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

ESMA responded to the IASB regarding the Exposure Draft ED/2023/2, which concerns Amendments to the Classification and Measurement of Financial Instruments. ESMA expressed its support for certain proposals and provided suggestions for further clarity and improvements:
– ESMA supported the IASB’s proposal to allow an entity to derecognize a financial liability settled using an electronic payment system before the settlement date if specific criteria are met. However, ESMA recommended better clarity on when the liability is derecognized when an entity chooses to apply the proposed requirements.
– ESMA appreciated the IASB’s intention to clarify the notion of a basic lending arrangement for assessing the SPPI criterion. However, ESMA had concerns about potential unintended consequences and recommended further clarifications and examples.
– ESMA also supported proposed clarifications regarding the assessment of contractual cash flow characteristics for financial assets with non-recourse features and contractually linked instruments.
– Regarding disclosures, ESMA agreed with the proposed requirement to disclose changes in fair value of equity instruments designated at fair value through other comprehensive income. However, it requested clarification on the removal of the requirement to disclose the fair value of each instrument at the end of the reporting period.
– ESMA also supported the proposed disclosure requirements for contractual terms that could change the timing or amount of contractual cash flows on the occurrence of a contingent event.
– The ESMA did not comment on the transition proposal, which involves applying the amendments retrospectively without restating comparative information.