Application of International Financial Reporting Standards (IFRS) to Financial Entities. Adjustments — BCRA — AR

"2017 - YEAR OF RENEWABLE ENERGIES
COMMUNICATION "A" 6327 20/09/2017
TO FINANCIAL ENTITIES,
TO EXCHANGE HOUSES, AGENCIES AND OFFICES,
TO REPRESENTATIVES OF FOREIGN FINANCIAL ENTITIES NOT AUTHORIZED TO OPERATE IN THE COUNTRY, TO COOPERATIVE CREDIT UNIONS (LAW 26.173), TO PUBLIC GUARANTEE FUNDS:
Ref.: Circular
LISOL 1 - 758
OPRAC 1 - 913
REMON 1 - 932
RUNOR 1 - 1321
CREFI 2 - 101
OPASI 2 - 530
CONAU 1 - 1235
SECYC 1 - 3
Application of International Financial Reporting Standards (IFRS) to financial entities. Adjustments.
____________________________________________________________ We address you to inform you that this Institution adopted the following resolution:

Repeal the norms on "Valuation of debt instruments of the non-financial public sector and monetary regulation instruments of the Central Bank of the Republic of Argentina".
Replace the term "volatility published by this Central Bank" with "normal and usual quotation for significant amounts in markets of the country" in accordance with Annex I which forms part of this communication.
Substitute the expression "accounting statements" with "financial statements" in accordance with Annex II which forms part of this communication.
Substitute points 2.6.1., 2.7.8. and 9.9. of the norms on "Cooperative Credit Unions (Law 26.173)" as follows:

"2.6.1. Market.
No observation will be made."

"2.7.8. Intangible assets, net of respective accumulated depreciation (-)."

"9.9. Fully provisioned debts of debtors in the "unrecoverable" category.
Debts of clients classified in the "unrecoverable" category and fully provisioned for uncollectibility risk must be eliminated from assets starting from the seventh month following the month in which those circumstances are verified."

Repeal point 2.7.9. of the norms on "Cooperative Credit Unions (Law 26.173)".
Replace in point 2.1 the term "PFB", the title of point 3.1.11., point 3.1.11.4., in point 7.1 the last paragraph of the term "IBt" and points 8.4.1.1. and 8.4.1.8. of the norms on "Minimum capitals of financial entities" as follows:

2.1. Requirement.
"PFB: computable concepts not registered in the balance sheet ("off-balance sheet items")."

"3.1.11. Credit conversion factors (CCF) applicable to securitization positions."

"3.1.11.4. Other securitization positions.
Securitization positions not covered by the previous points will receive a CCF of 100%."

7.1. Requirement.
IBt
:
"- results from the sale of securities classified and measured at amortized cost or fair value with changes in OCI."

8.4.1. Deductible items from level one ordinary capital (CDCOn1).

"8.4.1.1. Credits for application of the minimum presumptive income tax –net of provisions– that exceed 10% of the PNb corresponding to the previous month and credits from deferred tax assets."

"8.4.1.8. Intangible assets, net of respective accumulated depreciation.
Includes the business key integral to the valuation of significant investments in the capital of financial entities not subject to consolidated supervision and the goodwill value integral to the participation in other companies that forms part of the book value of the investment."

Leave point 8.4.1.9. of the norms on "Minimum capitals of financial entities" without effect.
Incorporate as items v) and vi) and as the penultimate paragraph of point 8.2.1.6. of the norms on "Minimum capitals of financial entities" the following:

"v) 100% of the results registered in the following items corresponding to the category "Accumulated Other Comprehensive Income":

Revaluation of property, plant and equipment and intangibles.
Gains or losses on financial instruments at fair value with changes in OCI.
vi) 100% of the debit balance of each of the items registered in "Accumulated Other Comprehensive Income" not mentioned in item v).
The concepts referred to in items v) and vi) are those registered in the last quarterly or annual financial statement that has an auditor's report or opinion."

Substitute points 1.1. and 2.1.4. of the norms on "Portfolio Assignment of Credits" as follows:

"1.1. Definition.
Sales or assignments, with or without liability for the assigning financial entity, that are carried out regarding credits granted to third parties, regardless of their instrumentation and reason for their incorporation into the assets of the entities, that are registered in the accounting categories "Loans", "Other credits by financial intermediation", "Diverse credits" or in off-balance sheet items –in this case, when they are unrecoverable credits–."

"2.1.4. Clauses to be included in contracts.
In cases of portfolio assignment without liability for the assignor, the pertinent agreement must include a clause by which the assignee irrevocably waives the right to file claims due to insolvency or default of the debtors included. In other cases, a clause must be included specifying expressly which entity will register the portfolio subject to assignment in its assets."

Substitute the second paragraph of point 1.1. and third paragraph of point 2.1. of the norms on "Correspondence Accounts" as follows:

1.1. Intervening Entities.
"These norms will not apply regarding the opening of custody accounts to financial entities of the country and abroad and for those demand accounts opened in financial entities of the country by local exchange houses and/or local and foreign financial entities, provided they are used exclusively for the realization on their own account of local transactions of collections and payments."

2.1. Intervening Entities.
"These norms will not apply regarding the opening of custody accounts in financial entities of the country and abroad."

Replace point 1.8.4. of the norms on "Time Deposits and Investments" as follows:

"1.8.4. Public and private securities and monetary regulation instruments of the Central Bank of the Republic of Argentina. i) They may only be captured by banks and financial companies. ii) They must have normal and usual quotation for significant amounts in markets of the country. iii) Private securities must have public offering authorized by the National Securities Commission."

Substitute Section 2. of the norms on "Distribution of Results" as follows:

"Section 2. Determination of distributable result.
Entities not included in any of the situations foreseen in Section 1. may distribute results up to the positive amount resulting from the extra-accounting calculation provided for in this point, without exceeding the limits established in these norms. To that effect, the sum of the balances at the close of the annual period to which they correspond registered in the account "Unassigned Results" and of the optional reserve for future distribution of results must be computed, from which the amounts –registered at the same date– of the legal and statutory reserves –whose constitution is required– and the concepts detailed below must be deducted:

2.1. 100% of the debit balance of each of the items registered in the category "Accumulated Other Comprehensive Income".
2.2. The net positive difference resulting between the amortized cost measurement and the fair market value that the financial entity registers regarding public debt instruments and/or monetary regulation instruments of the Central Bank for those instruments valued at amortized cost.
2.3. Valuation adjustments of assets notified by the Superintendence of Financial and Exchange Entities –accepted or not by the entity–, that are pending registration and/or those indicated by external audit that have not been registered accountingly.
2.4. Individual franchises –of asset valuation– granted by the Superintendence of Financial and Exchange Entities, including adjustments derived from not considering the adjustment plans agreed upon."

Replace points 3.1.7. and 3.1.8. of the norms on "Financing to the non-financial public sector" as follows:

"3.1.7. Off-balance sheet items:
3.1.7.1. Financial entities - Rediscounted documents.
3.1.7.2. Granted credits (current account advances, documentary credits and others).
3.1.7.3. Guarantees granted on deferred payment checks and other guarantees granted.
3.1.7.4. Liabilities for foreign trade operations.
3.1.8. Forward purchases and sales, swaps, options and other derivatives, in accordance with what is established in Section 4. of the norms on "Credit Risk Mitigation", without prejudice to the computation of receivables due to settlement lags that may occur."

Substitute the third paragraph of point 2.2.1. of the norms on "Public Guarantee Funds" as follows:

"Public securities and monetary regulation instruments of the Central Bank, loans guaranteed by the National Government and shares that make up the available risk Fund must be valued according to the criterion of "Fair Market Value"."

Replace points 3.1.1., 3.1.8., 3.1.9., the first and second paragraphs of point 4.2., in point 4.3.2.1. the term "σ" and item ii) of point 11.1.4.1. of the norms on "Credit Risk Mitigation" as follows:

"3.1.1. Cash and deposits in banks:
3.1.1.1. Current accounts in local financial entities and in banks abroad.
3.1.1.2. Correspondence accounts and other demand accounts in local financial entities and in banks abroad."

"3.1.8. Off-balance sheet items:
3.1.8.1. Financial entities - Rediscounted documents.
3.1.8.2. Guarantees received.
Only preferred guarantees included in point 1.8.2.
3.1.8.3. Credits to clients classified in the "unrecoverable" category.
3.1.8.4. Current account advances granted, credits granted to local entities, documentary credits and other credits granted.
3.1.8.5. Commitments for financings and correspondence lines.
3.1.8.6. Guarantees granted on deferred payment checks and other guarantees granted.
3.1.8.7. Liabilities for foreign trade operations.
3.1.9. Forward purchases and sales, swaps, options and other derivatives, in accordance with what is established in point 4.3., without prejudice to the computation of receivables due to settlement lags that may occur."

4.2. Public securities that have normal and usual quotation for significant amounts in markets of the country.
"Regardless of the form of their accounting registration/valuation, they will be computed by their joint net position, resulting from the algebraic sum of the following assets and liabilities (the signs are exposed in parentheses):"

4.3.2.1. Of forward operations ("forwards") and futures, and call or put options, of the following assets:
"σ: daily volatility, which will be equivalent to the standard deviation of the yield of the last 504 daily quotations or, in their absence, of the existing quotations. The considered values must be updated at the start of each calendar month."

11.1.4.1. Generation of the margin.
"ii) Fair market value of holdings of national public securities that have normal and usual quotation for significant amounts in markets of the country, according to their quotation at the close of operations of the day prior to the one of attribution to the margin. Holdings that are not included in the pertinent margin information cannot be attributed later."

Substitute points 1.2.3., 1.4.1.1., the second paragraph of point 1.4.3., item i) of points 2.3.1.2. and 2.6.5.3. and the last paragraph of point 7.1.1. of the norms on "Guidelines for Risk Management in Financial Entities" as follows:

"1.2.3. Off-balance sheet operations: those operations that are not accounted for in the statement of financial position but that are a potential source of exposure to risk for entities."

"1.4.1.1. Provide, in an adequate and timely manner, to the identification, evaluation, monitoring, control and mitigation of risks generated by lending, investment, trading and operations not registered in the balance sheet, such as those originated in securitizations, as well as risks coming from other significant activities at the business line level and of the entity as a whole;"

1.4.3. Adequate information and monitoring systems for the measurement of risks, their evaluation and the reporting of the size, composition and quality of exposures.
"The MIS risk management information system must provide the Board of Directors and Senior Management, clearly, concisely and timely, relevant information regarding the risk profile and capital needs of the entity. This information must include exposures to all risks, including those coming from off-balance sheet operations –that is, operations not registered in the balance sheet–. Additionally, management must understand the assumptions and limitations inherent to specific risk measures."

2.3.1.2. Limits.
"i) Consider the different types of exposures, regardless of the form of their accounting registration;"

2.6.5.3. Criteria to be observed in the determination of exposure by country, block or region.

"i) All operations accounted for or not in the balance sheet that represent rights against non-residents must be computed, regardless of the denomination currency."

7.1.1. Securitizations constitute an alternative source of financing and a mechanism for the transfer of risks to investors. Nevertheless, securitization activities and the rapid innovation of techniques and instruments employed also generate new risks that include:
"Therefore, in risk management, the totality of securitization positions –including those not registered in the balance sheet– must be taken into consideration for the approval of new products, the monitoring of limits to avoid concentrations and the estimates of market, credit and operational risks."

Substitute the third paragraph of point 1.2. of the norms on "Ordering, Issuance and Disclosure of Communications and Press Releases" as follows:

1.2. Ordered Texts.
"At the same time, several ordered texts of norms may be included in the same grouping. For example, within the LISOL grouping, norms on:

Affection of assets in guarantee.
Minimum capitals of financial entities.
Portfolio assignment of credits.
Classification of debtors.
Guarantees.
Credit graduation.
Non-compliance with minimum capitals and technical relations. Applicable criteria.
Credit risk mitigation.
Minimum provisions for uncollectibility risk.
Relationship for immobilized assets and other concepts.
Consolidated supervision."

Substitute the first paragraph of point 2.5. of the norms on "Minimum Provisions for Uncollectibility Risk" as follows:

2.5. Fully provisioned debts of debtors in the "unrecoverable" category.

"Debts of clients classified in the "unrecoverable" category and fully provisioned for uncollectibility risk must be eliminated from assets starting from the seventh month following the month in which those circumstances are verified."

Substitute point 2.4. of the norms on "Credit Policy" as follows:

"2.4. Financings to debtors classified in the "unrecoverable" category that are not registered in the asset.
Financings to debtors classified in the "unrecoverable" category and that are not registered in the asset because they are fully provisioned, as established in the norms on "Minimum Provisions for Uncollectibility Risk", cannot be attributed to the lending capacity of foreign currency deposits."

Replace the second paragraph of point 2.2. of the norms on "Liquidity Coverage Ratio" as follows:

"The assets provided for in points 2.2.3. to 2.2.7. will be computed at their fair market value, from which the amount corresponding to the following haircuts must be subtracted:

Assets Haircut
National public securities in pesos and foreign currency (points 2.2.3. and 2.2.4.)
20%
Monetary regulation instruments of the Central Bank of the Republic of Argentina, in pesos and foreign currency (points 2.2.3. and 2.2.4.)
20%
Securities issued by the Bank for International Settlements, IMF, ECB, EU or BMD (point 2.2.5.)
0%
Debt securities issued by other sovereigns or their central banks (points 2.2.6. and 2.2.7.)
20%"

Incorporate as point 3.1.2.4. in the norms on "Relationship for Immobilized Assets and Other Concepts" the following:

"3.1.2.4. Liabilities for deferred taxes coming from the revaluation of assets registered in the category "Property, Plant and Equipment"."

Leave point 7.2. of the norms on "Relationship for Immobilized Assets and Other Concepts" without effect.
Substitute point 2.1.2.1. of the norms on "Consolidated Supervision" as follows:

"2.1.2.1. Their assets, contingent commitments and other operations (options, etc.) represent 10% or more of the computable equity liability of the local financial entity including its subsidiaries abroad."

Leave points 5.2.1.8. and 5.2.2.6. of the norms on "Consolidated Supervision" without effect.
Substitute point 4. of the norms on "Truthfulness of Accounting Registrations" as follows:

"4. Prohibition.
Financial entities may not carry out operations –regardless of their type, including those registered in off-balance sheet items– on their own account or for third parties, with natural or legal persons who have intervened in operations with other financial entities –including the subscription of shares or capital contributions– in which tricks or actions aimed at disguising the true scope or nature of them have been carried out, according to the information supplied by the Superintendence of Financial and Exchange Entities."

Establish that financial entities may not effect distributions of results with the profit that originates from the first-time application of International Financial Reporting Standards (IFRS), and must constitute a special reserve that can only be derecognized for its capitalization or to absorb eventual negative balances of the "Unassigned Results" item.
Provide that these provisions will be in effect from 1.1.18."

Finally, we inform you that we will subsequently send you the sheets that, in replacement of those previously provided, correspond to be incorporated in the respective orderings.

We salute you attentively.

CENTRAL BANK OF THE REPUBLIC OF ARGENTINA
Darío C. Stefanelli Agustín Torcassi
Principal Manager of Issuance and
Regulatory Applications
General Deputy Manager of Norms

ANNEX

Ordered Text Point
"Advances from the Central Bank to financial entities destined for financings to the productive sector".
2.6.1.3. item ii), 2.6.2.1. and 2.6.2.3.
"Affection of assets in guarantee". 1.3.2., 2.3.1.1., 2.3.1.4., 2.3.4. and 2.8.
"Financial assistance for temporary illiquidity". 3.1.7.
"Minimum capitals of financial entities". 2.5.2.
"Exchange houses, agencies and offices". 2.4.2. and 3.3.2.
"Time Deposits and Investments". 2.5.5.1.
"Minimum Cash". 1.2. fifth and sixth paragraphs.
"Public Guarantee Funds".
2.2.1. item i), item v), fourth paragraph and seventh paragraph.
"Credit Risk Mitigation".
4.2. title, 4.3.2.1. item i), item ii) and second paragraph, 4.3.2.4., 8.2. second paragraph, 11.1.1. third paragraph and 11.1.4.
"Guarantees". 1.1.5.
"Relationship for Immobilized Assets and Other Concepts".
4.1. item ii).

B.C.R.A. Annex I
Comm. "A"

Ordered Text Point Replace the terms With the terms
2.1.2.1. item v) Accounting statements Financial statements or accounting –as appropriate–
2.1.2.2. item ii) Accounting statement Financial statement or accounting –as appropriate–
2.1.2.2. item iv) Accounting statements Financial statements or accounting –as appropriate–
2.1.2.2. item v) second paragraph Accounting statements Financial statements or accounting –as appropriate–
2.1.2.2. item vii) Accounting statement Financial statement or accounting –as appropriate–
"Financial assistance for temporary illiquidity".
3.1.2. second paragraph Accounting statement Financial statement or accounting –as appropriate–
"Mutual Associations. Regulation of their activity (Decree 1367/93)".
2.1. second paragraph Accounting statements Financial statements or accounting –as appropriate–
2.4.7.2. Accounting statements Financial statements
3.4.6. Accounting statements Financial statements
3.6.1. Accounting statements Financial statements
3.6.2.1. Accounting statements Financial statements
3.6.2.2. second paragraph Accounting statements Financial statements
4.5. third paragraph Accounting statements Financial statements
5.2.4.3. item ii) Accounting statements Financial statements
7.2. title Accounting statements Financial statements
7.2. first paragraph Accounting statements Financial statements
"Authorization and composition of capital of financial entities".
7.2. second paragraph Accounting statements Financial statements
2.7.5. last paragraph Accounting statements Financial statements
4.3.2.3. item e) last paragraph Accounting statements Financial statements "Cooperative Credit Unions (Law 26.173)".
11.5.3. first paragraph Accounting statements Financial statements
B.C.R.A. Annex II Comm. "A" 6327

B.C.R.A. Annex II Com. “A” 6327

Ordered Text | Point | Substitute the terms | With the terms --- | --- | --- | ---
3.1.5.2. accounting statements | | accounting statements | financial statements
8.2.1.6. item i) accounting statement | | accounting statement | financial statement
8.2.1.6. item ii) accounting statement | | accounting statement | financial statement
8.2.1.6. item iii) accounting statement | | accounting statement | financial statement
8.2.1.6. item iv) accounting statements | | accounting statements | financial statements
8.2.1.6. last paragraph accounting statement | | accounting statement | financial statement
8.4.1.3. last paragraph accounting statements | | accounting statements | financial statements

“Minimum capital of financial entities”.

8.7. second paragraph accounting statement | | accounting statement | financial statement

“Exchange houses, agencies and offices”.

7.1.3. accounting statements | | accounting statements | financial statements or accounting statements –as applicable–

“Classification of debtors”.

6.1.
–accounting statements and complementary information, investment projects, etc.–

–financial statements or accounting statements –as applicable– and complementary information, investment projects, etc.)

“Determination of the condition of micro, small or medium enterprise”.

1.2. second paragraph accounting statements | | accounting statements | financial statements or accounting statements –as applicable–

“Expansion of financial entities”.

6.3.1.6. accounting statements | | accounting statements | financial statements

“Public character guarantee funds”.

1.2. item iv) accounting statements | | accounting statements | financial statements or accounting statements –as applicable–

“Risk fragmentation”.

2.2.1.2. item iv) item a) accounting statements | | accounting statements | financial statements or accounting statements –as applicable–

7.3.4. accounting statements | | accounting statements | financial statements or accounting statements –as applicable–

1.1.3.1. accounting statements | | accounting statements | financial statements or accounting statements –as applicable–

“Credit management”.

1.1.3.4. item b) section i)
last paragraph accounting statements | | accounting statements | financial statements or accounting statements –as applicable–

B.C.R.A. Annex II Com. “A” 6327

Ordered Text | Point | Substitute the terms | With the terms --- | --- | --- | ---
5.1.1. accounting statements | | accounting statements | financial statements or accounting statements –as applicable–
5.1.1.1. section ii)

Statements with public accountant certification.

“Credit graduation”.

6.6. accounting statements | | accounting statements | financial statements

“Non-compliance with minimum capital and technical ratios. Applicable criteria”.

2.5. accounting statements | | accounting statements | financial statements

“Guidelines for corporate governance in financial entities”.

5.1.2., 5.1.2.3., 7.1. fourth paragraph, 7.1.9. and 7.1.10. accounting statements | | accounting statements | financial statements

”Ratio for immobilized assets and other concepts”.

5.4. accounting statements | | accounting statements | financial statements

“Representatives of foreign financial entities not authorized to operate in the country”.

2.2.1.3., 2.2.1.4., 5.1.1. second paragraph, 5.2.1. and 5.2.3. accounting statements | | accounting statements | financial statements

“Consolidated supervision”.

1.1., 3.1., 3.2., 3.3. title and first paragraph, 3.4. first, second and fourth paragraph, 4.2.1.,
4.4. second paragraph and 4.5.

accounting statements | | accounting statements | financial statements

Similar documents from other regulators