The implementation of accounting standard IFRS 9, due in 2018, is revealing itself to be a transformational event for the banking industry, according to a new paper from Wolters Kluwer. Although some bank’s existing finance and risk technology systems may be able to meet some of the new requirements, they are unlikely to meet them all, according to the finance, risk and regulatory reporting technology firm.
To succeed in implementation, banks are therefore being advised to dismantle barriers between departments such as Finance and Risk, as well as improve data management capabilities in order to make more accurate and longer-term credit assessments. “These changes will come in handy not just for implementing IFRS 9 but other elements of the new supervisory architecture, too,” says Jeroen Van Doorsselaere, vice president, Risk and Finance, at Wolters Kluwer, and one of the authors of the paper. “With so much at stake, introducing IFRS 9 must be an urgent priority across the industry. And yet although many organizations are engaged in intensive preparations, an unsettlingly high proportion, appear nowhere near ready to put the standard into practice.”
IFRS 9 updates International Accounting Standards Board (IASB) guidelines for the treatment of balance-sheet assets and is a replacement for its IAS 39 rubric. The aim of IFRS 9 is to encourage banks to assess credit and risk in a more comprehensive, prospective way that takes myriad internal and external factors into account in order to spot trouble before it arrives. Notably, the board intends IFRS 9 to be compatible with broader Basel III risk management practices, particularly with its emphasis on a principles-based approach, rather than one that compels institutions to follow a set of hard rules.
“Given the constraints of time and resources, many banks will be compelled to perform triage, focusing on the most urgent matters,” Van Doorsselaere adds. “Before a more comprehensive overhaul, for instance, they may emphasise bridging the gaps between certain key applications, especially those that relate to their main impairment risks, as these are most likely to have a near-term impact on the bottom line.”
When it comes to implementing technology solutions, firms should seek a partner with the well-established methodology necessary to provide support throughout the process, the paper notes. Ultimately IFRS 9 should act as a bridge between departments, driving them to act as one unified organism, producing and consuming information for the benefit of the entire firm, not just for each isolated silo.
In financial terms, after the initial impact of changes to credit risk models have been absorbed, a focus on forward-looking assessments should lead to a more accurate pricing of risk, the paper continues, espousing the opportunities provided by a strategic approach to implementation.
Wolters Kluwer Governance, Risk & Compliance (GRC) is a division of Wolters Kluwer which provides legal, finance, risk and compliance professionals and small business owners with a broad spectrum of solutions, services and expertise needed to help manage myriad governance, risk and compliance needs in dynamic markets and regulatory environments. The division’s prominent brands include: AppOne®, AuthenticWeb™, Bankers Systems®, BizFilings®, Capital Changes, CASH Suite™, CT Corporation, CT Lien Solutions, Corsearch, TyMetrix® 360, Passport®, LegalVIEW®, GainsKeeper®, OneSumX®, Uniform Forms™, VMP® Mortgage Solutions and Wiz®.
Wolters Kluwer N.V. (AEX: WKL) is a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. Wolters Kluwer reported 2015 annual revenues of €4.2 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide.