ESMA comments on the IASB’s Exposure Draft

Today the European Securities and Markets Authority (ESMA) published its comment letters to the IASB and to EFRAG on the IASB’s Exposure Draft Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts.

ESMA accepts that both the overlay approach and the temporary exemption from applying IFRS 9 are needed to address different concerns raised by the insurance industry about the misalignment of the effective date of IFRS 9 and the new insurance contracts Standard.

While the  existence of two complementary approaches further reduces comparability among entities, each of them might be better suited for a different subset of entities issuing insurance contracts in the scope of IFRS 4 depending on their business activities and group structures.

ESMA is of the view that these approaches should be temporary and their scope be limited to their objective, namely to address the misalignment between the effective dates between IFRS 9 and the new insurance contracts Standard.

Regarding the scope of the temporary exemption, ESMA agrees with the assessment of the predominance criterion at the reporting entity level. However, ESMA suggests that this criterion is widened to capture all types of liabilities an insurer is expected to carry for its insurance activities linked to issuance of insurance contracts within the scope of IFRS 4.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

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