Why the model was developed

Financial institutions often manage the risks in their constantly changing asset and liability portfolios on a dynamic basis, usually via complex hedging strategies. When IFRS 9 Financial instruments (IFRS 9) was released in 2014, the IASB recognised that its new hedging requirements were not well suited to these specific activities. It therefore permitted entities to continue to use the macro hedging requirements of IFRS 9’s predecessor, IAS 39 Financial Instruments: Recognition and Measurement (IAS 39), while it undertook a longer-term project to develop a model that more faithfully represented actual business practice and outcomes.

Proposals for this model are set out in IASB Exposure Draft 2025/1 Risk Mitigation Accounting, open for public comment until 31 July 2026. The XRB and AASB equivalent consultations close for comment in May 2026.

The risk mitigation accounting (RMA) model is proposed to sit within IFRS 9, with related disclosure requirements to be added to IFRS 7 Financial Instruments: Disclosures (IFRS 7). Application would be optional, allowing eligible entities could choose whether to apply the RMA model. However, if the proposals are finalised, the IASB intends to withdraw IAS 39 in its entirety, meaning its provisions would no longer be available for use. Entities that are ineligible or choose not to use RMA would then need to transition to IFRS 9’s general hedging requirements or cease hedging altogether.

Who it is most relevant to

The new model has been developed primarily with banking sector risk management activities in mind. It can be applied if:

• an entity’s business activities expose it to interest rate repricing risk
• this risk is managed dynamically on a net basis as portfolios change using derivatives, and
• the entity has a documented risk management strategy with defined risk limits.

While the ED is targeted at the banking sector, the IASB is also seeking feedback from insurance entities on whether the proposed model would work for their risk management practices. If it proves operational, the IASB may consider extending it to other industries.

How it would affect the financial statements

If applied, RMA would result in significant change to the way the risks inherent in dynamic portfolios are accounted for. The aim is to better reflect actual practice while removing some of the operational complexities caused by IAS 39.

The key change is the measurement and recognition of a new “risk mitigation adjustment” which will impact the profit and loss based on the effectiveness of the risk mitigation activities. It will be disclosed via separate specific line items in both the profit and loss and balance sheet, making it easier for users to better understand the entity’s risk management practices and how effective they have been.

Additional disclosures will also be required, including explanations of the entity’s risk management objectives and outcomes and details of its net repricing risk exposure. If an entity meets the eligibility criteria but chooses not to apply the RMA model, an explanation of that decision and a qualitative description of how interest rate repricing risk is managed will be required.

Implementing this new accounting treatment is expected to require updated systems, process and documentation to support the judgements and estimates made.

How to provide feedback

In addition to written submissions, the IASB is encouraging entities to field test the model, given the potentially significant change to current practice. Participants have until 31 July to provide preliminary feedback, with final results required by 30 November 2026.

CA ANZ will be making a submission, and we are gathering views from stakeholders to better understand how the proposals may affect practice in Australia and New Zealand.

If you are involved in dynamic risk management as a preparer, auditor or user of financial statements, we encourage you to share your perspective with us.