EBA欧洲银行-CEBS-2009-25-rev2-_Assessment-of-follow-up-measures-to-CEBS-Valuation-report__13页_427kb

Summary of CEBS Assessment on Valuation Issues Raised in June 2008 Report

I. Introduction

In June 2008, CEBS identified key issues related to the valuation of complex and illiquid financial instruments and committed to monitoring how standard setters and institutions address these. This commitment was reflected in a joint statement published in October 2008 and further formalized through the EU work plan following the G20 declaration. CEBS was tasked to provide a follow-up report by 31 March 2009, assessing the progress made and the implementation of the proposed measures.

II. Organisation of the Report

The report distinguishes between issues addressed to standard setters (primarily the IASB) and those addressed to institutions. For standard setters, progress can be assessed through direct observations of their actions. For institutions, the evaluation is more complex and relies on input from supervisors and industry discussions.

III. Main Findings

A. Issues to be addressed by the IASB

1. Issues addressed, but clarifications required

• Issue (1): IASB issued educational guidance on fair value measurement in inactive markets, but further clarification is needed regarding the use of primary market transactions and the item-by-item approach.
• Issue (2): IASB has aligned with FASB and SEC guidance, but the classification consistency across institutions remains unclear.
• Issue (3): IASB clarified the list of factors to consider in valuation techniques, but the approach to unit of account and model risk remains ambiguous.
• CEBS Recommendation: IASB should elevate the standing of educational guidance and address these points within the Fair Value Measurement project and the Financial Crisis Advisory Group.

2. Issues unaddressed, further follow-up announced

• Issue (6): IASB has not yet addressed the impairment measurement rules for available-for-sale assets. While an exposure draft was issued, it was not supported by stakeholders. CEBS urges IASB to focus on the measurement aspect, not just disclosures.

3. Issues unaddressed, outlook unclear

• Issue (7): IASB has not yet resolved the treatment of Day 1 profits and losses. CEBS recommends addressing this as part of the Fair Value Measurement project.
• Issue (8): IASB has discussed the effect of own credit risk but has not provided sufficient clarity. CEBS urges further guidance and disclosures on this matter.

4. Issues addressed, final assessment pending

• Issue (11): IASB has proposed amendments to IFRS 7, but CEBS considers the progress only partly satisfactory and recommends further action.
• Issue (13): IAASB has issued an audit practice alert and plans further guidance on fair value auditing. CEBS will continue to monitor these developments.

B. Issues to be addressed by institutions and others

5. Assessment pending

• Issue (9): Institutions have made some improvements in valuation practices and risk management, but not all. Further efforts are needed, especially in valuation methodologies, stress testing, and internal controls.
• Issue (10): The application of prudent valuation principles to the banking book is still pending, as the draft CRD does not address this.
• Issue (12): CEBS is conducting transparency work to assess the adequacy of institutions' disclosures and will issue further proposals.
• Issue (14): Audit profession is encouraged to work with clients on meaningful disclosures, depending on the outcome of issue (12).

IV. Conclusions

CEBS concludes that most issues raised in its June 2008 Valuation report have not yet been fully addressed. Specifically:

• For the IASB:

  • The most urgent issues are: impairment measurement for available-for-sale assets, consistency in Day 1 profits and losses, and convergence in the treatment of own credit risk.
  • Progress has been made on fair value measurement and reclassification, but further clarification and action are required, especially regarding IFRS and US GAAP alignment.

• For institutions:

  • Improvements have been noted in valuation processes, risk management, and governance, but not all institutions have been equally affected.
  • There is a need for more uniform application of valuation standards and enhanced transparency and disclosure practices.

CEBS continues to monitor the following areas:

• Transparency and disclosure: Ongoing work to ensure consistent and detailed information for complex instruments.
• Auditing fair values: IAASB's guidance development is under close observation.

CEBS encourages both standard setters and institutions to engage in more systematic dialogue with supervisors and regulators to ensure that prudential concerns are adequately addressed.