically optimizing IFRS 9 – from the further development of existing models to the implementation of efficient, compliant processes.

Risk Mitigation Accounting (RMA) now completely replaces IAS 39 and creates closer integration between risk management, treasury, and accounting for portfolio fair value hedges.

Risk Mitigation Accounting (RMA) has previously been announced and discussed under the term Dynamic Risk Management (DRM). The future framework for portfolio fair value hedge accounting closes the remaining gap in IFRS 9. It promotes close integration of treasury, risk controlling, and accounting in the management and reporting of interest rate risks in the banking book.

The core idea behind RMA is to make dynamic risk management of open net risk positions visible in accounting, also taking into account certain model books. This is intended to remedy the previous weaknesses of existing hedge accounting approaches, including the assumption of rigid hedge relationships and a gross view.

On our website on risk mitigation accounting, we provide further details on the model and ongoing updates on new developments and findings:

RMA - the successor to IAS 39

Risk mitigation accounting (RMA) requires closer cooperation between treasury, risk controlling and accounting

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Our services for IFRS 9 implementation and optimization

Implementing IFRS 9 regulations requires a cross-functional approach as well as methodological and procedural experience, which our team has already demonstrated in national and international corporate projects.

Our experts have a deep and comprehensive understanding of financial instruments, including how they are reported under different accounting standards and in regulatory law. They also have in-depth knowledge of risk management methods and processes and their implications for reporting. In addition, they have extensive benchmark expertise in hedge accounting models and many years of experience in implementing accounting systems.

With our holistic view of your value chain, we help you tap into efficiency potential through closer integration of front office, accounting, reporting, and controlling, and analyze and implement new requirements for risk mitigation accounting.

Using our own analysis and simulation tools, we highlight company-specific implications in strategic and operational terms and provide support in the analysis and implementation of RMA and the complete replacement of IAS 39. We also identify complexity drivers, internal process implications, and IT system requirements.

Simulation calculations – quantifying the effects of risk mitigation accounting

Our IFRS 9 simulation tools offer a wide range of simulation options and serve as a basis for decision-making for strategic positioning and as support for optimizations with regard to the interpretation of leeway and the exercise of options.

With the help of our “IFRS 9 Impairment Simulation Tool,” we can determine future risk provisions and their development over time based on your business and counterparty risk data (PD and LGD). The dynamic development of your lending business can be taken into account. In addition, stress scenarios can be modeled with regard to the probability of default in order to estimate the impact of changed counterparty risk conditions.

Our RMA simulator enables quick test calculations with your basic and hedging transactions for an early assessment of the RMA regulations. Functions such as the derivation of net repricing risk exposure (NRRE), the construction of benchmark derivatives tailored to your risk positions, and the simulation of risk mitigation adjustments and derivative PnL over several periods can be used. This allows an initial impact assessment of net interest income/economic value of equity (NII/EVE) to be carried out.

These simulations increase early transparency, reduce the risk of undesirable developments, and create a fact-based decision-making basis for further steps.

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