IASB Extends Comment Period on Risk Mitigation Accounting Exposure Draft

The IASB has announced an extension to the comment period for its Exposure Draft Risk Mitigation Accounting — Proposed amendments to IFRS 9. The decision to extend reflects the complexity of the proposals and the volume of stakeholder requests for additional time to prepare considered responses.

Background: The IAS 39 Portfolio Carve-Out

The problem the IASB is trying to solve has a long history. When the EU endorsed IFRS in 2005, it carved out two paragraphs of IAS 39 that would have prevented banks from applying portfolio-level fair value hedge accounting for interest rate risk — a practice central to how European banks manage and report their interest rate exposure. This created an awkward situation: European banks applied a version of IAS 39 that differed from the global standard.

When IFRS 9 replaced IAS 39 in 2018, the IASB allowed entities to continue applying IAS 39's hedge accounting requirements as a practical accommodation, specifically because it had not yet resolved the portfolio hedging question. The Risk Mitigation Accounting project is the IASB's attempt to finally close this gap with a purpose-built solution under IFRS 9.

What the Exposure Draft Proposes

The ED introduces a new, optional accounting model designed for entities that manage interest rate risk across a portfolio of financial instruments using derivatives — typically banks, insurers, and large corporate treasuries. Under current IFRS 9 requirements, applying hedge accounting at portfolio level involves significant complexity, and many entities find the existing fair value hedge rules ill-suited to dynamic risk management strategies.

The proposed Risk Mitigation Accounting model would allow eligible entities to reflect their economic hedging activities more faithfully in their financial statements, reducing income statement volatility that arises purely from accounting mismatches rather than genuine economic exposure.

Key Features of the Proposed Model

Under the ED, qualifying entities could designate a net open risk position as the hedged item, rather than being required to designate specific assets or liabilities. Changes in the fair value of the hedging derivatives would be recognised in other comprehensive income (OCI) to the extent they offset changes in the hedged position, with any ineffectiveness recognised immediately in profit or loss.

Eligibility criteria are expected to include governance requirements around risk management documentation and the nature of the hedging instruments used.

What Preparers Should Do Now

Entities with material interest rate risk management programmes — particularly those currently applying the portfolio fair value hedge provisions inherited from IAS 39, which IFRS 9 permitted as a practical accommodation — should treat this ED as a priority. The proposed model could significantly affect how hedging gains and losses are presented and how OCI recycling works.

Treasury, finance, and risk functions should work together to model the potential P&L and equity impact of the proposed changes under their current hedging structures. Consider the following steps: (1) map your current hedging documentation to the proposed eligibility criteria; (2) model how the OCI presentation rules would interact with your existing income statement reporting; (3) assess whether the option to adopt would require systems changes; and (4) submit a comment letter — even a brief one — to help the IASB understand real-world implementation challenges.

Consult the IASB's project page for the revised comment deadline and the accompanying Basis for Conclusions, which sets out the Board's reasoning in detail.