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Risk Mitigation Accounting (RMA)

Over the past few years, the International Accounting Standards Board (IASB) has made considerable progress with its release of an exposure draft in 2025, now is the time for banks and building societies to be considering what this might mean for their business.

RMA: All you need to know

Risk Mitigation Accounting (RMA) - previously known as Dynamic Risk Management (DRM) - is expected to form the final chapter of IFRS 9 for portfolio (or ‘macro’) hedge accounting of open portfolios with frequently changing risk positions. The RMA framework is designed to establish a structured link between an entity's risk management strategy and the representation of its risk management activities in financial statements by aggregating all cashflows from the managed financial instruments into a net repricing risk exposure.

Core objective of RMA

Better reflection of risk management: RMA aims to more accurately reflect how entities manage repricing risk, especially when their business activities are dynamic and evolving.
Enhance transparency of risk management activities in financial reporting: RMA seeks to provide clearer insights into an entity's repricing risk management activities and their effects on the nature, timing, and amount of future cash flows.
Greater alignment with risk management strategy: RMA intends to ensure greater alignment between the financial instruments eligible for RMA and financial instruments used for risk management purposes.

Benefits for Prepares and Investors

For Prepares:

1. Better alignment between internal risk management and financial reporting
2. Reduced volatility arising from accounting mismatches
3. Enhanced clarity around portfolio-level hedging strategies
4. A more principle-based and operationally aligned framework.

For Investors:

1. Improved transparency of risk management performance
2. Clearer insight into how net interest income is protected
3. Better understanding of derivative impacts and risk mitigation effectiveness.

Overall, RMA is expected to improve the true representation of dynamic interest rate risk management activities.
Key Components

The proposed RMA model includes:

1. Target profile approach: defining a target risk position consistent with the entity’s risk management strategy.

2. Risk limits: explicit articulation of permissible deviations from the target profile.

3. DRM adjustment: a new balance sheet line item reflecting the alignment between derivatives and the managed risk position.

4. Rebalancing mechanism: ongoing updates as risk exposures and strategy evolve.

5. Enhanced disclosures: clear communication of strategy, performance, and risk limits.
Timeline and transition

The IASB has issued an exposure draft for the proposed RMA model, initiating a formal consultation process (open until 31 July 2026). Entities are encouraged to assess operational readiness, data requirements, governance frameworks, and system implications during the commenting period.

Given the complexity of transitioning from IAS 39 portfolio hedge accounting to RMA, implementation will require cross-functional collaboration across:

1. Finance.
2. Treasury / ALM.
3. Risk management.
4. IT and systems.
5. Regulatory reporting.

Early impact assessments and stakeholder engagement will be critical to ensure a smooth transition once the draft is finalised.

benefits

For Prepares:

1. Better alignment between internal risk management and financial reporting

2. Reduced volatility arising from accounting mismatches

3. Enhanced clarity around portfolio-level hedging strategies

4. A more principle-based and operationally aligned framework.

For Investors:

1. Improved transparency of risk management performance

2. Clearer insight into how net interest income is protected

3. Better understanding of derivative impacts and risk mitigation effectiveness.

Overall, RMA is expected to improve the true representation of dynamic interest rate risk management activities.
Key Components

The proposed RMA model includes:

1. Target profile approach: defining a target risk position consistent with the entity’s risk management strategy.

2. Risk limits: explicit articulation of permissible deviations from the target profile.

3. DRM adjustment: a new balance sheet line item reflecting the alignment between derivatives and the managed risk position.

3. Rebalancing mechanism: ongoing updates as risk exposures and strategy evolve.

4. Enhanced disclosures: clear communication of strategy, performance, and risk limits.

“The DRM model is likely to have a significant impact on how banks apply hedge accounting and therefore should be in the scope of every bank trying to manage their profit and loss volatility through the application of hedge accounting.”

Alex Armstrong, Partner Corporate Treasury

Benefits for prepares and investors

For prepares:

Closer alignment with risk management activities, including a wider range of eligible underlying items and faithful representation of dynamic strategies.

For investors:

Improved transparency of risk management activities facilitating a better understanding of the entity’s interest rate risk management strategy.
Clear anchor points for analysis, allowing investors to better assess the effectiveness of an entity's risk management performance.

RMA framework

The process starts with the underlying portfolios, which are groups of financial assets or liabilities with a specific risk, here repricing risk.
From these, the net repricing risk exposure is quantified, representing the entity’s net position to manage.
Management then establishes risk limits, which are quantitative thresholds for acceptable risk as defined in the Risk Management Strategy.
The risk mitigation objective is documented, defining the strategy to reduce repricing risk exposure.
To execute this, designated derivatives, such as interest rate swaps, are formally chosen to offset the identified risk.
For measurement, hypothetical benchmark derivatives are determined, representing the risk mitigation objective.
Finally, the risk mitigation adjustment is calculated using the “lower of”- test which compares the cumulative changes in fair value of the designated and benchmark derivatives to quantify any ineffectiveness. The risk mitigation adjustment, representing the net gain or loss is then recognised in the statement of financial position.

This final step ensures the financial statements accurately reflect the outcome of the risk management strategy, which is documented separately, linking actions to results and providing transparent reporting on the success of the mitigation efforts. The entire flow ensures a structured and auditable trail from risk identification to financial reporting under IFRS 9.

Timeline and transition

Given the extent of the proposed changes and the time it would take to familiarise with the recently published exposure draft on risk mitigation accounting, IASB set the deadline for both the commenting period and submission of field-testing results as 30 November 2026.

The IASB proposes a straightforward transition to the new risk mitigation accounting model. The key principle is prospective application, which means entities apply the new rules from the beginning of the annual reporting period of adoption. This approach avoids complex and costly retrospective adjustments to prior financial statements. To facilitate this, the board permits several one-time designation changes at the transition date, creating a clear path from existing standards to the new model.

How will the proposed RMA model work?

Net repricing risk exposure

The IASB proposes that financial instruments be eligible for inclusion in the underlying portfolios if they are:

Recognition and measurement

Risk mitigation adjustment:

Presentation and disclosure

Presentation: An company entity would be required to present separately from other line items:

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An overview of the RMA framework

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"The RMA model is likely to have a significant impact on the way in which financial institutions apply hedge accounting and should therefore be very firmly on the agenda of those organisations intending to manage P&L volatility using hedge accounting strategies".

- Alex Armstrong, Partner Treasury Assurance

How can Deloitte support?

Knowledge exchange: Continuous information exchange with our experienced specialists on the mechanism and latest developments of RMA.
RMA readiness check: Identification of data, process and methodology gaps and derivation of optimisation measures for RMA readiness.
Field testing support and RMA simulation: Support in Field-Testing, definition of test cases and simulation of potential balance sheet and Profit & Loss effects calculated by the Deloitte inhouse-developed RMA simulation tool.

RMA – Frequently Asked Questions (FAQs)

1. What is Risk Mitigation Accounting (RMA)?

RMA is a dynamic approach to identifying, assessing, and mitigating risks unlike the existing framework for portfolio fair value hedge accounting under IAS 39, which relies on static frameworks.

2. Is RMA mandatory to apply?

The application of the Risk Mitigation Accounting framework is voluntary.

3. From which period is RMA applicable?

The IASB proposes that Risk Mitigation Accounting be applied prospectively from the beginning of an annual reporting period starting on or after the date the requirements are issued.

4. Does RMA require significant changes in Treasury & risk management system/applications?

While the specific changes depend on an entity's existing IT infrastructure and the complexity of its hedging activities, RMA does not necessarily entail substantial system upgrades or replacements.

5. Is RMA applicable to all industries?

While RMA is particularly relevant for financial institutions like banks due to their significant exposure to interest rate risk. IASB is also seeking specific input and feedback from insurance entities to ascertain whether the proposed risk mitigation accounting could better reflect insurers’ risk management strategies and activities in their financial statements.

6. What are the key changes as compared to IAS 39?

RMA introduces a more principles-based approach to hedging, particularly for interest rate risk in banking books, aiming to better reflect an entity's actual risk management activities. This includes:

a) Expanded Scope & Management on Net Basis: RMA significantly broadens the range of eligible hedged items, including customer deposits and pipeline transactions, and permits risk management on an aggregated “net” basis, moving away from IAS 39's gross approach.

b) Greater Flexibility: RMA allows for continuous adjustment of hedges and offers greater flexibility by enabling designation and measurement frequency to be independent of reporting cycles, better reflecting risk management practices.

c) Balance Sheet Compensation & Tailored Measurement: RMA introduces a "Lower-of" test for the determination of the Risk Mitigation Adjustment, providing balance sheet compensation for risk mitigation rather than solely relying on P&L impacts. It also mandates tailored risk measurement metrics (e.g., PV01, NII) that align with actual banking book management.

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