We welcome the proportionate and pragmatic approach proposed by the FRC towards incorporating international financial reporting standards into FRS 102.   In particular, we support the decision to delay implementation of more significant changes to the standard to allow UK GAAP reporters time to benefit from the experience gained by IFRS reporters.   We remain grateful to the Financial Reporting Council for allowing building societies to stay with an accounting framework that is based on a single simplified standard. 

Our main concern lies with one of the more significant changes to FRS 102 – IFRS 9 Financial instruments.  IFRS 9 is much more than an accounting issue.  Since the FRC consultation was published, the Basel Committee for Banking Supervision and the EC have both proposed transitional arrangements to help IFRS reporters deal with the negative impact on regulatory capital arising from the introduction of expected credit loss accounting.  Its impact is greater on UK GAAP building societies, which are all on the standardised approach to credit risk, than for those institutions on the internal ratings-based approach.   The Basel and EC proposals mean that the full monitoring period for the capital will not be understood until end 2023 at the earliest.  We therefore urge the FRC to delay further incorporation of the ECL elements of IFRS 9 until 2027.  This would give stakeholders time to observe the implementation by IFRS reporters, and to develop a proportionate approach to expected loss provisioning, which may involve an alternative to the loan level PD progression approach.

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