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From 1 July 2017, the finance and banking industry operating in the UK will be represented by a new trade association, UK Finance. It will represent around 300 firms in the UK providing credit, banking, markets and payment-related services. The new organisation will take on most of the activities previously carried out by the Asset Based Finance Association, the British Bankers’ Association, the Council of Mortgage Lenders, Financial Fraud Action UK, Payments UK and the UK Cards Association.x
Written by Ben O'Brien, Managing Director, Jaywing
As we enter 2016, the IFRS 9 deadline draws even closer, and the countdown is putting pressure on firms who need to comply with the new requirements.In less than two years, on January 1st 2018, IFRS 9 will take effect.
Although the deadline isn’t until 1 January 2018, the reality is that the changes need to be in place at least a year before in order for them to reflect the impact on opening balances. This gives firms only one year to overhaul their systems.
What’s more, since the new requirements are impacting so many stakeholders, financial institutions generally have indicated they want to use a year for a parallel run. Many see this parallel run as a buffer to absorb any overruns within previous planning.
Our work with organisations that have made significant head-way towards IFRS 9 implementation has given us a lot of insight on the current and perceived issues in achieving this transition.
From my experience of working with many different banks, the greatest challenge for organisations is the shift from an incurred loss model to forward looking provisioning based on expected loss modelling.
While the requirement to assess lifetime expected losses may present a challenge, it is expected that many lending organisations have the broad foundations in place on which to build a fully compliant solution. The basis of a robust and efficient IFRS 9 framework will be one that leverages existing tools. Taking this approach and starting work now will leave risk and finance teams with a well thought out IFRS 9 infrastructure that will be straightforward to manage in the future.
By the end of 2016, leading organisations will have completed the design and build of models, and have validated models in order to gain governance approval prior to implementation and parallel run.
The implications of IFRS 9 are not to be underestimated. I recommend that businesses affected by the new standard, if they have not already done so, start the planning, design and build process now. The earlier you start, the better prepared you will be for when IFRS 9 heralds a new era of long-term forecasting for financial institutions.
From talking to many risk and finance professionals it is evident that to tackle all these challenges at the same time as managing business as usual is a challenge in itself! Many found that by outsourcing some or all of the stages of the project, they can be sure that the regulator’s demands and timescales can be met, while at the same time helping internal teams learn from the expertise of IFRS 9 specialists.
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To find out more, please download our free whitepaper on how to solve IFRS 9 impairment, click here to access the whitepaper.