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BSP Issues Guidelines on Reclassification of Financial Assets

10.31.2008

The Monetary Board (MB), in its meeting held on 30 October 2008 approved additional guidelines on the reclassification of financial assets as provided for in Circular No. 626.  The guidelines contain more specific directions for the accounting treatment of transactions covered by the Amendments to International Accounting Standards (IAS) 39 and International Financial Reporting Standards (IFRS) 7 as adopted in BSP regulations.  In addition, they provide alternative accounting treatment for purposes of regulatory compliance and reporting.

The guidelines clarify that financial assets intended to be reclassified out of the Held for Trading (HFT) category due to “rare circumstances” and change in intention have to be reclassified all at the same time.  Furthermore, financial institutions (FIs) may “look back” anytime from 1 July 2008 to 14 November 2008 for the purpose of selecting the effective date of their reclassification.  Thereafter, any reclassification shall take effect only from the date when the reclassification is made.

As an additional one-time regulatory relief to FIs, Credit Linked Notes (CLNS) linked to foreign-currency denominated debt securities issued by the Republic of the Philippines (ROPs) are allowed to be reclassified to Held to Maturity (HTM) or Unquoted Debt Securities (UDSCL).  Moreover, debt instruments previously mandated to be lodged under AFS due to tainting may also be reclassified to HTM. For the purpose, FIs may “look back” and pick a date from 1 July 2008 to 14 November 2008 for the effective date of reclassification under both cases.

The look back provision allows financial institutions to reclassify the assets based on their fair values between 1 July 2008 and 14 November 2008 depending on their chosen effective dates of reclassification.  The deadline of the look back period was extended from 31 October to 14 November 2008 in view of the extension granted by the Financial Reporting Standards Council (FRSC) in its adoption of Amendments to IAS 39 and IFRS 7.

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