European Financial Services Round Table
THE EUROPEAN FINANCIAL SERVICES ROUND TABLE (EFR) URGES THE EUROPEAN COMMISSION TO RESOLVE THE CONTROVERSIAL ISSUES IDENTIFIED IN IAS 32 AND 39 AND ED 5
Fortis Bank
The EFR was founded in March 2001 to promote the completion of the single market in financial services and to provide a strong industry voice. The Members of the EFR - currently 17 Chairmen or Chief Executives of leading European banks and insurance companies - believe that creating free competition on a level playing field - with fully harmonised regulations and a single capital market - will bring substantial benefits to customers, increase competition and foster innovation. These benefits will help to drive down prices and deliver a wider and better choice of financial products to customers. Acting Chairman of the EFR is Pehr Gyllenhammar, chairman of Aviva.
Despite intensive discussions over a lengthy period, neither the banking nor the insurance sector has been able to reach agreement with the IASB on certain core standards. The EFR does not have confidence that IASB will take our concerns in its final proposals in March into account.
The EFR therefore urges the European Commission to ask the accounting advisory committee, EFRAG, to be prominently present in the preparation of a European accounting standard for financial instruments in order to resolve the controversial issues identified in IAS 32 and 39 and ED 5:
- A principle based hedging solution, based on the actual practice
- Rejection of the ultimate compulsory fair value approach for the whole balance sheet
- The incompatibility between accounting impairment rules and regulatory provisioning rules
- A specific category of assets backing insurance liabilities
- The removal of the deposit floor for insurance contracts
On the vital subject of macro hedging and asset-liability mismatches which are the very core of these businesses’ economics, the current proposals do not reflect economic reality, create artificial and undue volatility on earnings and equity and would lead to misinterpretation of financial statements. The proposed standards would create a great threat for the stability of the markets and the transparency of financial disclosures. These problems would impact the financial statements of all listed companies, not only the financial sector. Additionally, they would increase the cost of capital and reduce the availability of fixed rate credit for both financial institutions and their customers.
A letter by Pehr G. Gyllenhammar, Chairman the EFR and Aviva was sent to Commissioner Frits Bolkestein.
If you have any further questions please contact:
Mr Freddy Van den Spiegel
Chief Economist, Fortis Bank
Tel: +32 (02) 565.64.00
Email: freddy.vandenspiegel@fortisbank.com
Entry Filed under: Hedge Fund Strategy