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IFRS Dynamic Risk Management (DRM)

Banks will soon have the opportunity to optimise how they present the effects of their interest rate risk management strategies in their financial statements. The IASB is currently finalising its Dynamic Risk Management project with an Exposure Draft expected later this year (Q4 2025), with the objective of achieving a better alignment between economic interest rate risk management and the resulting accounting treatment.

Deloitte has followed these developments closely in alignment with regulators and the banking industry, and is ready to assist banks in exploring the impact this will have on accounting for interest rate risk with a purpose-built DRM tool.

DRM in brief

The IASB's Dynamic Risk Management (DRM) project involves the development of a new accounting standard designed to succeed the current IAS 39 requirements for portfolio hedge accounting for interest rate risk.
Compared to IAS 39, the DRM model offers more flexibility to designate a wider range of hedged items, strengthening the interaction between risk management and accounting.
A key amendment introduces risk limits aligned to economic metrics actually used by banks for their risk management strategy as the basis for designating hedged items to cover the current net open risk position (CNOP) of the balance sheet, with fair value changes accounted for as a “DRM adjustment”.
Under the updated framework, hedged items can be designated on a net basis and can include future transactions, as well as core demand deposits.

How is the proposed DRM model designed to work?

Continuous Designation

The DRM model uses pre-defined sequential hedge periods but does not require de-designation and re-designation between periods due to the dynamic nature of the current net open risk position.

DRM Process Map

The DRM model comprises six subprocesses, beginning with the risk management strategy and progressing through to the designation and measurement of the relationship, resulting in the recognition of the DRM adjustment.

Benchmark Derivatives

To determine the DRM adjustment on the balance sheet, benchmark derivatives are used (not unlike the hypothetical derivative approach used under IFRS 9).

Calculation

The DRM adjustment is calculated by applying the “lower-of” test to the fair value changes of both the benchmark and designated derivatives, a concept well-established in cash flow hedge accounting under IFRS 9.

An overview of the DRM framework

How can Deloitte support?

Knowledge exchange: We can provide you with tailored, ongoing insights from our DRM specialists to meet your specific needs.
Implementation support: Partnering to refine data, processes, internal controls and methodology approaches for improved outcomes.
DRM simulation: Projecting potential balance sheet and profit and loss impacts using Deloitte’s DRM tool.
DRM roadmap: Collaborative creation of a governance framework and plan for a potential preliminary DRM study or implementation.

For any questions or further insights, please do not hesitate to contact our specialists Dirk Lommerse, Partner Audit & Assurance, or Paul de Cock, Senior Manager Audit & Assurance.