Preparing for the Dynamic Risk Management Accounting Model

The International Accounting Standards Board (IASB) has a project underway to develop a new model to account for dynamic risk management (DRM) activities under International Financial Reporting Standards (IFRS). It is widely expected that banks will need to apply this model, which could replace existing macro-hedge accounting models within IFRS. The IASB will also explore whether the DRM model could be applied to other risk types at a future date.

This whitepaper sets out ISDA’s preliminary observations on the tentative decisions made by the IASB to date. These observations are based on the current understanding of the model and interpretations of ongoing discussions, but they do not represent a formal industry view, which will not be possible until the IASB has publishes a discussion paper, an exposure draft or a set of deliberations.

The paper outlines the challenges posed by the existing IFRS in accounting for how portfolios of interest rate risk are managed, and how the key components of the DRM model could address those challenges. This is achieved by providing preliminary observations on the principles of the model, areas to be addressed before the model is finalized and an outline of the key operational challenges.

The paper is most relevant for banks and other financial institutions that conduct DRM activities reported under the macro-hedging models in IFRS and for those using the EU-endorsed version of International Accounting Standard 39, also known as carve-out fair value hedge accounting. It is also relevant for users of financial statements that need to understand the challenges and outcomes of the DRM model and how these will affect their assessment of the financial statements and associated forecasts. In addition, it is relevant for entities that apply other accounting frameworks, such as US Generally Accepted Accounting Principles, and are interested in understanding how developments in the DRM model will affect reporting by their peers.

ISDA has a global membership and is uniquely positioned to provide a perspective on the DRM model that reflects the IASB’s global constituency. ISDA appreciates the IASB’s progress so far in developing the DRM model and shares its commitment to the successful completion of the project.

This paper was updated in August 2025 to include insights and observations on all key tentative decisions to date ahead of the publication of the exposure draft in the fourth quarter of 2025.

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