Early adoption of IFRS 9 Financial Instruments for Domestic Systemically Important Banks – Advisory

Document Properties

  • Type of Publication: Letter
  • To: Federally Regulated Entities
  • Date: January 9, 2015
  • Reference: Advisory for Banks/FBBs/BHCs/T&Ls/Co-ops/Life/P&C/Fraternals/IHCs

OSFI is issuing the final version of the Advisory on the Early Adoption of IFRS 9 Financial Instruments for Domestic Systemically Important Banks. The Advisory outlines OSFI’s expectation that Domestic Systemically Important Banks (D-SIBs) will adopt IFRS 9 for their annual period beginning on November 1, 2017. All other Federally Regulated Entities (FREs) using an October 31 year-end are permitted to adopt IFRS 9 on November 1, 2017, but are not expected to do so.

The draft Advisory Early adoption of IFRS 9 Financial Instruments for FREs with October year-ends was issued for comment on October 10, 2014. Comments received on the draft were taken into consideration in the drafting of the final version, which has been renamed to reflect OSFI’s revised expectations with respect to D-SIBs. A summary of comments received and how they have been addressed is provided in the attached annex. OSFI is grateful for the feedback provided during the consultation period.

Undertaken in response to the global financial crisis, the replacement of International Accounting Standard 39, Financial Instruments, with IFRS 9 was a key project for the International Accounting Standards Board (IASB).  D‑SIBs are expected to adopt IFRS 9 for annual periods beginning November 1, 2017, which will better align their IFRS 9 adoption date with that of FREs having a December year-end and with foreign banks that report in IFRS, such as many Global Systemically Important Banks based in Europe. It will also help to ensure that implementation details in Canada are worked out with D-SIBs before smaller, less systemic FREs with annual periods beginning January 1, 2018, have to adopt the standard. During the implementation period, OSFI will monitor the endorsement processes of other jurisdictions, including the European Union. 

In an effort to consolidate OSFI guidance, this final Advisory incorporates the relevant sections of the March 2010 Advisory Conversion to International Financial Reporting Standards (IFRSs) by Federally Regulated Entities (FREs) and the February 2014 letter entitled Early Adoption of Amendments to IFRS 9 – General Hedging and Own Credit Risk. As a result, these two documents have been removed from the OSFI website.

Questions regarding the Advisory may be addressed to Renée Chen in OSFI’s Accounting Policy Division at Renee.Chen@osfi-bsif.gc.ca.

Yours truly,

Mark Zelmer
Deputy Superintendent


Summary of Consultation Comments and OSFI Responses
Draft Advisory Early Adoption of IFRS 9 Financial Instruments for FREs with October year-ends

Comments from respondents

OSFI Response

Implementation Timeline:  Some respondents noted that early adoption on November 1, 2017 would not provide adequate time for data aggregation, systems changes, internal controls implementation and other process changes.  

All FREs have at least three years from the time IFRS 9 was finalized by the IASB to implement it, consistent with the request that was made to the IASB in this regard. That said, OSFI has decided only Domestic Systemically Important Banks (D-SIBs) should early adopt in light of comments from respondents. That will give more time to smaller less systemic institutions that have October 31 year-ends to implement the standard.

D-SIBs adopting IFRS 9 with their annual reporting period beginning November 1, 2017 will ensure that most implementation issues in Canada will be sorted out with them before the standard is implemented by other FREs.

Early adoption by D-SIBs will also foster closer alignment of their adoption date with those of FREs that have December year-ends and with the many foreign peers of the D-SIBs, such as many European-based banks that have been designated as Global Systemically Important Banks (G-SIBs).

Availability of interpretative guidance:  Some respondents noted the timing of interpretations is driven by adoption timing of the new standard in Europe. Significant interpretations may emerge that might call into question early accounting conclusions, possibly increasing implementation costs and risking restatements. Early adoption will also disadvantage FREs having October year-ends from fulsome global evolution of implementation as accounting guidance from audit firms may not be available or released on a timely basis for Canadians given longer implementation timelines for Europe.

Some respondents also noted the IASB’s Transition Resource Group for Impairment of Financial Instruments (ITG) will issue guidance and they would not want to finalize accounting policies before the guidance is issued.

Respondents also noted smaller FREs having October year-ends will not be able to leverage on the expertise of the audit firms and bigger banks to ease their conversion process as the standard may require a new level of sophistication for them. This increases implementation costs that are proportionally higher for these FREs.

See above. Many European G-SIBs that are SEC registrants face the same time constraints on the availability of interpretive guidance as Canadian D‑SIBs. In addition, all FREs having a December year-end will also be required to adopt IFRS 9 and make policy choices based on guidance that is available at the time.

OSFI understands the importance of having as much interpretative guidance issued as soon as possible. It is working closely with its international peer regulators to have the Basel Committee on Banking Supervision provide further guidance as soon as possible.

The IASB has stated that the ITG will not issue guidance but will inform IASB of implementation issues, which will help the IASB determine what, if any, action is needed to address those issues. The Basel Committee is an observer to the group and OSFI is one of those Basel representatives.

Most FREs have December year-ends. If D-SIBs do not early adopt, the December year-end FREs (which are all smaller less systemic institutions) would bear the burden and cost of having to implement IFRS 9 before the D-SIBs. As noted above, OSFI has considered the burden on non-D-SIBs that have October year-ends and has decided only D-SIBs should adopt IFRS 9 on November 1, 2017. All other FREs with October year-ends are permitted, but not expected to early adopt.

Comparative information: IFRS 9 requires the standard to be retrospectively applied. FREs will be required to present one year’s comparative information and SEC filers may elect to provide an additional year’s income statement to be presented. Therefore, the beginning comparative period is November 1, 2015. IFRS 9 does not allow for the use of hindsight. As a result, these respondents note FREs cannot elect to prepare comparative financial statements because there is insufficient time to finalize methodologies and inputs prior to the commencement of the first reporting period.

The IFRS 9 transition requirements permit, but do not require, the restatement of comparative periods. Therefore, this issue with SEC filers is not caused by OSFI’s proposals. G-SIBs that are SEC registrants will have the same issue if they elect to prepare comparative financial information.

Quarterly vs semi-annual reporting:  Respondents note Canadian banks adopt much sooner than their European counterparts with calendar year-ends because Canadian banks’ first reporting will be January 31, 2018 while European banks report on June 30, 2018.

While it is true that many European banks only report semi-annually, most European banks that have been designated as G-SIBs are SEC filers and thus report quarterly. This latter group of banks is the more relevant peer group of European banks for the Canadian D-SIBs. As a result, Canadian D-SIBs will only be implementing IFRS 9 two months ahead of their European peer group.

European Union endorsement: One respondent commented that the European Union (EU) may delay its endorsement of IFRS 9 beyond 2018 so that entities may adopt IFRS 9 and the insurance standard contemporaneously. They suggest OSFI exclude insurers with October year-ends from early adoption.

OSFI has decided that only D-SIBs would early adopt IFRS 9. Other FREs with October year-ends may early adopt if they wish, but are not expected to do so.

As noted in the Advisory, OSFI will monitor the endorsement processes of other jurisdictions, including the EU. OSFI encourages all FREs to take full advantage of the time available for its implementation and not delay their plans until the EU or other jurisdictions endorse IFRS 9.