Risk Mitigation Accounting Out for Comments—Proposed Amendments to IFRS 9 and IFRS 7
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The International Accounting Standards Board (IASB) is proposing updates on how banks, insurers and other financial institutions should account for interest rate risk, also called repricing risk. Right now, many companies use derivatives (like interest rate swaps) to manage this risk across large portfolios of assets and liabilities. But the current accounting rules (IFRS 9 and IFRS 7) aren’t designed for that, they work better for simple, one-to-one hedges. This mismatch leads to confusing financial statements that don’t reflect what’s really going on.
What’s Changing?
The new model called Risk Mitigation Accounting (RMA) aims to:
Report interest rate risk at the portfolio level
Allow entities to show how they manage interest rate risk on a net basis (across many instruments at once). This will faciliate reporting when i.e. banks manage interest rate risk across large portfolios looking at their entire book of fixed-rate loans and deposits to see how overall interest income or expenses might shift. They can combine assets, liabilities, and even future transactions to calculate their total exposure to changing interest rates (called repricing risk).
Under existing IFRS 9 and IAS 39, hedge accounting is mostly designed for specific one-to-one hedges, like matching one loan with one swap.
Link risk management actions to what shows up in the financial statements.
Current hedge accounting rules often don’t reflect how firms actually manage risk, especially when strategies shift constantly across portfolios. RMA lets firms:
Document their real-world risk strategies
Align derivatives with those strategies
Use a new “risk mitigation adjustment” to match hedge results to the right reporting periods
This provides investors a clearer picture of how risk is truly managed for the entity,
Avoid confusing mismatches in profit/loss caused by the current rules.
Current standards often lead to timing mismatches where derivatives might be marked to market (changing daily), while the loans or deposits they hedge are not. This creates volatility in profit/loss that doesn’t reflect economic reality.
If a bank uses a swap to manage interest rate risk but can't apply hedge accounting, the swap’s value changes go straight to profit, even though the offsetting impact on the loan portfolio happens over time.
Under RMA, firms can defer gains or losses on derivatives so they align with the periods when the underlying instruments (like loans) affect profit. This is done through a new accounting item called the risk mitigation adjustment. This eliminates misleading volatility and gives a clearer picture of financial performance, one that aligns with how the business actually works.
Key Features of the Proposal
Optional Use
Companies don’t have to use RMA, but if they do, they must follow all the rules.
Portfolios Instead of Individual Items
Risk is managed and accounted for across groups of financial instruments, not item by item.
Better Reflection of Derivatives
Gains or losses on derivatives will now be matched with the periods when the underlying instruments affect profit.
Tighter Documentation
Firms must clearly document their risk strategy and how RMA is applied.
New Disclosures
Updated IFRS 7 rules will require firms to explain how they manage risk and how RMA affects their results.
Why It Matters
For Banks & Insurers: This is a big deal, especially for those managing large, dynamic portfolios.
For Financial Reporting: It brings financial statements closer to economic reality.
For Investors: It helps users better understand how companies manage risks and what those strategies mean for future cash flows.
Read more about the proposed amendments here.
Stakeholders are invited to submit feedback by 31 July 2026. The IASB will consider this before finalising any changes.
