Report from the Commission to the European Parliament and the Council on the effect of the revised International Accounting Standard (IAS) 19 on the volatility of own funds of credit institutions and investment firms

According to Article 36(1)(e) of Regulation (EU) No 575/2013 ('CRR'), credit institutions and investment firms shall deduct defined benefit pension fund ('DBPF') assets on their balance sheet from Common Equity Tier 1 ('CET1') items. The revision of International Accounting Standard 19 ('IAS 19') has led to changes in the valuation of DBPFs. Article 519 CRR contains a mandate for the Commission to prepare a report for the European Parliament and the Council on whether the revised IAS 19 in conjunction with the deduction of net pension assets as set out in Article 36(1)(e) would lead to undue volatility of institutions’ own funds.

The Commission has been asked to take into account the report prepared by the EBA on this issue in accordance with the mandate provided by the same Article. If appropriate, the Commission's report shall be accompanied by a legislative proposal to introduce a treatment which adjusts net DBPF assets or liabilities for the calculation of own funds. The EBA submitted its report "On the impact on the volatility of own funds of the revised IAS 19 and the deduction of defined pension assets from own funds under Article 519 of the Capital Requirements Regulation (CRR) on 24 June 2014.

This Commission report responds to a legal obligation to assess the effects of very specific changes in the calculation of Common Equity Tier 1 capital in credit institutions and investment firms due to the adoption of CRR and a new IAS 19.