IFRS 9: Considerations and thoughts from a practitioner s perspective

Transcription

1 IFRS 9: Considerations and thoughts from a practitioner s perspective Phillip Dransfield Director, Decision Science, TSB August 2015 The views offered in the presentation are that of the presenter and are not authorised or endorsed by TSB Bank plc 1

2 Outline Context Significance Understanding Approach Risks 2

3 Genesis Carve out IPO Acquired Assets Mortgages, Unsecured and SME; 24b Capability Verde build IRB Legacy systems Programme Impairment only Study, Design and QIS Role IFRS 9 BAU 3

4 What does this mean to our industry and to my bank? Senior persons Aim Outliers Competition 4

5 IASB intended proposals to be a fundamentally new approach Need to address criticisms of IAS over statement of interest revenues in periods before a credit loss event occurs, delayed the recognition of credit losses and was complex due to its multiple impairment approaches Basis for conclusions IFRS 9 Aim Better prepared Changes in risk Earlier recognition Single calculation Compromise Operational challenges Systems and costs Decoupling of value from loss Approximate 2009 calculation LEL upon deterioration Result Significant change in credit risk EL and LEL No over statement of interest revenues Better reflect effective return 5

6 Significance: For our industry it appears to be far reaching Journey Alignment Investment Impact Stakeholders Pro-cyclical Competition Protracted debate to reach a final draft. Will be 10 years after the financial crisis Using EL better aligns with Regulatory capital, but IFRS 9 is to be neutral and free form bias, so Regulatory conservatism was never the aim Creates a strong incentive to improve Risk and Finance infrastructure, reconciliation and controls Anticipated increase to provisions and to provision volatility Industry views on rising cost base vs Regulatory, Political and investor concerns over reporting, stability and sustainability Basel II/III generally seen to be pro-cyclical. IFRS 9 would appear to have nuances LEL cliff effect and increased sensitivity with a forward view Works for stable and close portfolios. Not so well for growth as EL overstates impact 6

7 ...For each Bank, there are potentially material choices to make Internal view matters Behaviour Outlier Senior persons Key persons and functions risk Automation Interdependencies Customer Internal view of risks and what the future holds will be reflected in your approach and numbers The action of others may create interesting outcomes...will gaming play a role? Will being different erode confidence, narrowing behaviours and compound systemic risks Might Boards / Executives feel compelled to use a centralised view, again reinforcing systemic risks IFRS 9 is more complex moving away from simplicity. Past experience of things that are complex is not great. More to do, more to understand, more to decide...will focus be on production or insight? Will this standalone from other key measurement activities As with competition, where does the customer come into this? 7

8 Which of these makes more sense? 8

9 Let s take your pulse... Y/N Expect provision levels to increase? Provision levels > EL Expect charge volatility to increase? > 30% Expect profits to reduce over long-term? 5-10 years Expect solutions will need rebuilding in short time? Expect your Auditors be key to your final method? Is adequacy of your provision a primary goal? Will assumptions affect outcomes more than IAS39? Expect business goals to amplify pro-cyclicality? Expect IFRS 9 to increase systemic risks? Expect IFRS 9 to somehow bring on a financial crisis? Plan to conduct > 6 months parallel run? Is IFRS 9 enabling a material improvement in systems? Is initial credit risk at origination an issue? Has your role changed for the better? 9

10 Defining success Understanding Alignment Operating model and systems Support and engagement Keep BAU going Plans, timing and budget Principles 10

11 Risks and issues Impact Noncompliance Doing too much Locked in Auditor review Doesn t work Reporting early Too complex Little parallel run De-scope and simplify Build in flexibility Timed out No return QIS and prototype Agree with IR and Finance Just start... don t wait LRM but... Tactical vs strategic Budget set ahead of soln Try explaining to Board Vendor stretch Urgency and planning Access to BAU Get good partners! Comms and Sponsor Reality! Risk or Issue Response Likelihood 11

12 Let s finish off with something a little more light-hearted. Can you complete these sentences... I say... IFRS 9 will... and you might say...lead to more accurate reporting IFRS 9 is IFRS 9 may IFRS 9 will not 12