| (1) | Subject to the provisions of regulation 9, unless expressly otherwise provided in the Act or these Regulations, all the relevant prescribed returns shall be prepared in accordance with Financial Reporting Standards issued from time to time, with additional disclosure when required, provided that in the absence of a specific Financial Reporting Standard and an approved interpretation reference shall be made to the relevant pronouncements of the International Accounting Standards Board. In virtually all circumstances the appropriate application of Financial Reporting Standards results in returns and information that provide a fair presentation of the financial position, the results of operations and the relevant risk positions of the relevant bank or controlling company. |
| (a) | specifically otherwise provided in these Regulations; or |
| (b) | on prior application, the Registrar authorized a deviation from such policy, |
the same accounting policy applied by a bank or controlling company in the compilation of its annual financial statements shall be applied by such bank or controlling company in the compilation of the prescribed returns required to be furnished to the Registrar in terms of the Act and these Regulations.
| (3) | In the event of a deviation in the compilation of the prescribed returns required to be furnished by a bank or controlling company to the Registrar in terms of the Act and these Regulations from the accounting policy applied by such a bank or controlling company in the compilation of its annual financial statements, as envisaged in subregulation (2), the said returns shall be easily reconcilable to the said annual financial statements. |
| (4) | When a bank or controlling company, in accordance with the relevant requirements contained in Financial Reporting Standards issued from time to time, wishes to implement or adopt any fair value option or approach in respect of financial instruments, the said bank or controlling company— |
| (a) | shall have in place robust risk management systems and board approved policies, procedures and controls prior to the initial application of the said fair value option for a particular activity, instrument or purpose, and on an ongoing basis, in order to ensure, amongst other things, that— |
| (i) | sound risk management objectives consistent with the risk management framework and overall risk appetite approved by the bank or controlling company's board of directors, or a relevant committee of the board, are met when the fair value option or approach is applied; |
| (ii) | the bank or controlling company applies appropriate valuation methods; |
| (iii) | fair values are reliable for all instruments included in the fair value option category; |
| (iv) | relevant risk management and control policies pertaining to the use of the fair value option and related valuation methodologies are consistently applied and complied with; and |
| (v) | appropriate information is periodically provided to the bank or controlling company's relevant senior management and board of directors, or a relevant committee of the board, about the use of the fair value option, and the impact thereof on the bank's financial condition and performance; |
| (b) | shall at all times, in form and in substance, comply with any relevant criteria or requirements contained in the relevant Financial Reporting Standard; |
| (c) | shall duly document its application of the fair value option or approach and all relevant or related matters; |
| (d) | shall ensure that all relevant assets and liabilities designated as at fair value under the fair value option are duly captured in the relevant risk measurement systems and that the resulting exposure amounts are included in all relevant internal reports that compare actual overall exposure to approved overall risk management limits, |
provided that—
| (i) | no bank or controlling company shall for the purposes of these Regulations apply any fair value option or approach to instruments in respect of which it is unable to reliably estimate fair values; |
| (ii) | the Registrar may in writing require a bank or controlling company— |
| (A) | to provide supplemental information regarding its application of the fair value option or approach in order to, amongst other things, assess the impact thereof on the bank or controlling company's— |
| (ii) | capital adequacy position; |
| (iii) | earnings, and the volatility in earnings; |
| (v) | profit and loss position; |
| (vi) | credit risk and related allowances for loss; |
| (B) | to exclude from its qualifying amount of capital and reserve funds— |
| (i) | any gains or losses arising from changes in its own credit risk due to the application of the fair value option to financial liabilities, that is, when a bank or controlling company, for example, applies the fair value option to its own debt and subsequently recognises a gain and a resulting increase in its capital and reserve funds owing to a deterioration in its own creditworthiness, the Registrar may require the said bank or controlling company to exclude the relevant amount from its qualifying amount of capital and reserve funds; |
| (ii) | any unrealised gains or losses on items designated as at fair value through profit and loss when such treatment gives rise to safety and soundness concerns; |
| (iii) | the relevant fair values of assets and liabilities designated as at fair value under the fair value option shall be independently verified by an appropriately qualified unit independent from the relevant business unit(s), with the same frequency that the fair values of any related assets or liabilities are independently verified; |
| (iv) | all relevant models used to value items designated as at fair value under the fair value option shall be independently verified by an appropriately qualified unit as part of the bank or controlling company's regular cycle of model validation; |
| (v) | staff independent from those responsible for the origination of transactions shall monitor the application of the fair value option, amongst others, for conformity with all relevant Financial Reporting Standards, including all relevant accounting and disclosure requirements; |
| (vi) | based on its risk assessment, the appropriateness of a bank or controlling company's use of the fair value option shall periodically be subject to review by internal audit. |
