Accounting standard IFRS 9, with its emphasis on forward thinking, is stirring anxiety in the financial industry. But a unified Governance, Finance, Risk and Compliance (GFRC) management model can help banks adapt their business to thrive under the standard according to a new Wolters Kluwer white paper, “IFRS 9: Unexpected Gains From Expected Losses.”
IFRS 9 Financial Instruments calls for firms to replace the traditional incurred-loss model for gauging credit exposure with one that uses a variety of internal and external criteria, plus a liberal amount of management judgment, to calculate expected credit losses (ECL).The standard, which becomes mandatory in 2018, is an attempt to encourage banks to develop models and mechanisms that will function as a “time machine” that allows them to forecast tomorrow’s credit conditions today and avoid the next financial crisis.
To tackle this challenge banks are advised to adopt a holistic approach for which the objective is strategic planning across the enterprise, encompassing Finance and Risk functions and backstopped by Compliance, all within a sound Governance architecture. With the right command structure and a sturdy-yet-flexible data management system to aid in navigation, banks can, in fact, embrace IFRS 9 as an opportunity, not an unavoidable obstacle, steering toward the future with confidence, the white paper argues.
“Banks should embrace Governance, Finance, Risk and Compliance (GFRC) as an overarching management framework that is ideally suited to the prospective, principles-based elements of IFRS 9,” notes Jeroen Van Doorsselaere author of the report and director, Business Development, Global Finance and Performance at Wolters Kluwer. “GFRC stresses the links among centers of leadership within a firm, rather than the activities of each one alone, the modus operandi of traditional accounting standards and the silo organizational structure entrenched in many institutions. Wolters Kluwer, with its leading position in IFRS 9 technology solutions is well placed to advise banks on the best ways of dealing with the road to 2018 compliance.”
Just last month Chartis Research named Wolters Kluwer a Category Leader for the financial services industry in its FinTech QuadrantTM on International Financial Reporting Standards (IFRS) 9 Technology Solutions. The FinTech Quadrant uses in-depth research and a clear scoring system to determine which IFRS 9 technology solutions in the marketplace can best meet an organization’s needs. Earlier in 2016, the company also ranked No. 1 in the IFRS 9 category in the widely followed Chartis RiskTech100® report.