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Avenue d’A

ar Mr Hooge

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• B-1040 Brussels

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e par Arrêté Roya

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scussion Paluation Ap

below withDynamic Ris

the approachssential, howing, and theestions raisssues and lo be followeodel for reour positio

s of this proj

el, once thee a clear s

AS 39 requirefocuses on tcro hedgingwe are conly to pipelined in the FEld the Bod the IASB

agement withforeign exch

85 40 85 • secreta

al en date du 30 d

Mr Hans HoChairman nternationa

30 Cannon SGB – LOND

E-mail: com

17 October 2

Ref.: BAN/AKI/H

Paper: Accpproach to

its commesk Managem

h taken by IAwever, that

e approacheed in the DPeft some ofed in the deeflection of n on the dject.

e conceptuasolution to tements. the risk mitig

g. We are conscious of ne transactiEE responseoard concl

revisits theh a view to hange and c

[email protected] • ww

écembre 1986

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l AccountingStreet ON EC4M 6

mentletters@

2014

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counting foMacro Hedg

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6XH

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cal challengwhich caus

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challengeAS 39 approits applicatioisks.

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We wousolution would nerecognitithese spmanagedapproach

Finally Fproject sstandarddevelopmaligned wstandard

r further infoE Team on

urs sincerely

dré Kilesse esident

cl. Appendix

derghem 22-28 • B

Association Interna

ld also liketo the accoueed to amenon and mea

pecific circumd financial rihes.

FEE shares should be ads (and noment of an with the word to ensure t

ormation on+32 (0) 2 28

y,

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B-1040 Brussels •

ationale reconnue

to stress tunting reflecnd or modifyasurement. mstances busks rather th

the concernligned with

ot only focuapproach t

rk and the dthat the final

n this letter, 85 40 74 or v

onse to spec

• Tel: +32 (0)2 285

par Arrêté Royal

that in ordection of the ey some of tWe point o

ut should rehan extende

ns of the inthe work thusing on Ithat aims to

discussions l standards f

please convia e-mail at

OC

cific questio

5 40 85 • secretar

en date du 30 déc

er to find a existing risk he current put that such

emain limiteed to other it

surance indhat is done FRS 9 ando account fre the Phasfit well toget

ntact Pantelt pantelis.pa

Olivier BouteChief Execut

ns.

[email protected] • www

cembre 1986

comprehenmitigation p

principles ofh reflection wd to portfoliotems or con

dustry that thin the entired the bankfor macro-hse II of the Ither.

is Pavlou, [email protected]

ellis-Taft tive

Page

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nsive and ppractices, thf asset and would be usos exposed

nceptual fram

he macro he “financial king sector

hedging shonsurance C

Manager, frobe.

2 of 22

ractical e IASB liability eful for

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hedging sector”

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om the

Ap

Sec(PR Qu Do risk (1)

(2)

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ppendix – F

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A

ction 1—BRA)

estion 1—N

you think thk manageme

FEE weopen porthe curreportfoliosexplaineshould oinstrume“macro-hmanagem FEE doereportingreportingaccountistatemen Furtherm(BC6.79-risk maninstanceplace. Having sre financprovide umanagemand quadisclosur20). Finally, accountimacro-herequiremaccomm

FEE respons

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Association Interna

Background

Need for an

hat there is aent in entitie

lcomes IASrtfolios and ent hedge as and thered in Questi

only be applients, exists hedging” insment in its e

es not agreg with the g should pong mismatcnts.

more, FEE a-BC6.80) wh

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said that, FEcial instrumuseful and rment policiealitative disre requirem

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ments and diodate some

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ationale reconnue

d and intro

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SB’s initiativedynamic ris

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relevant infoes can be aclosure reqents of IFR

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oduction to

g approach

specific accstatements?

e to develosk managemramework cis a need

E believes tnces that a hupports an eloping an a

ge accountingement poleffects of r

xist from the

h the IASB ard explainstoo broad ae activity (us

ntifies that thhedge relatioormation to tachieved thrquirements

RS 7 (please

ome of theRS 9 (IAS 39ing them thrn IFRS 7 thro-hedging a

s


en date du 30 déc

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op an approment (DRM).cannot accom

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approach th

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risk manage mix measu

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rough the cofor macro-

e refer to th

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cembre 1986

folio revalu

mic risk man

proach to rehy not?

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aim to fully ad we belieement actiourement mod

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Page

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3 of 22

proach

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FRS 9 ased on n to the ) takes

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(b) Do you

uestion 2 (a) FEE agrrepresenpatchwohedge ac FEE alsowhen it hedged financial hedging We also to eliminby changdeferringIncome (practical exposurethe DP, n

en portfoliosFEE agrmeans tcurrent hhedged portfolios

0) Furthermpositionsportion o

) FEE alsmanage focuses identified

FEE respons

derghem 22-28 • B

Association Interna

—Current dcial statem

u think thattly face whic risk mana

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u think that t

rees with thent the econrk presentaccounting.

o agrees witcomes to

position (theinstrumentsinstruments

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s rees that bahat exposuhedge accoitems, the ps with short

more, FEE as in that theof assets or l

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d in the DP a

se to specifi

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e IASB that omic substation of diffe

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anks managres are addounting requpreparers uslives in orde

agrees with e entities hedliabilities (wh

s that otheron a net op

n managing are applicab

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• Tel: +32 (0)2 285

par Arrêté Royal

in represe

as correctlyng the currWhy or why hen develop

ould address

t the currentance of ma

erent accoun

that one of the accou

of the exposor non-finand at Fair Valu

d IAS 39 gensmatch arisint basis of th

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e their expoded and remuirements dsually treat er to be able

the analysdge their exhich is curre

r industriespen positionthe interest

ble to other i

s


en date du 30 déc

enting dyn

y identified rent hedge not? If not,

ping an acco

s the issues

t accountingacro hedge nting require

the main drnting mismures are mecial assets)ue Through

neral hedgeng from riskhe hedged derivatives ir there are sge accountiional issuesd deposits a

osures on amoved on ado not accothe open po

e to apply he

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cembre 1986

amic risk

the main isaccountingwhat additi

ounting app

identified? W

g requiremeactivities w

ements, incl

rawbacks of atch of meeasures at a

and the meProfit or Los

accountingk managemeitem (fair van the Othesignificant shing to dyna

s apart from and deemed

an open pora continuousommodate oortfolios as edge accoun

P regardingn a net basid by IAS 39

rgy and uti, despite theom banks, snd other fina

Page

w.fee.be

managem

ssues that eg requiremeional issues

proach for dy

Why or why

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f financial reeasurement amortised ceasurementss – FVTPL

g requiremenent activitiesalue hedge)er Comprehhortcomingsamically mathose expla exposures.

rtfolio basis,s basis. Sinopen portfoa series of

nting.

g the hedges rather tha

9).

ility industrye fact that t

some of the ancial risks a

4 of 22

ent in

entities ents to s would ynamic

not?

aithfully ts in a general

porting of the

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A

mand depos2) FEE agr

exposurerequiremexposuremanagerdemand

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are curridentifiesorder forentity.

uestion 2(b) 4) FEE beli

above. Hchallengportfoliospractical portfolio,deposits the scop

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6) FEE woshortcomaccountiaccounti

ction 2—O

estion 3—D

you think thcurate and c

7) FEE agrparagrap

8) As an aadditionarate risk in the DP

FEE respons

derghem 22-28 • B

Association Interna

sits rees with thes and not

ments and IFes to be ders who incdeposits do

sures rees with therently not es the need fr the financia

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Overview

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B-1040 Brussels •

ationale reconnue

he DP that t solely for

FRS 13 – Faesignated alude such

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e DP that riseligible for dfor an accoual reporting

he PRA as pn the otherg the scopore the PRAn. Key chages in behae transactioA when the

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c questions

• Tel: +32 (0)2 285

par Arrêté Royal

risk managr their legaair Value Mes hedge iteexposures

air value risk

sk managerdesignation unting systeto be aligne

proposed in r hand, we e of applicaA raises opeallenges incaviouralisatioons and the scope altern

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ment

ynamic risk mnot? If not, w

stics of DRMhe DP.

encouragesh 2.1.2 whi

s in order to er industries

s


en date du 30 déc

gers accounal form. Theasurementems, irrespe

into the mk under this

rs include inas part of

m that accoed with the

the DP canconcur tha

ation and therational ch

clude the idon, the expidentificatio

native focus

the suggestant financialstatements

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managemenwhat change

M as expres

s the IASBch does notdemonstrat(e.g. utility


cembre 1986

nt for behave current hdo not allow

ective of themanaged pomeasureme

their analysf a hedge

ommodates risk mitigatio

n address tht the PRA he elementsallenges wh

dentification pected matun of the pores on risk m

ted PRA ap information

s mentionedrements. Te context

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sed in the D

B to considt directly rele that the coindustry).

Page

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vioural chanhedge accow demand de view of tortfolio, sinent approach

ysis exposurrelationshipsuch exposon activities

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of the maurities of drtfolio that is

mitigation.

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phs 2.1.1–2uggest, and

DP as descr

er introduclate to the ioncepts disc

5 of 22

nges to ounting deposit he risk ce the h.

res that p. FEE ures in

s of the

entified ceptual anaged s to its anaged emand

s within

a step nhance

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2.1.2 is why?

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Ap

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EM

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A

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(a) Do youconsidePleaseusefulnwith tFramew

MB (b) Do you

as partreasoninformaConcep

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9) FEE agrbehavioudevelopihedging.and useftransacti

erational fea0) From an

purposesthe manreportingcannot ba reportoperation

) In additioof informregulator

FEE respons

derghem 22-28 • B

Association Interna

he manage

Pipeline tra

sactions

u think that ered by an e

e explain yoness of the ihe Concepwork).

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sation

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rees with thuralisation sng an acco. Below, FEfulness of thons, EMB a

asibility n operationas reflect the

naged portfog purposes. be used for fing framewnal efficienc

on, banks nmation regary reports ca

se to specifi

B-1040 Brussels •

ationale reconnue

ed portfolio

nsactions,

pipeline traentity as paour reasonsinformation ptual Fram

EMB should amic risk minto considded in theework.

of applyingather than octations), whour reasonsinformation al Framewo

e DP that pshould be inounting framE summarishe informatioand behaviou

al point of vieffects of p

olios. ThereCurrently th

financial repork which cy of financia

eed to preparding theiran also be u

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• Tel: +32 (0)2 285

par Arrêté Royal

o

EMB and b

nsactions srt of its dynas, taking inprovided in ework for

be includedmanagementderation ope financial

g the PRA,n a contrac

hen the risk s, taking inprovided in rk.

pipeline tranncluded in mework for ses its common presenteuralisation).

ew, the syspipeline transefore the sahe informatiporting purpocan use theal reporting f

pare regulator risk man

used for finan

s


en date du 30 déc

behavioural

hould be inamic risk manto considethe financiaFinancial

d in the PRAt? Why or werational festatements

should thetual basis (fis managed

nto considethe financia

nsactions, ethe managedynamic r

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stems that asactions of Eame systemon that is poses; hencee same inffor preparers

ory reportsagement ancial reporti


cembre 1986

isation

cluded in thanagement?eration operal statement

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e cash flowfor exampled on a behaeration operal statement

equity modeed portfolio risk manageding the opefor all three

are used forEMB and be

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which includctivities. Thng purposes

Page

w.fee.be

he PRA if th? Why or whrational feats and cons

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sidered by anease expla

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r risk managehaviouralisaused for fi risk manage, that estab

would enhan

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6 of 22

hey are hy not? asibility, istency ceptual

n entity in your of the th the

d on a sidering

basis? asibility, istency

B) and ntext of

macro asibility pipeline

gement ation in nancial gement blishing nce the

amount art of)

Ap

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Qu(25

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A

efulness of i2) FEE doe

of view, of the bain order accompacommenrequiremhedging

3) By incluportfolioshedging hedging hence re

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criterion pipeline t

6) Since rismakes sThereforhedging users.

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8) FEE is transacti

9) We are significanagrees wtransactithe repor

FEE respons

derghem 22-28 • B

Association Interna

information es not have the users ofank’s risk m

to presentany financiantary reportsments to fait

activities of

ding pipelins, users wourelationshipinstruments

eliable.

with the Concthe conc

uralisation rasic concepts presenting believes thalimited to ng model.

- Pipeline trathe fact thof the Con

transactions

sk managersense that re including trelationship

eline transaph 4.38 (a) nts. Howeveork for Finanthat the “exin the Conor being rec

also conceon is not cle

equally cntly affect thwith the propons – provirting entity a

se to specifi

B-1040 Brussels •

ationale reconnue

any specificf financial st

management t useful infal statemens). This undthfully and an entity.

ne transactiuld be provi

ps without as, provided

ceptual Framceptual chaaise if they as of the fram

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p in place, w

actions doof the Concer the IASBncial Reportxpected” crceptual Fraognised in t

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• Tel: +32 (0)2 285

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c input fromtatements w policies, obformation pts in the a

derlines the comprehens

ions, EMB ided with fin

any artificial entries int

mework allenges thare included

mework (e.gvant informaeparture fro

exposed to

eline transacamework (pluded in the

for pipelineactivities wmanaged p

would, in our

not meet ceptual FramB’s Discussting issued iriterion shouamework mahe financial

the borderliP and should

that full incty and audite DP that thare clearly dpected cons

s


en date du 30 déc

m users, howwould be probjectives, acreparers us

annual repofailure of t

sively portra

and behavnancial infordesignationto the mod

hat pipelind in the PRAg. definitionsation to the om the basic

managed

ctions do nplease refer managed p

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the probabmework to bion Paper: in 2013 statuld not be ay allow sustatements

ine betweed be defined

clusion of tability of thhe PRA shoudefined bassequences.


cembre 1986

wever from aovided with activities and sually use ort (for examthe current ay the risk

iouralisationrmation that ns between els are evi

e transactA, FEE belies of assets ausers. Havi

c conceptuarisks unde

not meet thto below),

portfolio.

ns as deemenced by ththe PRA, asroduce relev

bility criteriobe recognisA Review oes that the retained (pa

uch transac.

n a forecasd more spec

forecast tre risk mitigauld accommed on comm

Page

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a conceptuaa complete results. Cu

other repormple managfinancial remanageme

n in the mabetter reflehedged itemidence-base

tions, EMBeves that deand liabilitieing said tha

al principles er a macro

he high pro FEE agree

med exposuhese transas long as thevant informa

on as reqused in the fiof the ConcIASB’s preliaragraph 2

ctions to me

st and a pcifically.

ransactions ation model

modate the pmitments m

7 of 22

al point picture rrently,

rts that gement eporting ent and

anaged ects the ms and ed and

B and parting s) may

at, FEE should -hedge

bability es that

ures, it actions. ere is a ation to

ired in nancial ceptual iminary .35). A eet the

pipeline

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Ap

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ppendix – F

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A

uestion 4(b) -0) Despite s

to the usbe part o

) The maimanagedcan be spurposesinclude tthe equitasset ba

2) Despite EMB is managedusers re

uestion 4 (c) 3) FEE beli

industry.portfolio.this issue

4) FEE idevolume judgmenthereforeestimate

5) FEE idenover formof deposterms ofaccountiof behavsolely on

6) Furthermthat the“inconsisbehaviou

7) Due to tidentifiesplace in to achievremit of them.

8) With thethis concshould b

FEE respons

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Association Interna

- EMB some concesers would oof the manag

in conceptud portfolio isseen as treas) howeverthe EMB in ty funded assis), risk ma

the conceptpart of risk

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B-1040 Brussels •

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ce shows throm a banefficient ma in their ana

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• Tel: +32 (0)2 285

par Arrêté Royal

enges that Eose challengo.

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current ace of interest the manage

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en date du 30 déc

EMB raises, ges and the

identifies if“guaranteedarly to an exg the mainmodel is the

e link is not s a fixed inte

explained aes, FEE beless of the e FEE suppo

alisation is curalisation ser the follow

hat behaviouayment invoons might chnclude guidrefer to Que

n applicationclude the risviour rathercounting rerate risk in

ed portfolio t

ors’ behaviot so sensis the decisio

judgment is and evideies are not a

ough internaASB conside

e a solid framsupports theo.


cembre 1986

FEE believerefore we a

f the EMB ” return to sxposure (for reason whe link betwedirect (i.e. nerest rate ex

above, and dlieves that information

orts its inclus

crucial in thehould be pa

wing key asp

uralisation wolves a signhange at ea

dance on hoestion 6).

n of the concsks that aristhan solely quirements IAS 39) introto include es

our is sensittive to inte

on of risk ma

nvolved in ence-based able to adjusal controls aers introduci

mework to ae view that

Page

w.fee.be

es that the bagree that it

is included shareholderr risk managhy risk ma

een the equnot on an asxposure.

due to the fincluding it presented

sion in the m

e financial seart of the mapects in its w

would have nificant amoach reportinow the chan

cept of “subse from the a

on the cont(fair value

roduce the cstimates bas

tive to the sterest ratesanagers to

this procesdocumenta

st their estimare outside ing a refere

avoid the abbehavioura

8 of 22

benefits should

in the rs. This gement nagers ity and sset by

fact the in the to the

model.

ervices anaged work on

on the ount of g date; nges in

bstance actions tractual hedge

concept sed not

service s. This include

s, FEE ation in mations

of the ence to

buse of lisation

Ap

Qu Whas dyn (39

(40

(41

(42

Qu Do capor lnot (43

(44

(45

Qu If ado

ppendix – F

Avenue d’Aud

A

estion 5—P

hen risk manpart of dyn

namic risk m

9) FEE agrerate riskoptionalitinstrumeis not co

0) The chanthe PRA

) As in its controls prepaym

2) Finally, ihedged asupportsshould a

estion 6—R

you think ptured in theloss throught?

3) In develoguidanceaccomm

4) In defininaspects expect fothe IFRSreflectedproposal

5) Howevertreatmen

estion 7—B

a bottom layeyou think th

FEE respons

derghem 22-28 • B

Association Interna

Prepaymen

nagement innamic risk m

management

ees with thek and that ty, for exam

ents with optncerned wit

nges in valuas long as t

response toand evid

ment in the m

ncluding preaccounting

s that a banpply for acc

Recognition

that the ime cash flow ph the applica

oping an ace on any codates for o

ng the manof the port

or a given poSs the effe

d in the profil of this DP.

r, FEE poinnt of the prop

Bottom laye

er or a propohat it should

se to specifi

B-1040 Brussels •

ationale reconnue

t risk

nstruments wmanagement activity? Pl

e DP that preit is a com

mple swaptiotionality are h positive ch

ue of these they are use

o Question 4ence-based

managed por

epayment risrequirementk should ha

counting for t

n of change

mpact of chprofile of behation of the P

ccounting apchanges to open portfoli

aged portfofolio, for exortfolio. FEE

ect of changt or loss in t

nts out that posed appro

ers and pro

ortion approd be permitt

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

with optionant, how do ease explai

epayment rimmon pracons, to manused to ma

hanges in in

instrumentsed within ge

4, FEE raised documenrtfolio.

sk in the PRts. As explaave flexibilitythe risk man

es in custom

anges in phaviouralisePRA when a

pproach for the managos.

lios, banks xample the E believes thges in estithe period th

it might beoach, withou

oportions of

oach is takented or requi

s


en date du 30 déc

ality are useyou think thn your reaso

sk affects thtice for bannage part oanage one-snterest rates

should be nuine hedgi

es the issue tation for

RA may creaained in its ry on selectinagement ac

mer behavi

ast assumped portfolios and to the e

macro hedgged portfolio

should maklevel of pre

hat in order tmations onhey occur. T

e premature ut first agree

f managed

n for dynamired within t


cembre 1986

d to managhe PRA shoons.

he open posnks to use f the prepayide of the ri.

included witng activities

of the needestimating

ate an overlaesponse to ng which acctivities.

our

ptions of cushould be rxtent they o

ging, the IASos, since by

ke estimatioepayment thto apply the prepayme

Therefore FE

to discuss eing on the a

exposures

ic risk manathe PRA? W

Page

w.fee.be

ge prepaymeould consid

sition of the ie instrumentyment risk. isk, since th

thin the cons.

d for strong ithe amo

ap with the gQuestion 1ccounting m

ustomer behrecognised ioccur? Why

SB should py definition

ons for behahat risk masame princnt risk shoEE agrees w

the details approach its

agement purWhy or why

9 of 22

ent risk der this

nterest ts with These e bank

cept of

nternal unt of

general 6, FEE

model it

haviour n profit or why

provide , DRM

avioural nagers iples in

ould be with the

of the elf.

rposes, not? If

Ap

yeside (46

(47

(48

(49

(50

Qu

(51

(52

ppendix – F

Avenue d’Aud

A

s, how wountified? Plea

6) As explaalternativoperationincluded

7) In additioas the ponot an ea

8) Another exposurecharactechallenghomogeninternal cwhen the

9) Furthermprepaymthat shoprepaymor loss is

0) Were th

identifiedprofit or l

estion 9—C

(a) Do youportfoliwould c

(b) Do youbehavio

) FEE belicommendisregardon the cu

2) FEE agrshare thshares sbanks’ cenjoy fro

FEE respons

derghem 22-28 • B

Association Interna

uld you sugase explain

ained in Quve. Under bonal and concin the mana

on, the risk mortfolios chaasy or a stat

challenge es within eristics; theing. Designneous portfocontrols. Hae changes in

more in thement of the pould be recment of the ps required.

he bottom

d, FEE agreloss.

Core deman

u think thato on a behaconsider the

u think thatouralised pr

ieves that dnt re behavded by risk ustomers’/de

rees with thee IASB’s vi

similar characlients are gom the bank

se to specifi

B-1040 Brussels •

ationale reconnue

ggest overcyour reason

uestion 15, oth approacceptual chaaged portfol

managemenange. Identiftic task. It sh

that FEE hthe portfo

refore idennating a boolio, which aving said thn the hedged

e event thaportfolio, theognised in portfolio is w

layer appro

ees that any

nd deposits

t core demaviouralisedem for dynam

t guidance rofile of core

emand depoviouralisationmanagers s

epositors’ be

e views as eews that foracteristics wgenerally morather than

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

coming thens.

FEE suppoches (sub-pollenge is to io.

nt policies offying the bohould reflect

has identifieolio will hantifying a hottom layerwould needhat, FEE bed risks are c

at an indivie entity can

profit or lowithin the lim

roach is ad

y changes s

s

mand deposbasis when

mic risk man

would be e demand de

osits are a kn, FEE besince they fehaviour.

explained inr behavioura

with longer teore sensitivthe cost of

s


en date du 30 déc

conceptua

orts the focuortfolio or pridentify whic

f the entity wottom layer ot the dynam

ed is the pave differe

homogeneour or propod to clearly elieves that considered f

dual prepaynot assess oss or whemit, no imme

dopted, not

should be im

its should bn applying thnagement pu

necessary eposits? Wh

key conceptelieves that focus on the

n the DP re al reasons erm depositve to the quthe service.


cembre 1986

al and oper

us on a riskoportional ach proportion

will probablyor proportionic nature of

probability tent terms us portfoliortion wouldidentify dethis issue i

for recognitio

yment excewhether thisther, as lonediate recog

twithstanding

mmediately

be includedhe PRA if thurposes? W

for entities y or why no

t for this mocontractua

e expected

core demaa part of ths. It is our u

uality of the

Page 1

w.fee.be

rational diff

k mitigation approach) thn of the por

y change ovn of the portmacro hedg

that the indand beha

o would bed require sefined policieis limited toon.

eeds the as is a prepang as the gnition in th

g the cha

recognised

d in the mahat is how an

Why or why n

to determiot?

odel. In line al cash flowcash flows,

nd exposuree demand dunderstandi

e service tha

0 of 22

ficulties

scope he main tfolio is

ver time tfolio is ging.

dividual avioural e quite such a es and

o cases

verage ayment overall e profit

llenges

d in the

anaged n entity not?

ne the

with its ws are

based

es. We deposit ng that at they

Ap

(53

(54

(55

Qu

(56

(57

(58

ppendix – F

Avenue d’Aud

A

3) Currentlysince IFRdemand carry anthe core include tmaturitie

4) Thereforaccommentities ncore denecessainstancefavourab

5) Howeverany othethey aimrepresen

estion 10—

(a) Do yomanagdynamnot? If and 2 iinstruminstrum

(b) If sub-bfloor thbusinesmanag

6) FEE agrexposurethe ALM any sub-relations

7) In additibenchmainterest question

8) Regardinmanagedand to th

FEE respons

derghem 22-28 • B

Association Interna

y, IFRSs do RS 13 – Facannot havey fair value deposits ar

them in thees applied in

re FEE belieodate the cneed guidanposits togery in order ts of abuse

ble results (e

r, the guidaer relevant fam to determntation and r

—Sub-bench

u think thaed portfolioic risk mananot, do you n Section 3.

ments providments? Why

benchmark hat is not incss unit, do ed portfolio?

rees with Aes are manamanages th

-benchmarkhip, as the h

ion the inteark and any income alte 18).

ng the embd portfolio tohe extent tha

se to specifi

B-1040 Brussels •

ationale reconnue

not permit air Value Mee a fair valurisk. On th

re considereir assessme the models

eves that thconcept of cnce on howther with ato establish

of the cone.g. avoid vo

nce for deteactors that thmine the crelevant qua

hmark rate

at sub-benco as benchmagement apthink that th

.10) for calce an appropor why not?

variable intcluded in dyyou think th? Why or wh

Approach 3 aged by a cehe exposurek rates. Apphedged risk

erest incomembedded

ernative pre

bedded flooo the extentat the ALM h

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

designatingeasurementue less than he other haned as fixed inent for the s vary signifi

he model focore deposit

to identify aa strong int

a frameworncept of corolatility in the

ermining thehey use in t

core demanalitative char

managed r

chmark instmark instrumproach (ie Ahe alternativulating the r

priate reflect?

terest rate fynamic risk mhat it is apphy not?

as this is entral Asset es using the proach 3 be

relates to ch

me is recogfloor is app

esentation in

r, FEE belit that it is inhedges agai

s


en date du 30 déc

such demastates that their nomin

nd, from a rnterest rate open portfocantly in pra

or accountins. In additioand assess ternal contrrk that entitire demand e profit or los

e profile shohe risk man

nd deposits racteristics.

isk instrum

ruments shments if it Approach 3 ves presenterevaluation ation of the ris

financial insmanagemen

propriate not

consistent Liability Mabenchmarkst reflects thanges in th

nised at thlicable) whicn the incom

eves that included in thnst this risk


cembre 1986

and depositsliabilities th

al value, therisk manageexposures a

olios, althougactise.

ng for macron, FEE stro

the behaviorol system. es should fodeposits in

ss).

ould allow eagement de

within the

ments

hould be inis consistenin Section 3ed in the DPadjustment fsk attached

struments hant because it to reflect t

with the aanagement (

rate and dohe economi

he benchma

he contractuch is consist

me statemen

t should onhe risk mana.

Page 1

w.fee.be

s as hedgedhat are payaerefore theyement perspand risk magh their est

ro hedging ongly believouralised pr

These wofollow and ton order to p

entities to coecisions as le limits of

ncluded withnt with an 3.10)? Why P (ie Approafor sub-bencto sub-benc

ave an embit remains wthe floor wit

approach in (ALM) unit. Uoes not accoics of the h

ark rate.

ual rate (i.etent with thent (please r

nly be part agement ob

1 of 22

d items, able on

do not pective, nagers timated

should es that rofile of uld be o avoid present

onsider long as faithful

hin the entity’s or why

aches 1 chmark chmark

bedded with the hin the

which Usually ount for hedging

e. sub-e actual refer to

of the bjective

Ap

SecQu

(59

(60

(61

(62

(63

ppendix – F

Avenue d’Aud

A

ction 4—Reestion 11—

(a) Do yofaithful

(b) When with rethe mayou sug

9) FEE agreWe alsoexposure

0) FEE agrare attribmodel. Athe fair vto the us

) The effecvalue of and objesupports

2) On the oalready measuresuggestsperiod, tbeen recinterest icosts shmanaged

3) FEE hasaccounticonclude

FEE respons

derghem 22-28 • B

Association Interna

evaluing the—Revaluatio

u think thatrepresentat

the dynamicspect to the

anaged risk tggest, and w

ees with theo agree withes and for va

rees with thebuted to the Also the reflvalue of the hsers of the fin

ct of changethe hedging

ectives and s the recogn

other hand, recognised

ement of thes that insteathe valuationcognised. Thncome that

hould be ded risk.

s also consing model”,

ed that this a

se to specifi

B-1040 Brussels •

ationale reconnue

e managed on of the ma

t the revalution of dynam

c risk manae funding cuto be the funwhy?

e proposals h the need ariable rate

e concept omanaged r

ection of thehedged instnancial state

es in the fairg instrumentany ineffectition of the c

the valuatiinterest inc

e banking bad of compn should alsherefore fromhas been re

educted to

idered as ahowever d

approach sh

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

portfolio.anaged exp

ation calculmic risk man

agement objurve of a banding rate?

of the DP oto have d

exposures.

of recognisinrisk (i.e. the e changes irument wouements.

r value of thet would prop

ctiveness of changes in f

on of the mcome in thebook (in acparing the cso account m the changecognised inreflect the

an alternativdue to operahould not be

s


en date du 30 déc

posures

lations outlinnagement?

jective is toank, do you Why or why

n the valuatifferent valu

ng only the interest rate

in the fair vauld present r

e managed perly reflect the hedging

fair values in

managed poe profit or loccordance wchanges in for the inte

ge in the fairn the profit o“clean” cha

e the introdational and introduced


cembre 1986

ned in this Why or why

o manage nthink that it

y not? If not

tion of the muation meth

changes in e risk) and nalue of the elevant and

risk and thethe risk mang relationshn the profit o

ortfolio shouoss under thwith IFRS 9

the fair valerest incomer value an amor loss as paange in the

duction of a conceptual

(please refe

Page 1

w.fee.be

Section proy not?

et interest it is approprt, what chan

managed porods for fixe

the fair valnot a full faimanaged ri useful infor

e change in nagement s

hip. Thereforor loss.

uld account he amortise

9 or IAS 39lue from the that has amount equa

art of the ame fair value

“cash flow l challenges

er to Questio

2 of 22

ovide a

income iate for ges do

rtfolios. ed rate

ue that r value sk and

rmation

the fair trategy re FEE

for the ed cost ). FEE e prior already

al to the mortised

of the

hedge s, FEE on 26).

Ap

SecQu

Qu(64

(65

Qu(66

(67

ppendix – F

Avenue d’Aud

A

ction 5 – Scestion 15—

(a) Do youan entmanagundertaWhy orsugges

(b) Pleasefrom thcombinrequiremanag

(c) Pleaseeach ohow coand/or

(d) Would other thow wo

uestion 15 (a4) FEE sup

other IFRIFRS 9 iuses hedFurthermIFRS 9 wto the einformati

5) Also a foare not hmeasuremeasure

uestion 15 (b6) As we e

position, believes risk manentity’s p

7) On the ousers recombinanecessafinancial

FEE respons

derghem 22-28 • B

Association Interna

cope —Scope

u think that ttity’s dynamement) or saken risk mir why not? Ist, and why?

e provide cohe applicationation of thements in IFement? Wh

e provide coof the scopeould the neproportion b

the answerhan interestould those a

a) pports the foRSs. The ois to represedging instru

more FEE agwhere the boentity’s risk ion to the us

ocus on dynhedged (or fed at fair vement basis

b) explain in pa

the amortisthat the inf

nagement wperformance

other hand tegarding thtion with thery tools to statements

se to specifi

B-1040 Brussels •

ationale reconnue

the PRA shmic risk mashould it betigation throf you do no

?

omments onon of the PRhe PRA limFRS 9 wouy or why no

omments on alternativesed for frequ

be accommo

rs provided t rate risk (f

answers cha

ocus on theobjective of ent the effe

uments to mgrees with toard has co

managemesers of finan

namic risk mfor which thvalue while best reflects

art (a) abovsed cost meformation fro

would not ase and positon

the focus one actual ri

e hedge accproduce a .

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

ould be appanagement e restricted ough hedgint agree with

n the usefulnRA under eamited to risk

ld provide t?

n the operas. In the cauent changeodated?

in questionfor example

ange, and wh

e risk mitigahedge acco

ect of risk mmanage the the analysisoncluded thaent is too cial stateme

managemenhe risk is no IFRS 9 hs the econo

ve, for someasurement om the scopssist in pren.

n risk mitigaisk mitigatio

counting requseful set

s


en date du 30 déc

plied to all m(ie a scopto circumsta

ng (ie a scoph either of th

ness of the ach scope ak mitigationa faithful re

tional feasibse of a scoes to the id

ns (a)–(c) che, commodithy? If not, w

ation approaounting as d

managementexposures in the para

at a hedge abroad and

ents.

nt would reqt mitigated),

has concludmic substan

e elements basis is mope alternativsenting use

ation would ron that theuirements uof financial


cembre 1986

managed pope focused ances in wh

pe focused ohese alterna

informationlternative. D

n and the hepresentatio

bility of apppe focused dentified hed

hange whenty price risk

why not?

ach as this defined in pactivities foarising from

agraph BC6.accounting m

might not

uire that for, the (part oded that thnce of a ban

of the statore appropriave which foceful informat

result in usee entity unnder IFRS 9information

Page 1

w.fee.be

ortfolios incluon dynam

hich an enton risk mitigatives, what

n that wouldDo you thinkhedge acco

on of dynam

plying the Pon risk mitidged sub-p

n considerink, FX risk)?

is consisteparagraph 6or which them a particula.79 and BC

model that ist present re

r exposuresof) banking bhe amortisek’s loan por

tement of fiate; thereforcuses on dytion regardi

eful informandertakes. W9 the entity hn for the us

3 of 22

uded in mic risk tity has ation)? do you

d result k that a ounting

mic risk

PRA for igation,

portfolio

g risks If yes,

nt with 6.1.1 of e entity ar risk. 6.80 of s linked elevant

s which book is

ed cost rtfolio.

nancial re FEE ynamic ing the

tion for With a has the sers of

Ap

(68

Qu(69

(70

(71

Qu(72

Qu

(73

(74

(75

ppendix – F

Avenue d’Aud

A

8) Finally Fpracticesaccounti

uestion 15 (c9) While F

acknowledegree o

0) On the otracking continue(please r

) Under thproportioeither theof the ea

uestion 15 (d2) FEE doe

the mana

estion 16—

(a) Do youapplicanot?

(b) Do youthe app

3) As explaon risk m

4) FEE beliwith the

5) FEE belshould band PRAgeneral applied isolution.

FEE respons

derghem 22-28 • B

Association Interna

FEE identifies (as requireng model.

c) EE supportedge that thof complexity

other hand, since exposd basis, therefer to our a

his scope aonal approae portfolios

ach portfolio

d) es not believaged risk wo

—Mandatory

u think that ation of the

u think that plication of t

ained in Quemitigation; th

eves that thgeneral hed

ieves that tbe used (if aA. FEE beliehedge accoin circumsta

se to specifi

B-1040 Brussels •

ationale reconnue

es the needed in the IF

ts the scophe applicatioy in financia

a focus on sures are aderefore a banswer to Q

alternative thches. Undethat are incthat is inclu

ve that the aould have be

y or optiona

the applicatPRA were f

the applicathe PRA wer

estion 15 aboerefore our

he applicatiodge accounti

there shouldany) in eacheves that Pounting; insances that th

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

d to revisit FRS 7) in o

pe alternativon of this scl reporting.

risk mitigatdded to or e

bank would Questions 22

here are twer both appluded within

uded in the s

nswer to theeen commo

al applicatio

tion of the Pfocused on

tion of the Pre focused o

ove, FEE suanswer to th

on of the PRing requirem

d not be anh case betwePRA is not astead it intrhe current a

s


en date du 30 déc

the disclosuorder to dev

ve that foccope alterna

tion would rexcluded froneed to ke

2 and 23).

wo approachproaches then the scope scope.

ese questiondity or foreig

on of the PR

PRA should dynamic ris

PRA should on risk mitiga

upports the his question

RA should bements.

ny hierarchyeen the genan accountinroduces a naccounting


cembre 1986

ures re the elop a robu

cuses on ritive would i

require an inm the mana

eep track of

hes, the sube bank shoof the PRA

ns would havgn exchange

RA

be mandatosk managem

be mandatoation? Why

scope altern reflects this

e optional in

y on which neral hedge ng model thnew accounrequirement

Page 1

w.fee.be

risk managust compreh

isk mitigatiointroduce a

ncreased efaged portfolf those exp

b-portfolio aould keep tr

or the perc

ve been diffe risk.

ory if the scment? Why

ory if the scor why not?

native that fos view.

n order to be

accounting accounting

hat should rnting modelts fail to pro

4 of 22

gement hensive

on, we certain

ffort for io on a

posures

and the rack of

centage

ferent if

cope of or why

cope of ?

ocuses

e in line

model model replace to be

ovide a

Ap

(76

Qu

(77

(78

ppendix – F

Avenue d’Aud

A

6) As explamanagemthe PRAitem andrelevant its judgmconsistenrelations

estion 17—

(a) Do youdynamfor app

i.

ii.

(b) Do yourisk miconsideWhy orwould s

i.

ii.

7) As explathereforeaddition,PRA witaccounti

8) As the kedynamicinstrumerisk mancriteria sTherefor

a.

b.

FEE respons

derghem 22-28 • B

Association Interna

ained in oument of ope

A, which mead hedging iand useful

ment to decntly apply hip.

—Other eligi

u think thatic risk mana

plying the PRWould youPRA was mIf the applicmanagemeof the PRA

u think that iitigation, adered as riskr why not? suggest andWould youPRA was mIf the appmitigation, the PRA wo

ained in Quee our respo as stated i

thout prescrng models.

ey eligibility ally manage

ents takes plnagement ashould be inre FEE sugg

The relatioand the heAt the incethe open dynamic risvalues of instrumentsdesignationobjectives

se to specifi

B-1040 Brussels •

ationale reconnue

ur responseen portfolios ans that by nstrument iinformation

cide which mthe model

ibility criter

t if the scopagement, theRA? Why or r answer ch

mandatory ocation of theent, what criA would you

f the scope dditional eligk mitigation If your answ

d, why. r answer ch

mandatory olication of what criteriould you pro

estion 15, Fonse to the n Question ribing any h

criterion FEes open portlace. Theref

and for open line with IF

gests: nship shoulddging instru

eption of theportfolio ansk managem

portfolios s change on and doc

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

e to Questioshould be tnot makingn the finanto the users

model it sho that is c

ria

pe of the aen no additiwhy not?

hange deper not? Pleas

e PRA were iteria regardpropose? P

of the appligibility criterthrough he

wer is yes,

hange deper not? Pleasthe PRA wa regarding

opose? Plea

EE supportsquestions

16, we are hierarchy be

EE suggeststfolios and thfore the IASn portfoliosFRS 9 on ge

d consist of ument (e.g. te hedge relad the type ment (the dor specific

over time icumentation

s


en date du 30 déc

on 17, FEEhe eligibility

g a one-to-ocial statemes. This assuould apply.

chosen at t

application oonal criterio

ending on wse explain yooptional, bu

ding startinglease explai

ication of thria would b

edging undeplease expl

ending on wse explain yowere optionag starting anase explain y

s the scopebelow are in favour of

etween the

s that the enhat a risk mB should de. FEE suggeneral hedg

the open pothe interest rationship the

of instrumeocumentatioc instrumenn the conte should re


cembre 1986

E suggests y criterion forne designatents an ent

umes that anIn this casethe inceptio

of the PRA on would be

whether the our reasonsut with a focug and stoppin your reaso

e PRA werebe needed r dynamic rain what eli

whether the our reasonsal, but withnd stopping your reasons

alternative drafted withan optionalPRA and t

ntity should ditigation acti

evelop a defgests that age accountin

ortfolio (or prate swap); ere is an offients that won should nonts since text of maceflect the

Page 1

w.fee.be

that the dyr the application of the htity presentsn entity shoue an entity on of the

were focusrequired to

application s. us on dynaming the appons.

e to be focuregarding wrisk manageigibility crite

application s. h a focus o

the applicas.

on risk mitih this in ml applicationthe general

demonstrateivity using hfinition for dyadditional elng (in sectio

part of the po

icial designawill be used

ot refer to sthe portfoli

cro hedgingrisk manag

5 of 22

ynamic ation of hedged s more uld use should hedge

sed on qualify

of the

mic risk lication

sed on what is ement? ria you

of the

on risk ation of

igation, mind. In n of the

hedge

e that it hedging ynamic ligibility on 6.4).

ortfolio)

ation of in the

specific o and ). This gement

Ap

Sec Qu

Qu(79

(80

Qu(81

(82

(83

Qu(84

ppendix – F

Avenue d’Aud

A

c.

ction 6 – Pr

estion 18—

(a) Which position

(b) Which income

(c) Pleasepositionresult iexplainthe info

uestion 18 (a9) FEE sup

believe tsubject t

0) In additiomight arithe EMBan entity

uestion 18(b)) FEE sup

of the eninterest i

2) Furthermregardingthem, whthe curre

3) FEE alsopolicies ausers’ an

uestion 18 (c4) FEE doe

statemen

FEE respons

derghem 22-28 • B

Association Interna

At the increlationship

resentation

—Presentati

presentation, and why?

presentatione, and why?

e provide den and/or in in a better

n why you prormation and

a) pports the tthat a singleo the PRA w

on this appise from pre

B or the pipey should not

) pports the prntity. This infncome (NII)

more FEE bg the currehile the alterent profit or l

o believes and hedge nalysis and a

c) es not propnt of financia

se to specifi

B-1040 Brussels •

ationale reconnue

ception of tp between th

and disclo

on alternat

on alternativ?

n alternative

tails of any the statemrepresentat

refer this pred operationa

third option e line item wwould repres

proach wouldsenting som

eline transacassign the c

resentation formation wo) pre and po

believes thant interest rrnative (staboss.

that it mighaccounting assessment

pose any aal position.

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

the hedge he open por

osures

ives

ve would y

e would you

alternative ment of com

tion of dynaesentation tal feasibility.

for the stawhich repressent the mos

d help to ome items on ctions. Therchanges in f

of the actuaould enable

ost the risk m

at the actuarate exposuble NII) repr

ht be usefulis presentedt.

alternative p

s


en date du 30 déc

relationshiprtfolios and t

you prefer i

prefer in the

presentationprehensive amic risk making into co

atement of fsents the nest relevant in

overcome ththe SoFP, f

refore, usingfair value to

al net interes the users to

management

al NII preseures and theresents infor

if the presd together in

presentation


cembre 1986

p there is athe hedging

n the state

e statement

n in the statincome tha

managementonsideration

financial post revaluationnformation t

e conceptufor example g this presenspecific item

st income oo assess thet of the expo

entation pree way the brmation rega

sentation of n the profit o

for profit o

Page 1

w.fee.be

a clear ecoinstruments

ement of fi

t of compreh

tement of fiat you thinkt activities. n the usefuln

sition (SoFPn for all expto the users

ual challengethe revaluantation alterms on the So

on the profit e impact of osures.

esents inforbank is maarding future

risk managor loss to fa

or loss or

6 of 22

onomic s.

nancial

hensive

nancial k would Please ness of

P). We posures .

es that tion for rnative, oFP.

or loss the net

rmation anaging e NII in

gement acilitate

for the

Ap

Qu

(85

(86

(87

ppendix – F

Avenue d’Aud

A

estion 19—

(a) If an eDP conPRA. Tstatemenhancmanag

(b) Do youoperati

(c) Do youderivatwhy?

5) The discmanageshoweverrelevant

6) When a that unddifferent statementhe bank

7) The wayDP and EFRAG be approsame intbeing cothese dif

FEE respons

derghem 22-28 • B

Association Interna

—Presentati

ntity uses innsiders wheThis would ent of comces the useement and t

u think thatonal feasibi

u think thatives to be i

cussion paps the interer some smafor all.

bank uses adertakes all

units are nts as they k.

y that internawe agree won the valuopriate to uternal deriva

ompletely offfferences wo

se to specifi

B-1040 Brussels •

ationale reconnue

on of intern

nternal derivther they sh

lead to amprehensive efulness of trading activ

t the descrility of the PR

t additional ncluded in t

er assumesst rate risk.ller banks m

a central ALthe tradin

using to trareflect the

al derivativeswith the view

ation of these different

ative which mfset in the prould be mate

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

nal derivativ

vatives as phould be eliga gross pre

income. Dinformation

vities? Why

bed treatmeRA? Why or

conditions the applicat

s that all ba. FEE agree

may not hav

LM unit to mg activities

ansfer the rrisk manage

s should bews in the DPe internal de yield curvemay cause trofit or loss.erial.

s


en date du 30 déc

ves

part of its dygible for inclesentation oDo you thinn provided or why not?

ent of interr why not?

should be tion of the P

anks have aes that this

ve such a un

anage the r, then the risk should ement and

e presented P. We howeerivatives. Ines to value the grossingOn the othe


cembre 1986

ynamic risk lusion in theof internal dnk that a g

on an ent

nal derivativ

required in PRA? If yes

a central uniis the case

nit, therefore

risk and a diinternal debe reflecte

the macro h

is adequatever share s some circuthe differen

g up of interer hand we d

Page 1

w.fee.be

managemee applicationderivatives

gross presetity’s dynam

ves enhanc

order for is, which one

it that dynae for major e this might

ifferent tradierivatives thed in the fihedge activ

ely explainedimilar conce

umstances int positions rnal derivativdo not belie

7 of 22

ent, the n of the

in the entation mic risk

ces the

nternal es, and

mically banks; not be

ng unit hat the nancial

vities of

d in the erns as t might on the

ves not eve that

Ap

Qu

Qu

(88

(89

ppendix – F

Avenue d’Aud

A

estion 20—

(a) Do yoinformareason

(b) If you tidentify

(c) What aabout adisclos

estion 21—

(a) Do youthe app

(b) If you scope scope f

8) FEE in gFEE raisrisk manrisk thatrequiremdisclosur

9) FEE supbelieve tthe risk mavailablecommercre the sc

FEE respons

derghem 22-28 • B

Association Interna

—Disclosure

u think thaation on dys for your vi

think that ay that theme

additional disan entity’s d

sures would

—Scope of d

u think that tplication of t

do not thinkof the applifor the disclo

general agreses some conagement oft preparers

ments. Therre requireme

pports the fothat disclosumanagemene without ucially sensitcope of the n

se to specifi

B-1040 Brussels •

ationale reconnue

es

at each of namic risk ews.

n identified and explain

sclosures, ifdynamic riskbe useful.

disclosures

the scope ofhe PRA? W

k that the sication of thosures, and

ees with the oncerns thaf open portfo would ne

refore FEE ents in the c

ocus on a ures to finannt policies, ondue cost ive. Howeve

new model h

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

the four imanagemen

theme woun why.

f any, do yok managem

s

f the disclosWhy or why n

scope of thehe PRA, wh why?

disclosure tt if the discolios are dev

eed to duplsuggests

context of IF

risk mitigatincial statemeobjectives aand effort er this discuhas been rea

s


en date du 30 déc

identified thnt? For eac

uld not prov

ou think wouent? Please

sures shouldnot?

e disclosuresat do you t

themes as dlosure themveloped outlicate disclothat the IARS 7.

on approacents may incnd activitiesand provideussion can bached.


cembre 1986

hemes wouch theme, p

ide useful in

uld result in e explain wh

d be the sam

s should behink would

discussed inmes regardin

side of IFRSosures to cASB should

ch (Questionclude additios as long ase that the be postpone

Page 1

w.fee.be

uld provide please expla

nformation,

useful inforhy you think

me as the sc

e the same be an appr

n the DP. Hong the intereS 7 then thecomply withd consider

n 15) howeonal informas the informainformation ed until a d

8 of 22

useful ain the

please

rmation k these

cope of

as the ropriate

owever est rate ere is a h both

these

ver we ation re ation is is not

ecision

Ap

Sec Qu Do por

Qu

(90

(91

(92

(93

(94

ppendix – F

Avenue d’Aud

A

ction 7 – Ot

estion 22—

you think trtfolios after

(a) If yes, u

(b) How wexplain

estion 23—

(a) Do youportfoli

(b) Are theyou thinyes, wremove

(c) If expoyou prPleaseinforma

0) Since Fapplicatio22 and 2

) Some exrecognitiexpiry damitigatio

2) Thereforlike the Dthe Day 1 revalua

3) Trackingfrom thetools whpositions

4) Since theavailable

FEE respons

derghem 22-28 • B

Association Interna

ther consid

—Date of inc

that the PRan entity firs

under which

would you prn your reaso

—Removal o

u agree with o they shou

ere any circunk it would b

what would e them from

osures are rropose to ae explain yation provide

EE supporton of the m

23 to be sign

xposures mon. In additiate and then activities o

re FEE agreDay 1 revalu1 revaluatioations can b

g would also managed p

hich can ans for tracking

e informatioe to risk man

se to specifi

B-1040 Brussels •

ationale reconnue

derations

clusion of e

RA should ast becomes

h circumstan

ropose to acns and com

of exposure

the criterionld remain th

umstances, be appropriathose circuthe manage

removed froaccount for your reasoned to users o

ts the focusmodel (refer nificant for th

might enter ton some exy might re-eof the entity.

ees with the uations. Oneons in the prbe amortised

o be requireportfolio andalyse the d

g of the expo

on of exposunagers, it ca

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

exposures i

allow for thea party to a

nces do you

ccount for amment on any

es from a m

n that once ehere until de

other than ate to removumstances bed portfolio?

om a managthe recogn

ns, includinof financial s

s on a riskto the ques

he developm

the managexposures migenter in a s.

DP that thise way to elimrofit or loss wd over the te

ed in order td which are distinct cashosures in the

ures excluden be easily

s


en date du 30 déc

n a manage

e inclusion oa contract? W

think it wou

any non-zeroy operationa

managed po

exposures arecognition?

those consive exposurebe and why?

ged portfolionised revalung commenstatements.

k mitigation stions abovement of the m

ed portfolio ght exit the ubsequent

s raises addminate thosewhen they o

erm of the ex

to identify wnot. Manag

h flows to ie managed

ed from the used for acc


cembre 1986

ed portfolio

of exposureWhy or why

ld be approp

o Day 1 reval implication

rtfolio

are included? Why or wh

dered in thiss from a may would it

o prior to mauation adjusnting on th

alternative e); we consimodel for ma

after the dmanaged poperiod, depe

ditional opere differencesoccur, or, altxposures.

which exposgement maydentify and portfolio.

managed pcounting pur

Page 1

w.fee.be

o

es in the manot?

priate, and w

valuations? ns.

d within a mahy not?

s DP, underanaged portfbe appropr

aturity, howstment, andhe usefulne

and the oider the Queacro hedging

date of theiortfolio befoending on t

rational chas is by recogternatively th

sures are rey use their e

assess the

portfolios is arposes as w

9 of 22

anaged

why?

Please

anaged

r which folio? If riate to

w would d why? ess of

optional estions g.

r initial re their the risk

llenges gnising he Day

emoved existing e open

already well.

Ap

(95

(96

(97

Quins

(98

Sec Qu

(99

ppendix – F

Avenue d’Aud

A

5) As withbehavioushould bportfolio,

6) Entities should aexcludedderecogn

7) FEE idemitigatedportfolio be addre

estion 24—struments

(a) Do youof FX r

(b) Pleasehow the

8) FEE agrforeign eDependiapply the

ction 8—Ap

estion 25—(a) Should

dynamadditionfact pa

(b) For eaappliedmanag

9) In FEE’sonly to tnotes thsectors. be intere

FEE respons

derghem 22-28 • B

Association Interna

h other churalisation, tbe recognise, depending

that are noalways be d from the mnition, respe

entifies addd portfolio abefore their

essed once t

—Dynamic r

u think that irisk in conjun

e provide ane PRA could

rees with thexchange risng on the re accounting

pplication o

—Applicatiod the PRA ic interest nal fact patttterns. ch fact patt

d and whetement in en

s understandthe interest hat that moHowever, in

ested, the m

se to specifi

B-1040 Brussels •

ationale reconnue

hanges in the effects oed in the proon which ta

t able to trapermitted to

macro-hedginectively.

itional challafter their inr maturity. Inthe general

isk manage

it is possiblenction with in

n overview od be applied

he DP that sk of its porrisk manageg treatment t

of the PRA t

n of the PRbe availablerate risk mterns do you

tern in (a), ther it wou

ntities’ financ

ding an accorate, but aldel may be

n FEE’s opinodel needs

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

the manof changes ofit or loss aakes place e

ack these io apply a ng portfolio

lenges wheitial recogni

n FEE’s opinmodel issue

ement of fo

e to apply thnterest rate

of such a dd or the reas

an entity mrtfolios denoement policthat best ref

to other ris

RA to other e for dynam

managementu think it wo

please expluld provide cial stateme

ounting modlso for come relevant tnion, before to be furthe

s


en date du 30 déc

aged portfin the manaat either idenearliest.

ssues throumodel whesolely at the

ere exposurition or exponion these imes are resolv

oreign curre

he PRA to trisk that is b

dynamic risksons why it c

might manaominated in cies, an entiflects its eco

ks

risks mic risk mat? Why or ould be app

lain whetheuseful info

nts

del for macrmodity and to the enerassessing wr developed


cembre 1986

folio, like aged portfolintification or

ugh their infere items ae time of the

res are incosures are mplementatived.

ency

the dynamicbeing dynam

k managemcould not.

ge the inteforeign cur

ity should honomic realit

anagement why not?

propriate? Pl

r and how tormation ab

ro hedging cforeign exc

rgy and pubwhether othe and refined

Page 2

w.fee.be

the changio of hedgedr removal fr

formation syare includedeir recogniti

cluded in thremoved froion challeng

c risk managmically mana

ment approac

erest rate risrrencies diffehave the opty.

other than If yes, for

lease expla

the PRA cobout dynam

can be applchange risksblic utility iner industriesd.

0 of 22

ges in d items om the

ystems d in or on and

he risk om the

ges can

gement aged?

ch and

sk and erently. ption to

banks’ which

in your

ould be mic risk

ied not s. FEE ndustry s would

Ap

Sec Qu Do parshoide (10

(10

(10

(10

(10

(10

ppendix – F

Avenue d’Aud

A

ction 9—Al

estion 26—

you think tragraphs 9.1ould be incontified with t

00) The maina. b.

c.

d.

01) It makesvariable stated inbe accou

02) Howeverthe risk exposurerelations

03) A requireof the opvalue” hrecyclingmight no

04) Thereforall types

05) Having aapply thecost. Anyaffect thstatemen

FEE respons

derghem 22-28 • B

Association Interna

ternative ap

—PRA throu

that an app1–9.8 shoulorporated inthis alternat

n characteriThe hedgeHedging invalue of theThe ineffecprofit or losOnce the hfair value oitem or rec

s sense to rate exposu

n IAS 39 BCunted for as

r, operationamanageme

es to managhip is discon

ement to acpen portfolioedge accou

g adjustmenot produce re

re if a cash fof exposure

a cash flow e PRA on thy changes ie profit or lnt of financia

se to specifi

B-1040 Brussels •

ationale reconnue

pproach—P

ugh OCI

roach incorpd be considn the PRA, ive approac

stics of a caed item is nonstruments ae hedging inctiveness pass, hedged itemof the hedginognised in r

have a casures, as thesC 148(c), exp

cash flow h

al challengeent policy cging fixed rantinued and

count in pro, at the timeunting modent. Howeverelevant finan

flow hedge aes and not o

hedge accohe open portn the hedgioss. These

al positon.

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

PRA throug

porating thedered? Why

how could h be overco

ash flow hedot accountedare recognisnstrument arart of the h

m gets realisng instrumeretained ear

sh flow hedse exposureposures tha

hedges.

es exist whechanges froate exposure

recycling ad

ofit or loss foe of a changeel, may comr, this requncial informa

accounting only for the h

ounting modrtfolios, sinceing instrume

e instrument

s


en date du 30 déc

gh other com

e use of OCy or why not

the concepome?

dge accountid for at full fased at fair vre deferred iedge relatio

sed/expires,ent is capitalnings.

dge accounes do not givt do not giv

en the openm managin

es. This meadjustment is

or the cumue of the mod

mpensate fouires individation to the u

model is to hedge of var

del means the they can sent would bets would be


cembre 1986

mprehensiv

CI in the mat? If you thiptual and p

ng model arair value, value and an the OCI,

onship is ac

the cumulaised in the c

nting model ve rise to faie rise to fair

portfolio chng the variaans that the s required.

lative changdel from a “cor the volatidual transacusers.

be considerriable interes

hat there wostill be mease deferred i

reflected a

Page 2

w.fee.be

ve income

anner descrnk the use

practical diff

re:

any changes

ccounted for

ative changecost of the h

for the her value risk r value risk

hanges profable interes

“cash flow

ge in the faicash flow” toility arising ction trackin

red it shouldst rate expo

ould be no nsured at amn the OCI a

at fair value

1 of 22

ribed in of OCI

ficulties

s in fair

r in the

e of the hedged

edge of and as should

file and t rates hedge”

r value o a “fair from a

ng and

d be for sures.

need to mortised and not in the

Ap

(10

(10

(10

(10

ppendix – F

Avenue d’Aud

A

06) AlthoughDP idenineffectivand hedgit is not should brelationsbeen accof the stabe a recy

07) On top othe DP cassumptthe part on the pr

08) As explaon the p(i.e. profthat the i

09) In conclhedge" challengto the mo

FEE respons

derghem 22-28 • B

Association Interna

h this approatifies, it rais

veness cannging instrumclear how a

be measurehip ceases cumulated iatement of fycling adjust

of the issuescorrectly idetion that intethat is attribrofit or loss.

ained in the profit or lossfit or loss) ainternal deriv

usion, FEEaccounting es that it soodel.

se to specifi

B-1040 Brussels •

ationale reconnue

ach seems tses additionnot be easi

ments in an oand when a

ed. Finally, oto exist, it isn a cash flofinancial postment throug

s that exist entifies an isernal derivatbutable to th

DP, grossins as long asand measurevatives shou

believes thmodel) for

olves, and th

c questions

• Tel: +32 (0)2 285

par Arrêté Royal

to give solunal conceptly measuredopened porta recycling aonce the hs not clear how hedge resition (e.g. regh OCI at al

with the conssue with retives are grohe hedge re

g up of intes both posited using theuld not have

hat the alter the PRA herefore, we

s


en date du 30 déc

tions to somtual and prad as there tfolio changeadjustment edging instr

how the cumeserve getsetained earnll.

ncept of theeporting of iossed up in elationship in

rnal derivatitions are repe same value any materi

ernative of raises mo

e do not sup


cembre 1986

me of the maactical challis no one-t

e on a regulashould takeruments exp

mulative adjutransferred

nings) or wh

e cash flow hnternal derivthe profit o

n the OCI w

ves does noported in thuation methoal impact on

using the Oore conceptpport this alt

Page 2

w.fee.be

ain issues tlenges. Firsto-one desigar basis. Se

e place and pire or the

ustments thato other ele

hether there

hedge accovatives. Und

or loss, recogwill have an

ot have any e same staods. FEE bn the profit o

OCI (a "castual and pternative ap

2 of 22

hat the stly the gnation econdly

how it hedge

at have ements should

ounting, der the gnising impact

impact atement elieves

or loss.

sh-flow ractical

pproach

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