ASCG comments on the IASB’s ED/2017/3

Today, the ASCG submitted its comment letter on the ED/2017/3 Prepayment Features with Negative Compensation (Proposed Amendments to IFRS 9) (see our prior news item) to the IASB. A similar comment letter has also been submitted to EFRAG.

We generally note that a majority of our IFRS Committee members is of the view that IFRS 9 would not have required any changes. These members do not share the view that IFRS 9.B4.1.11(b) excludes financial instruments with symmetric prepayment features comprising potentially “negative” compensation.

We understand and acknowledge that a majority both within the IFRS IC as well as on the IASB felt differently and did not believe that the current text would cater for symmetric prepayment options.

Whilst we agree with the IASB that instruments with negative compensation could be eligible for amortised cost treatment (or for FVOCI treatment, respectively) – provided the business model criterion is met –, we do not favour providing an exception to the principle in B4.1.10 / B4.1.11, which the ED effectively does, as this creates an arbitrary rule satisfying these particular instruments while there may be other instruments with different features potentially deserving a similar “exception”.