On July 24, ISDA wrote to the Basel Committee on Banking Supervision (BCBS) to request guidance on how the proposed Risk Mitigation Accounting (RMA) model under International Financial Reporting Standard (IFRS) 9/IFRS 7 should be treated for prudential regulatory capital purposes.

ISDA is seeking confirmation that the risk mitigation adjustment created by the risk mitigation accounting (RMA) model should not be treated as a new standalone asset or liability attracting additional capital requirements, risk-weighted assets, leverage ratio, liquidity coverage ratio or net stable funding ratio impacts. The letter argues that the adjustment is an accounting mechanism broadly consistent with existing hedge accounting under International Accounting Standard 39 and does not create additional economic or prudential risk.

The letter also encourages the BCBS and the Bank for International Settlements to consider issuing guidance, potentially in the form of frequently asked questions once the RMA model is final, so that banks and national regulators have clarity on the regulatory capital treatment.