Letter to EFRAG on the IASB’s Exposure Draft Amendments to the Classification and Measurement of Financial Instruments

ESMA responds to the EFRAG regarding the Exposure Draft ED/2023/2, which proposes Amendments to the Classification and Measurement of Financial Instruments. ESMA supports certain proposals while suggesting improvements and seeking further clarifications in other areas:
– Derecognition of financial liability settled through electronic transfer: ESMA agrees with permitting derecognition before the settlement date under specified criteria but requests better clarity on the timing of derecognition.
– Classification of financial assets – basic lending arrangement: ESMA supports the IASB’s intention to clarify the notion of a basic lending arrangement but expresses concerns about unintended consequences and the classification of financial instruments with ESG-related features.
– Classification of financial assets with non-recourse features: ESMA welcomes additional guidance on the assessment of contractual cash flow characteristics of financial assets with non-recourse features.
– Classification of contractually linked instruments: ESMA agrees with the proposed clarifications related to contractually linked instruments but suggests further clarity on specific characteristics of secured lending assessments.
– Disclosures for equity instruments designated at FVOCI: ESMA supports the disclosure of changes in fair value for FVOCI equity instruments but questions the removal of the requirement to disclose the fair value of each instrument separately.
– Disclosures for contractual terms that could change cash flows: ESMA agrees with the proposed disclosure requirements for contractual terms that could change cash flows on contingent events.
– Transition: ESMA does not provide any specific comments on the proposed transition requirements.