IASB publishes exposure draft Risk Mitigation Accounting
IASB publishes exposure draft Risk Mitigation Accounting
On 3 December 2025, the International Accounting Standards Board (IASB) published Exposure Draft Risk Mitigation Accounting that proposes amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures.
The Exposure Draft proposes a new accounting model to better reflect how entities manage interest rate risk in portfolios in a dynamic manner that is consistent with how they make risk management decisions.
The Exposure Draft is open for comments until 31 July 2026.
Background
During the development of IFRS 9, the IASB considered whether the requirements in IAS 39 Financial Instruments: Recognition and Measurement related to macro hedging should be amended or included in IFRS 9. However, feedback from stakeholders, particularly financial institutions, emphasised the need for requirements related to dynamic risk management for open portfolios. Therefore, the IASB decided to undertake a separate project for accounting for dynamic risk management activities, instead of including it as part of the new hedge accounting model in IFRS 9. While the project was in process, the IASB decided to retain the current approach to macro hedge accounting under IAS 39 for the benefit of entities applying these requirements.
The new model, referred to as risk mitigation accounting (RMA) in the Exposure Draft, is restricted to accounting for mitigation of repricing interest rate risk. In the Basis for Conclusions to the Exposure Draft, the IASB has noted that once the model is determined to be operational, the IASB will consider extending the model to other businesses that are also subject to dynamic risks (e.g. the energy and commodities sectors).
Proposed amendments
The following are some of the key concepts proposed to be introduced by the Exposure Draft:
Repricing risk:
This is a central concept in the Exposure Draft, with the proposed amendments being targeted at entities that manage repricing risk on a net basis. Entities, particularly financial institutions, may hold financial instruments that reprice at different times and to different interest rate benchmarks, which results in interest rate risk. Repricing risk is defined in the Exposure Draft as a type of interest rate risk that exposes an entity to variability in the cash flows from, and the fair value of, financial instruments, arising from differences in:
Net repricing risk exposure (in previous IASB discussions, this was referred to as ‘current net open risk position’ or CNOP):
This is the net exposure to repricing risk, based on the relevant mitigated rate, arising from underlying portfolios for which an entity manages repricing risk on a net basis. This is required to be determined by allocating the underlying portfolios into repricing time bands based on expected repricing dates.
Designated derivative:
These are interest rate derivatives that are used to manage an entity’s repricing risk.
Benchmark derivative:
This concept is somewhat similar to the concept of ‘hypothetical derivative’ in the hedge accounting model in IFRS 9. The benchmark derivative is the theoretical derivatives an entity constructs to replicate the timing and amount of repricing risk as specified in the risk mitigation objective.
Risk mitigation objective (in previous IASB discussions, this was referred to as ‘risk mitigation intention’):
This is the absolute amount of repricing risk an entity intends to mitigate in accordance with its risk management strategy. It should be noted that this is an absolute amount and not a proportion or percentage.
Risk mitigation adjustment (in previous IASB discussions, this was referred to as ‘DRM (Dynamic Risk Management) adjustment’):
The risk mitigation adjustment is measured at the lower of the following (in absolute amounts):
The application of the proposed RMA model would broadly involve the following steps:
The Exposure Draft proposes that the amount accumulated as the risk management adjustment be recognised in profit or loss in the same reporting periods during which the repricing differences arising from the financial instruments in the underlying portfolios affect profit or loss.
It should be noted that the risk mitigation adjustment is proposed to be recognised as an asset or liability (depending on the balance) in the statement of financial position, although, the IASB has noted in the Basis for Conclusions that recognition of the risk mitigation adjustment as an asset or a liability in the statement of financial position would not be consistent with the definition of an asset or a liability in the Conceptual Framework.
Risk mitigation adjustment excess:
The Exposure Draft further proposes that an entity should assess at each reporting period whether there is an indication that the amount accumulated as the risk mitigation adjustment might not be realised in full over the mitigated time horizon. In such case, any excess of the amount accumulated as the risk mitigation adjustment over the present value of the net repricing risk exposure would be required to be recognised in profit or loss immediately. An entity would not be permitted to reverse the recognition of any such excess amounts in profit or loss.
Discontinuation of risk mitigation accounting:
The Exposure Draft proposes to permit discontinuation of risk mitigation accounting only if there is a change in the entity’s risk management strategy. Such discontinuation is proposed to be applicable prospectively from the date the change is made.
Transition requirements:
The Exposure Draft proposes prospective application of the proposed requirements.
The proposed transition requirements depend on whether the entity previously applied the hedge accounting requirements in IAS 39 or IFRS 9.
An entity that previously applied hedge accounting requirements in IAS 39 would be required to discontinue hedge accounting for those hedging relationships. The entity would apply the requirements of IFRS 9.6.5.10 and IFRS 9.6.5.12 to any fair value hedge adjustments and cash flow hedge reserves respectively for the discontinued hedging relationships.
An entity that previously applied the hedge accounting requirements of IFRS 9 would be permitted to discontinue hedge accounting for hedging relationships in which some or all of the hedged items are financial instruments that will be included in underlying portfolios for the purposes of applying risk mitigation accounting.
Entities expected to be affected
The entities expected to be significantly affected by the risk mitigation accounting model are mainly financial institutions that manage interest rate repricing risk on a net basis. The IASB has provided a 240-day comment period that ends on 31 July 2026. The IASB has also invited the companies that manage repricing risk on a net basis to carry out fieldwork during the comment period to assess the likely effects of the proposed model.
The Exposure Draft and the request for fieldwork may be accessed here.
The Exposure Draft proposes a new accounting model to better reflect how entities manage interest rate risk in portfolios in a dynamic manner that is consistent with how they make risk management decisions.
The Exposure Draft is open for comments until 31 July 2026.
Background
During the development of IFRS 9, the IASB considered whether the requirements in IAS 39 Financial Instruments: Recognition and Measurement related to macro hedging should be amended or included in IFRS 9. However, feedback from stakeholders, particularly financial institutions, emphasised the need for requirements related to dynamic risk management for open portfolios. Therefore, the IASB decided to undertake a separate project for accounting for dynamic risk management activities, instead of including it as part of the new hedge accounting model in IFRS 9. While the project was in process, the IASB decided to retain the current approach to macro hedge accounting under IAS 39 for the benefit of entities applying these requirements.
The new model, referred to as risk mitigation accounting (RMA) in the Exposure Draft, is restricted to accounting for mitigation of repricing interest rate risk. In the Basis for Conclusions to the Exposure Draft, the IASB has noted that once the model is determined to be operational, the IASB will consider extending the model to other businesses that are also subject to dynamic risks (e.g. the energy and commodities sectors).
Proposed amendments
The following are some of the key concepts proposed to be introduced by the Exposure Draft:
Repricing risk:
This is a central concept in the Exposure Draft, with the proposed amendments being targeted at entities that manage repricing risk on a net basis. Entities, particularly financial institutions, may hold financial instruments that reprice at different times and to different interest rate benchmarks, which results in interest rate risk. Repricing risk is defined in the Exposure Draft as a type of interest rate risk that exposes an entity to variability in the cash flows from, and the fair value of, financial instruments, arising from differences in:
- the timing of when financial instruments reprice to benchmark interest rates; and
- the amount of financial instruments that reprice in a particular period.
Mitigated rate:
This is the benchmark interest rate based on which an entity manages repricing risk in accordance with its risk management strategy.Mitigated rate:
Net repricing risk exposure (in previous IASB discussions, this was referred to as ‘current net open risk position’ or CNOP):
This is the net exposure to repricing risk, based on the relevant mitigated rate, arising from underlying portfolios for which an entity manages repricing risk on a net basis. This is required to be determined by allocating the underlying portfolios into repricing time bands based on expected repricing dates.
Designated derivative:
These are interest rate derivatives that are used to manage an entity’s repricing risk.
Benchmark derivative:
This concept is somewhat similar to the concept of ‘hypothetical derivative’ in the hedge accounting model in IFRS 9. The benchmark derivative is the theoretical derivatives an entity constructs to replicate the timing and amount of repricing risk as specified in the risk mitigation objective.
Risk mitigation objective (in previous IASB discussions, this was referred to as ‘risk mitigation intention’):
This is the absolute amount of repricing risk an entity intends to mitigate in accordance with its risk management strategy. It should be noted that this is an absolute amount and not a proportion or percentage.
Risk mitigation adjustment (in previous IASB discussions, this was referred to as ‘DRM (Dynamic Risk Management) adjustment’):
The risk mitigation adjustment is measured at the lower of the following (in absolute amounts):
- the cumulative gain or loss on the designated derivatives from the date the derivatives were designated; and
- the cumulative change in the fair value (present value) of the benchmark derivatives.
The application of the proposed RMA model would broadly involve the following steps:
- Formal documentation of how the requirements of the model will be applied by the entity
- Identification of the underlying portfolios that expose the entity to repricing risk
- Determination of net repricing risk exposure
- Mitigation of the risk using designated derivatives
- Specification of the risk management objective
- Construction of benchmark derivative
- Measurement of risk mitigation adjustment
- Recognition of risk mitigation adjustment in the statement of financial position
- Recognition in profit or loss of any remaining gain or loss on the designated derivatives that was not recognised as part of the risk mitigation adjustment.
The Exposure Draft proposes that the amount accumulated as the risk management adjustment be recognised in profit or loss in the same reporting periods during which the repricing differences arising from the financial instruments in the underlying portfolios affect profit or loss.
It should be noted that the risk mitigation adjustment is proposed to be recognised as an asset or liability (depending on the balance) in the statement of financial position, although, the IASB has noted in the Basis for Conclusions that recognition of the risk mitigation adjustment as an asset or a liability in the statement of financial position would not be consistent with the definition of an asset or a liability in the Conceptual Framework.
Risk mitigation adjustment excess:
The Exposure Draft further proposes that an entity should assess at each reporting period whether there is an indication that the amount accumulated as the risk mitigation adjustment might not be realised in full over the mitigated time horizon. In such case, any excess of the amount accumulated as the risk mitigation adjustment over the present value of the net repricing risk exposure would be required to be recognised in profit or loss immediately. An entity would not be permitted to reverse the recognition of any such excess amounts in profit or loss.
Discontinuation of risk mitigation accounting:
The Exposure Draft proposes to permit discontinuation of risk mitigation accounting only if there is a change in the entity’s risk management strategy. Such discontinuation is proposed to be applicable prospectively from the date the change is made.
Transition requirements:
The Exposure Draft proposes prospective application of the proposed requirements.
The proposed transition requirements depend on whether the entity previously applied the hedge accounting requirements in IAS 39 or IFRS 9.
An entity that previously applied hedge accounting requirements in IAS 39 would be required to discontinue hedge accounting for those hedging relationships. The entity would apply the requirements of IFRS 9.6.5.10 and IFRS 9.6.5.12 to any fair value hedge adjustments and cash flow hedge reserves respectively for the discontinued hedging relationships.
An entity that previously applied the hedge accounting requirements of IFRS 9 would be permitted to discontinue hedge accounting for hedging relationships in which some or all of the hedged items are financial instruments that will be included in underlying portfolios for the purposes of applying risk mitigation accounting.
Entities expected to be affected
The entities expected to be significantly affected by the risk mitigation accounting model are mainly financial institutions that manage interest rate repricing risk on a net basis. The IASB has provided a 240-day comment period that ends on 31 July 2026. The IASB has also invited the companies that manage repricing risk on a net basis to carry out fieldwork during the comment period to assess the likely effects of the proposed model.
The Exposure Draft and the request for fieldwork may be accessed here.