FASB ASU Delays Certain Effective Dates

| 11/20/2019

Current financial reporting, governance, and risk management topics

From the federal financial institution regulators

Agencies simplify capital calculation for community banks

The Federal Deposit Insurance Corp. (FDIC), Federal Reserve Board (Fed), and Office of the Comptroller of the Currency (OCC), on Oct. 29, 2019, finalized a rule to simplify capital requirements for community banks with less than $10 billion in total assets, a leverage ratio of greater than 9%, and limited amounts of off balance sheet exposures and trading assets and liabilities. The agencies estimate this will cover approximately 85% of community banks.

The rule allows qualifying banks to adopt the community bank leverage ratio framework to measure capital adequacy. The agencies also have developed a compliance guide to assist with the rule.

The mandatory compliance date is Apr. 1, 2020; however, nonadvanced approaches banks may elect to adopt the changes beginning Jan. 1. 2020.

Agencies finalize rule to change thresholds for capital and liquidity requirements for large banks

On Nov. 1, 2019, the FDIC, Fed, and OCC issued a final rule to use a risk-based approach to tailor capital and liquidity requirements for banks with more than $100 billion in total consolidated assets. The rule establishes four categories for determining applicability under the regulatory capital rule, the liquidity coverage ratio rule, and the proposed net stable funding ratio rule. Categories are based on factors including asset size, cross-jurisdictional activity, reliance on short-term wholesale funding, nonbank assets, and off balance sheet exposure.

The final rule is effective Dec. 31, 2019.

Agencies seek comment on proposed CECL interagency policy statement

The FDIC, Fed, OCC, and National Credit Union Administration (NCUA) are requesting comment on a proposed “Interagency Policy Statement on Allowances for Credit Losses.” The proposed statement describes the measurement of expected credit losses using the current expected credit losses (CECL) methodology, and it updates concepts and practices detailed in existing supervisory guidance.

Comments are due Dec. 16, 2019.

Agencies seek comment on proposed credit risk review interagency policy statement

The FDIC, Fed, OCC, and NCUA also are requesting comment on the proposed “Interagency Guidance on Credit Risk Review Systems.” The proposed guidance addresses principles for establishing a system of independent, ongoing credit risk review under safety and soundness standards, and communication between management and board of directors regarding the performance of the loan portfolio.

Comments are due Dec. 16, 2019.

FDIC and Fed seek comment on CAMELS ratings

The FDIC and Fed are seeking comment on use of the Uniform Financial Institutions Rating System, also known as the CAMELS rating system. The agencies are looking specifically for input on the consistency of ratings and how ratings are used in enforcement actions and bank applications.

Comments are due Dec. 30, 2019.

FFIEC proposes call report revisions

The OCC, Fed, and FDIC under the Federal Financial Institutions Examination Council (FFIEC) auspices jointly issued, on Nov. 6, 2019,  proposed regulatory reporting revisions that are applicable to all FDIC-supervised institutions, including community banks. The proposed revisions include capital-related changes to the call report that would implement various changes to the agencies' capital rules, including the capital simplifications rule and the community bank leverage ratio rule. The changes to the reporting would be effective the same quarters as the effective dates of the currently final or potentially final capital rules.

Comments are due Dec. 3, 2019.

Agencies seek comment on swap margin rules

The FDIC, Fed, OCC, Farm Credit Administration, and Federal Housing Finance Agency proposed, on Oct. 28. 2019, a change to the swap margin rules, including changes relating to interaffiliate swaps and a delay in the effective date for smaller counterparties.

Comments are due Dec. 9, 2019.

FinCEN issues final rule designating Iran as a jurisdiction of primary money laundering concern

On Oct. 25, 2019, the Financial Crimes Enforcement Network (FinCEN) finalized a rule imposing the fifth special measure under Section 311 of the USA PATRIOT Act against Iran. This prohibits U.S. financial institutions from maintaining correspondent accounts for Iranian financial institutions or using other foreign correspondent accounts to process transactions involving Iranian financial institutions.

The final rule was effective on Nov. 14, 2019.

Agencies join Global Financial Innovation Network

The FDIC, OCC, Commodity Futures Trading Commission, and Securities and Exchange Commission (SEC) announced on Oct. 24, 2019, that they have joined the Global Financial Innovation Network (GFIN).

According to the release statement, the U.S. regulators have “taken proactive steps in recent years to enhance regulatory clarity and understanding for all stakeholders and promote early identification of emerging regulatory opportunities, challenges, and risks. Participation in the GFIN furthers these objectives and enhances the agencies’ abilities to encourage responsible innovation in the financial services industry in the United States and abroad. By promoting knowledge-sharing on innovation in financial services, U.S. members of GFIN will seek to advance financial and market integrity, consumer and investor protection, financial inclusion, competition, and financial stability .”

Participants in the GFIN include 46 other financial authorities, central banks, and international organizations, all with the goal of promoting greater collaboration among financial authorities on a variety of innovation topics, regulatory approaches, and lessons learned.

From the Consumer Financial Protection Bureau (CFPB)

CFPB finalizes rule on HMDA exemptions for small institutions

The CFPB issued a final rule on Oct. 10, 2019, to extend the current temporary threshold for reporting data about open-end lines of credit on the Home Mortgage Disclosure Act (HMDA) loan/application register. The rule extends the threshold of 500 open-end lines of credit through Jan. 1, 2022. The CFPB intends to issue a separate rule in 2020 to address permanent coverage thresholds.

Additionally, the rule implements the partial exemptions added by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The CFPB in August 2018 issued an interpretive and procedural rule, and the new final rule incorporates those changes into Regulation C. These partial exemptions and clarifications include the optional reporting of exempt data fields, clarification of the thresholds for the partial exemptions, clarification of which data points are covered by the partial exemptions, and designation of a nonuniversal loan identifier for institutions that choose not to report a universal loan identifier.

The final rule will be effective on Jan. 1, 2020.

From the Financial Accounting Standards Board (FASB)

FASB issues final ASU deferring effective dates for major accounting standards

On Nov. 15, 2019, the FASB issued Accounting Standards Update (ASU) 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” which finalizes the deferred effective dates for private entities and certain small public companies for implementing the standards on CECL, leases, and hedging. 

For credit losses (Topic 326), the ASU retains the current effective date for SEC filers, excluding smaller reporting companies (SRCs), for fiscal years beginning after Dec. 15, 2019, and interim periods within those fiscal years. For all other entities, including SRCs, the ASU extends the effective date to fiscal years beginning after Dec. 15, 2022, including interim periods within those years, which for calendar year-ends is Jan. 1, 2023.

For leases (Topic 842), the ASU retains the current effective date for public business entities (PBEs), for fiscal years beginning after Dec. 15, 2018, including interim periods within those years. For entities other than PBEs, the ASU extends the effective date to fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021.

For hedging (Topic 815), the ASU retains the existing effective date for PBEs, which is fiscal years beginning after Dec. 15, 2018, including interim periods within those years. For entities other than PBEs, the ASU extends the effective date to fiscal years beginning after Dec. 15, 2020, and interim periods within fiscal years beginning after Dec. 15, 2021.

FASB approves transition guidance on reference rate reform

On Nov. 13, 2019, the FASB approved an ASU that will offer temporary, optional guidance to ease the potential burden in accounting for, or recognizing the effects of, the transition away from the London Interbank Offered Rate (LIBOR) or other interbank offered rate on financial reporting. The ASU is expected to be issued in early 2020. More information regarding the FASB’s reference rate reform project can be found on the FASB website.

To ease the transition to new reference rates, the final ASU will provide optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting relationships that are affected by reference rate reform. The main provisions include:

  • A change in a contract’s reference interest rate would be accounted for as a continuation of that contract rather than the creation of a new one for contracts, including loans, debt, leases, and other arrangements, that meet specific criteria.
  • When updating its hedging strategies in response to reference rate reform, an entity would be allowed to preserve its hedge accounting.

The guidance is applicable only to contracts or hedge accounting relationships that reference LIBOR or another reference rate expected to be discontinued.

Because the guidance is meant to help entities through the transition period, it would be in effect for a limited time and would not apply to contract modifications made and hedging relationships entered into or evaluated after Dec. 31, 2022.

FASB proposes clarifications to derivatives and hedging guidance

On Nov. 12, 2019, the FASB issued a proposed ASU, “Derivatives and Hedging (Topic 815): Codification Improvements to Hedge Accounting.” The proposed ASU clarifies hedge accounting guidance aimed at creating more consistent application of the standard.

The proposed ASU provides clarifications to guidance on:

  • Change in hedged risk in a cash flow hedge
  • Contractually specified components in cash flow hedges of nonfinancial forecasted transactions
  • Foreign-currency-denominated debt instruments as hedging instrument and hedged item (dual hedge)
  • Using the term “prepayable” under the shortcut method

The proposed amendments would be effective for fiscal years beginning after Dec. 15, 2020.

Comments are due Jan. 13, 2020.

FASB announces CECL implementation workshops

On Oct. 21, 2019, the FASB announced a series of workshops to help community banks and credit unions implement the CECL standard. Presented by FASB staff experts at conferences and other venues, these workshops are interactive sessions focusing on credit loss reserve estimation techniques, including the weighted average remaining maturity method; answers to frequently asked questions; and common implementation issues identified by community banks and credit unions.

The next scheduled workshop is Dec. 19, 2019, at the FASB CECL Forecasting Webinar – Credit Union National Association. The FASB is working with the Conference of State Bank Supervisors to plan additional workshops based on each state’s training needs. Newly scheduled workshops will be announced on the FASB website as they become available.

From the Securities and Exchange Commission (SEC)

SEC holds meeting of Small Business Capital Formation Advisory Committee

The Small Business Capital Formation Advisory Committee met on Nov. 12, 2019, at the SEC headquarters in Washington, D.C. At the meeting, the committee discussed harmonization of the exempt offering framework and of pooled investment funds, and it heard presentations on access to capital for entrepreneurs, the small-business credit survey, and retail access to private markets.

The meeting was recorded and is archived on the committee’s website.

SEC proposes amendments to the proxy rules

On Nov. 5, 2019, the SEC voted to propose amendments to modernize the rule that governs the process for shareholder proposals to be included in a company’s proxy statement. It also voted to propose amendments to the rules governing proxy solicitations to increase the quality of the disclosure about material conflicts of interest that proxy voting advice businesses provide to their clients.

The shareholder proposal amendments update the criteria, including the ownership requirements, for a shareholder to be eligible to require a company to include a proposal in its proxy statement. Under the proposed amendments, the $2,000 minimum ownership threshold is maintained; however, to take advantage of that threshold, shares must have been held for at least three years to prove long-term investment in the company. The proposed amendments also clarify that a single person may not submit multiple proposals at the same shareholder’s meeting on behalf of different shareholders. Additionally, the amendments update the support levels that a proposal would need to achieve in its first submission to be eligible for resubmission in the following three years.

The proxy voting advice proposal provides that companies that file definitive proxy materials 25 days or more in advance of the relevant meeting have an opportunity for a period of review and feedback through which companies and other soliciting parties would be able to identify errors in the proxy voting advice. This proposal is aimed at improving accuracy and transparency of information provided by proxy voting advice businesses to investors.

From the Center for Audit Quality (CAQ)

CAQ releases 2019 “Audit Committee Transparency Barometer” report

The CAQ and Audit Analytics issued the 2019 issue of the “Audit Committee Transparency Barometer,” which tracks S&P Composite 1500 proxy disclosures to evaluate transparency regarding audit committee oversight of the external auditor and other important financial reporting topics.

This edition reports that although there has been steady growth in the amount of information provided in audit committee disclosures, there are still significant opportunities to increase transparency. The most growth was shown in the disclosure areas of information on cybersecurity risk oversight, nonaudit services, and length of auditor tenure. Audit committees can improve transparency in areas of discussion between the audit committee and external auditor, auditor evaluation, and engagement partner selection and compensation.

The publication also provides disclosure examples.

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Joe Durham
Joe Durham
Sydney Garmong
Sydney Garmong
Office Managing Partner, Washington, D.C.