Risk Mitigation Accounting (RMA) Exposure Draft amending IFRS9: Key Impacts and Practical Challenges

Executive Summary

RMA will be an optional model within IFRS 9 for net interest rate repricing risk¹ in dynamic, open portfolios (for example, where new deposits or loans are continually added and existing positions mature or reprice). The IASB also proposes withdrawing the IAS 39 macro hedge requirements (and the IFRS 9 option to apply them) and adding related IFRS 7 disclosures.

Compared with current IFRS 9 hedge accounting, RMA shifts from item-level hedges to portfolio net-position accounting, better aligned to typical banking book features (for example, non-maturity deposits and pipeline exposures). Compared with IAS 39 macro hedging (including the EU carve-out), it replaces bucket-based rules and carve-out reliefs with a principles-based net exposure model.

At a high level, the RMA model works as follows:

• Set the target: the entity specifies how much net interest rate risk it aims to mitigate over time, within defined risk limits and not exceeding the net exposure in each time band (bucket). The target can be updated prospectively as the balance sheet evolves.
• Link to derivatives: external interest rate derivatives can be designated. The model uses benchmark derivatives (hypothetical instruments with zero fair value at inception) to represent the risk the entity intends to mitigate.
• Recognize an adjustment: a risk mitigation adjustment is recognized on the balance sheet. It equals the lower of (I) the cumulative value change of the designated derivatives and (II) the cumulative value change of the benchmark derivatives. Any remaining derivative gains or losses (and any ‘excess’ adjustment) go to profit or loss.
• Release to earnings: the risk mitigation adjustment is released to profit or loss as the underlying repricing effects occur.

RMA is a meaningful step toward aligning accounting with how banks manage banking-book interest rate risk in dynamic, open portfolios. At the same time, the ED leaves important practical questions open, notably on benchmark-derivative construction, operation of the excess test, and the level of data, systems, and governance needed for ongoing application.

After the 31 July 2026 deadline, the IASB will review comment letters and fieldwork feedback and decide whether further deliberations are needed, so finalization is likely to take several years. Even once the IASB issues a final standard, application in the EU would still depend on completion of the endorsement process (EFRAG advice, Commission adoption, and Parliament/Council scrutiny).

Introduction

On December 3^rd, 2025, the IASB published the ED proposing RMA for interest rate risk in dynamic portfolios. RMA is the result of the IASB’s long-running efforts on accounting for dynamic interest rate risk management, previously referred to as DRM. RMA focuses on repricing risk, which is the interest rate risk that arises when the timing and amount of repricing differ between assets and liabilities.

The aim is to better reflect how banks manage interest rate risk in the banking book at a portfolio level, an area where existing hedge accounting requirements have long been seen as difficult to apply in a way that aligns with real-world balance sheet management.

The IASB presents RMA as a step forward, to better reflect how banks manage interest rate risk in the banking book at a portfolio level, an area in which existing IAS 39 and IFRS 9 hedge accounting requirements have long been viewed as difficult to apply in a way that aligns with real-world, dynamic balance sheet management. In the IASB’s view, RMA is intended to improve that alignment, increase transparency about the effects of repricing-risk management on future cash flows, strengthen consistency between what is managed and what is eligible for accounting treatment, and recognize in the financial statements the extent to which repricing risk has actually been mitigated and the related economic effects.

This article provides a structured overview of the proposed RMA model and its key mechanics. Throughout the article, Zanders provides practical insights on the impact on entities, highlighting the key areas that will shape implementation challenges and accounting results. These insights draw on Zanders' 2025 survey on interest rate risk management and hedge accounting, as well as analysis of stakeholder feedback such as EFRAG's draft comment letter². The practical implications will depend in part on the outcome of field testing.

Overview of RMA

The model components and their relationships are presented in Figure 1 below:

Figure 1: RMA model component overview (source: IASB ED – Snapshot, December 2025)

The RMA model is built around a small set of linked building blocks that start with the bank’s balance-sheet exposures and end with the accounting adjustment that reflects risk management in the financial statements:

• Underlying portfolios: the managed portfolios that expose the entity to repricing risk.
• Net repricing risk exposure: the net position created by the interaction of asset and liability repricing profiles (i.e., the aggregate repricing mismatch the bank is exposed to).
• Risk limits: the bank’s risk appetite and constraints for the managed exposure. In the model, these limits act as an important boundary.
• Risk mitigation objective: the clearly articulated target for how much of the net repricing risk exposure management intends to mitigate (within risk limits). This objective is the central anchor in the model.
• Designated derivatives: the derivatives the bank trades to achieve the risk mitigation objective.
• Benchmark derivatives: hypothetical derivatives constructed to represent the risk mitigation objective for measurement purposes. They translate the objective into a measurable reference profile against which fair value changes can be assessed.
• Risk mitigation adjustment: the accounting output of the model, which is the lower of the change in fair value of the benchmark derivatives and the designated derivatives (in absolute terms).

The section headers contain the relevant paragraph of the ED. The body of the text refers to the ED amendments to IFRS 9 [7.x.), application guidance [B7.x.x), basis for conclusions [BCx), and illustrative examples [IEx), and amendments to IFRS 7 [30x).

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Objective and scope [ED 7.1]

IFRS 9 hedge accounting improves alignment for many strategies, but it does not fully capture dynamic, open-portfolio (macro) management of banking book repricing risk—where entities manage interest rate risk of net open positions rather than hedging individual instruments. The RMA model is intended to reflect this more directly and reduce reliance on proxy hedges that can obscure transparency and comparability.

The objective and scope of RMA can be summarized as follows:

• Objective: RMA is, like current hedge accounting under IAS 39 and IFRS 9, an optional model within IFRS 9. The objective is to reflect the economic effect of risk management activities and improve transparency by explaining why and how derivatives are used to mitigate repricing risk and how effectively they do so —bringing reporting closer to actual interest rate risk management practices [7.1.3]. It is the IASB’s intention to withdraw the requirements in IAS 39 for macro hedge accounting and the option in paragraph 6.1.3 of IFRS 9 to apply the requirements in IAS 39 to a portfolio hedge of interest rate risk.
• Scope/eligibility: An entity may apply RMA if, and only if, all of the following are met [7.1.4]:
  • Business activities give rise to repricing risk through the recognition and derecognition of financial instruments that expose the entity to repricing risk.The risk management strategy specifies risk limits within which repricing risk, based on a mitigated rate, is to be mitigated, including the time bands and frequency.
  • The entity mitigates repricing risk arising from underlying portfolios on a net basis using derivatives, consistent with the entity’s risk management strategy.
• Application discipline: RMA is applied at the level where repricing risk is actually managed and requires robust formal documentation (strategy, mitigated rate, mitigated time horizon, risk limits, and methods for determining exposures and benchmark derivatives) [7.1.6, 7.1.7].

Key considerations and insights

1. Objective: RMA’s objective to reflect the economic effect of risk management activities may not always coincide with eliminating accounting mismatches (as suggested by other key considerations and insights later in this article). For example, EFRAG’s draft comment letter agrees that faithful representation is a key objective and could improve current accounting, for example, by reducing reliance on proxy hedging. However, it questions whether this should be treated as equally important as eliminating accounting mismatches. This aligns with the concerns expressed around the impact on the hedge effectiveness by several European banks in Zanders’ 2025 survey on interest rate risk management and hedge accounting3, while more than 80% of the participants assessed its effectiveness under the current hedge accounting approach as acceptable.

Net repricing risk exposure [ED 7.2]

Entities are required to determine a net repricing risk exposure across underlying portfolios by aggregating repricing risk exposure using expected repricing dates, within each repricing time band as required to be defined in formal documentation.

Key requirements include:

• Eligible items Underlying portfolios can include [7.2.1; B7.2.1–B7.2.2]:
  • Financial assets measured at amortized cost or FVOCI,
  • Financial liabilities at amortized cost, and,
  • Eligible future transactions that may result in recognition/derecognition of such items.
• Portfolio view and behavioral profiles: Items that may not show sensitivity on an individual basis (for example, demand deposits) can still contribute to repricing risk on a portfolio basis. A stable ‘core’ portion may be treated as behaving like longer-term funding if supported by reasonable and supportable assumptions and consistent with risk management [B7.2.2].
• Expected repricing dates and time bands: Expected repricing dates must be measured reliably using reasonable and supportable information (including behavioral characteristics such as prepayments and deposit stability). Time bands and risk measures (e.g., maturity gap or PV01) must be consistent with actual risk management [7.2.5–7.2.9; B7.2.10–B7.2.16].
• Equity modelling as a proxy: Own equity is not eligible for inclusion in underlying portfolios, but the model acknowledges that some entities assess repricing risk from cash/highly liquid variable-rate assets only to the extent they are ‘funded by equity’. If internal equity modelling (e.g., replicating portfolios) is used for risk management, it can serve as a proxy to determine how much of those exposures are included in net repricing risk exposure [B7.2.17; IE184-IE191].

Key considerations and insights

2. Eligibility: RMA aims to reflect net repricing risk management, but eligibility rules can make the net repricing risk exposure only a partial proxy for the position Treasury actually manages. For example, banks might include fair value through profit or loss (FVTPL) items for interest rate risk management but these are not allowed as underlying items in the net repricing risk exposure (also noted by EFRAG).

3. Risk management by time bands (1/2): RMA requires a risk mitigation objective based on the net repricing risk exposure determined for each repricing time band, but it is unclear how entities that do not manage their interest rate risk across time bands would then apply the RMA model, as noted by EFRAG.

4. Risk management by time bands (1/2): RMA requires the same risk measure (e.g., maturity gap or PV01) for all exposures within each repricing time band [B7.2.13], but banks’ risk management practice might deviate from this.

5. Equity treatment: RMA introduces an equity proxy approach that allows partial inclusion of variable-rate assets based on modelled equity, viewing equity as residual and ineligible for direct inclusion. This is an addition compared to the DRM staff papers. Banks' risk management practices might treat equity differently (e.g., by modelling it).

Designated derivatives [ED 7.3]

Under RMA, banks can designate external derivatives (e.g., interest rate swaps, forwards, futures, options) used to manage net repricing risk as hedging instruments. Eligible derivatives are generally consistent with IFRS 9. All designated derivatives collectively mitigate the net portfolio risk and remain recognized at fair value.

Eligibility depends on the following items:

• Mitigation: Derivatives can only be designated to the extent that they mitigate the net repricing risk exposure [7.3.6].
• External counterparty: Derivatives must be with a counterparty external to the reporting entity. Intragroup derivatives may qualify only in the separate or individual financial statements of the relevant entities, and are not eligible in the consolidated financial statements of the group [7.3.4].
• Designate once: Derivatives already in a hedging relationship for interest rate risk in accordance with Chapter 6 of IFRS 9 are not eligible [7.3.5].
• Options: Written options are generally excluded, unless part of a net written option position that offsets a purchased option, resulting in a net purchased position overall [7.3.2(a), 7.3.3].

Banks can designate derivatives in full or in part (e.g., designating 80% of a swap if only that portion manages interest rate risk), but the selected portion must align with the documented risk mitigation objective.

Once derivatives are designated, they can only be removed from RMA if they are no longer held to mitigate the net repricing risk exposure under the entity’s risk management strategy.

Key considerations and insights

As the EFRAG comment letter notes: 6. Options and off-market derivatives: Further guidance is needed on how to treat options (for example, time value) and off-market derivatives (non-zero initial fair value) within the designation mechanics.

7. De-designation: The ED does not allow voluntary de-designation, but banks often manage changes by entering into offsetting trades rather than settling existing positions.

Risk mitigation objective [ED 7.4]

The risk mitigation objective is the bridge between risk mitigation intent and what’s actually executed: it sets how much net repricing risk exposure the entity aims to mitigate within risk limits [7.4.2]. The benchmark derivatives and consequently the risk mitigation adjustment are built from this risk mitigation objective (see next sections), enabling partial hedging while avoiding objectives that aren’t supported by actual designated hedges. [ED 7.4.1, B7.4.2–B7.4.3].

Key requirements:

• Evidence-based: The objective must be consistent with the repricing risk mitigated by designated derivatives—it’s a matter of fact, not a free choice. [ED 7.4.1, B7.4.2–B7.4.3]
• Absolute, not proportional: It’s stated as an absolute amount of risk (e.g., PV01), not ‘X% of each instrument’ [B7.4.2].
• Capped by exposure: It cannot exceed net repricing risk exposure (overhedge) in any time band [7.4.1, B7.4.2–B7.4.3].
• Measurement basis: The risk mitigation objective should be set using the same risk measure (e.g., DV01) used to quantify exposure [ED B7.4.1].

Key considerations and insights

8. Repricing time bands are a key design choice: the risk mitigation objective is specified and capped by the net repricing risk exposure in each time band. Executing (and designating) hedges in neighboring tenors (a common practice) can create residual P&L volatility, because only the portion aligned to that time band’s net repricing risk exposure is reflected in the risk mitigation adjustment.

9. Degree of freedom risk limits: While RMA imposes strict alignment requirements between net repricing risk exposure, risk mitigation objective, and designated derivatives on measures and time bands, entities retain strategic flexibility on risk limits. Risk limits do not need to be specified per time band [B7.4.6], allowing entities to set overarching frameworks rather than granular constraints.

Benchmark derivatives [ED 7.4]

Benchmark derivatives are introduced to measure hedge performance: modelled (hypothetical) derivatives that are not executed and not recognized on the balance sheet, but are constructed to replicate the timing and amount of repricing risk captured in the risk mitigation objective, as presented in Figure 1 above and Figure 2 below.

In practice, the benchmark derivative is designed to mirror the bank’s target risk position (e.g., a swap profile that matches the repricing ‘gap’ being mitigated), so its fair value movement represents how the net repricing risk exposure would change when interest rates move. If an entity intends to mitigate 70 of the 100 units of repricing risk in the 9-year time band by a 10-year swap, the benchmark derivative is based on 70 units and 9 year maturity [B7.4.8].

Benchmark derivatives should have an initial fair value of zero based on the mitigated rate [7.4.5]. These benchmark derivatives are therefore similar to the hypothetical derivative used in cash flow hedging [B6.5.5–B6.5.6 of IFRS 9].

Key considerations and insights

10. Operational burden (1/3) – benchmark derivatives: RMA intentionally separates designated derivatives from benchmark derivatives (constructed to start at zero fair value at the mitigated rate), so they won’t always share the same terms. This can become operationally heavy, as also noted by EFRAG.

Risk mitigation adjustment [ED 7.4]

The risk mitigation adjustment is the accounting output of the model and is presented as a single line item on the balance sheet (asset or liability). At each reporting date (so not necessarily the hedging date), the entity compares the cumulative fair value change of all designated derivatives with the cumulative fair value change of all the benchmark derivatives, and recognizes the lower of those two amounts (in absolute terms) [7.4.8] as the risk mitigation adjustment. That balance sheet adjustment is the mechanism that offsets the designated derivatives’ fair value changes in profit or loss; any remaining gain or loss (i.e., the portion not captured by the lower-of) is recognized directly in profit or loss as residual volatility/ineffectiveness [7.4.9].  This is visualized in Figure 2 below.

Figure 2 Recognition and measurement of risk mitigation adjustment (source: IASB ED – Snapshot, December 2025)

The 'lower of' mechanism ensures the risk mitigation adjustment never exceeds what's actually supported by either (I) the designated derivatives or (ii) the net exposure being hedged. This prevents over-recognition of hedging effects.

The risk mitigation adjustment is then recognized in profit or loss over time on a systematic basis that follows the repricing profile of the underlying portfolios [7.4.10], so the hedging effect shows up in the same periods in which the hedged repricing differences affect earnings.

Key considerations and insights

11. Operational burden (2/3) – risk mitigation adjustment: Heavy tracking requirements (including effects of settling vs offsetting trades), unclear calculation granularity, and complexity over time as the risk mitigation adjustment can flip between debit and credit, as noted by EFRAG.

12. RMA as a balance sheet item: The RMA model creates a separate balance sheet asset/liability (unlike current hedge accounting that adjusts hedged items or uses equity), introducing uncertainty around whether this item will attract RWA or require capital deductions until regulators provide guidance.

Prospective (RMA excess) and retrospective (unexpected changes) testing [ED 7.4]

RMA is designed to keep the accounting mechanics anchored to the net repricing risk exposure that actually remains in the underlying portfolios over time. Two tests can lead to changes to the risk mitigation adjustment. These tests are visualized in Figure 3 below, indicated by ① and ②.

Figure 3 Risk mitigation adjustment and prospective and retrospective testing (source: IASB ED – Snapshot, December 2025)

The two tests are:

1. Benchmark adjustments for unexpected changes (retrospectively): First, benchmark derivatives must be adjusted when unexpected changes in the underlying portfolios reduce the net repricing risk exposure below the risk mitigation objective in a repricing time band (i.e., correction of overhedge), as they would otherwise no longer represent the repricing risk specified in the risk mitigation objective [7.4.6, B7.4.10].
2. Excess test to prevent unrealizable adjustments (prospectively): Second, an explicit excess assessment to prevent the risk mitigation adjustment from accumulating beyond what can be supported by the remaining net repricing risk exposure. If there is an indication that the accumulated risk mitigation adjustment may not be realized in full, the entity compares the risk mitigation adjustment to the present value of the net repricing risk exposure at the reporting date (discounted at the mitigated rate) [7.4.11–7.4.13]. This would happen if unexpected changes have not been fully reflected in the adjustments to the benchmark derivatives.

Any excess is recognized immediately in profit or loss by reducing the risk mitigation adjustment, and it cannot be reversed [7.4.14; BC101–BC103]. It acts like a safeguard: if revised behavioral assumptions shrink future repricing exposure, the unearned portion of the adjustment is released to P&L straight away.

Key considerations and insights

13. Operational burden (3/3) – benchmark derivatives: The reliance on ‘unexpected changes’ and time-band caps may force highly granular, frequently re-constructed benchmark derivatives, creating a mismatch versus designated derivatives. This could be operationally heavy, as noted by EFRAG.

14. Unclear testing and adjustment mechanics: The ‘excess’ framework is under-specified. Triggers and documentation expectations are unclear, and the present value test for net exposure is conceptually and operationally challenging, especially for modelled items (e.g., NMDs), as noted by EFRAG.

Discontinuation [ED 7.5]

Discontinuation is intentionally rare. RMA is not switched off because hedging activity changes. It only stops when the risk management strategy changes, and it stops prospectively from the date of change.

Key requirements include:

• Strategy: strategy triggers a change; activity does not. A change in how repricing risk is managed, such as changing the mitigated rate, changing the level at which repricing risk is managed (group vs entity), or changing the mitigated time horizon [7.5.1, 7.5.2].
• Prospective application: discontinue from the date the strategy change is made. No restatement of prior periods [7.5.1].

After discontinuation, the existing balance is recognized in profit or loss, either:

• Over time, on a systematic basis aligned to the repricing profile, if repricing differences are still expected to affect profit or loss [7.5.3(a)], or,
• Immediately if those repricing differences are no longer expected to affect profit or loss [7.5.3(b)].

Disclosures [IFRS 7]

The disclosures are meant to show, in a compact way, what risk is being mitigated, what derivatives are used, and what the model produced in the financial statements.

Key disclosures include:

• RMA balance sheet and P&L: risk mitigation adjustment closing balance and current-period P&L impact [30E].
• Risk strategy and exposure: repricing risk managed, portfolios in scope, mitigated rate and horizon, risk measure, and exposure profile [30H–30L].
• Designated derivatives: timing profile and key terms, notional amounts, carrying amounts, and line items, and FV change used in measuring the adjustment [30I, 30M].
• Sensitivity: effect of reasonably possible changes in the mitigated rate [30J].
  Volatility and roll-forward: FV changes not captured and where presented, plus reconciliation including excess amounts and discontinued balances [30N–30P].

Key considerations and insights

15- More, and more sensitive, disclosures: RMA adds extensive requirements (profiles, sensitivities, roll-forwards) that may reveal non-public positioning, so aggregation and materiality judgment matter.

Conclusions

The RMA proposal appears to be a constructive development toward reflecting the management of interest rate risk in dynamic portfolios more faithfully in financial reporting. Compared with existing approaches, it offers a clearer conceptual link between net repricing-risk management and accounting outcomes.

At the same time, several core mechanics might prove challenging in practice. In particular, further clarification would be helpful on the benchmark-derivative mechanism, the operation and trigger logic of the excess test, and the level of granularity and governance expected for the ongoing application. These areas will likely be central to implementation efforts, earnings volatility outcomes, and cross-bank comparability.
At this stage, practical outcomes may therefore differ significantly depending on interpretation and system design choices. Additional IASB guidance, informed by field testing and stakeholder feedback, could reduce that uncertainty and support more consistent application. Overall, RMA can be seen as a promising direction that improves conceptual alignment with risk management, while still requiring further clarification before its operational and reporting implications are fully settled.