CFM INDOSUEZ Wealth Management - 2019 annual report

Temporary purchases or sales of securities Temporary sales of securities (securities lending, securities sold under repurchase agreements) do not generally qualify for derecognition. Securities lent or sold under repurchase agreements are kept on the balance sheet. For securities sold under repurchase agreements, the amount received, representing the debt to the purchaser, is recorded as a liability on the balance sheet by the vendor. Securities borrowed or received under repurchase agreements are not recorded in the purchaser’s balance sheet. For securities received under reverse repurchase agreements, a liability in respect of the vendor is recorded in the purchaser’s balance sheet for the amount paid. In the event of the subsequent resale of the security, the purchaser records a liability measured at fair value representing its obligation to return the security received under the agreement. Income and expenses relating to these transactions are reported in the income statement pro rata, except when assets and liabilities are classified at fair value through profit or loss. Derecognition of financial assets A financial asset (or group of financial assets) is derecognised in whole or in part: • when the contractual rights to the cash flows related to the asset expire; • or when they are transferred or considered as such because they have one or more beneficial owners and when substantially all the risks and benefits of the financial asset are transferred. In this case, all rights and obligations created or retained in the transfer are recognised separately in assets and liabilities. When the contractual rights to cash flows are transferred but only a portion of the risks and benefits, as well as control, are retained, the entity continues to recognise the financial asset to the extent of its continuing involvement in that asset. Financial assets renegotiated for business reasons in the absence of financial difficulties for the counterparty or for the purpose of developing or maintaining a business relationship are derecognised at the renegotiation date. The new loans granted to clients are recorded at such date at their fair value on the renegotiation date. The subsequent accounting treatment will depend on the business model and the SPPI test. Financial liabilities Classification and measurement of financial liabilities On the balance sheet, financial liabilities are classified into two accounting categories: • financial liabilities at fair value through profit or loss, either by default or as an option; • financial liabilities at amortised cost. Financial liabilities at fair value through profit or loss by default Financial instruments issued primarily for the purpose of being redeemed in the short term, instruments that are part of a portfolio of identified financial instruments that are managed together and which show indications of a recent short-term profit-taking profile, and derivatives (with the exception of certain hedging derivatives) are measured at fair value by default. Changes in the fair value of this portfolio are recognised in profit or loss. Financial liabilities measured at amortised cost All other liabilities that can be defined as a financial liability (excluding derivatives) are measured at amortised cost. This portfolio is initially recorded at fair value (including income and transaction costs) and is subsequently recognised at amortised cost. Income on client assets Income on client assets is recognised in Financial liabilities at amortised cost - Amounts due to clients. The initial measurement is made at fair value and the subsequent measurement, at amortised cost. Reclassification of financial liabilities The initial classification of financial liabilities is irrevocable. No subsequent reclassification is permitted. Distinction between debt and equity instruments The distinction between debt instruments and equity instruments is based on an analysis of the economic substance of the contractual arrangements. A financial liability is a debt instrument if it includes a contractual obligation: • to provide another entity with cash, another financial asset or a variable number of equity instruments; or • to exchange financial assets and liabilities with another entity on potentially unfavourable terms. An equity instrument is a non-redeemable financial instrument that provides discretionary compensation representing a residual interest in a company after deducting all of its financial liabilities (net assets) and is not considered a debt instrument. Derecognition and modification of financial liabilities A financial liability is derecognised in whole or in part: • upon expiration; or • when quantitative or qualitative analyses conclude that it has been substantially modified in the event of restructuring. A substantial change in an existing financial liability is recorded as an expiration of the original financial liability and the recognition of a new financial liability (novation). Any difference between the book value of the expired liabilities and the new liabilities will be recognised immediately in the income statement. Impairment / Provisioning for credit risk Scope of application In accordance with IFRS 9, CFM Indosuez Wealth Group recognises impairment for expected credit losses (ECL) on the following exposures: • financial assets in the form of debt instruments carried at amortised cost or at fair value through other comprehensive income recyclable to income (loans and receivables, debt securities); • financing commitments that are not measured at fair value through profit or loss; • guarantee commitments under IFRS 9 that are not measured at fair value through profit or loss; • trade receivables generated by transactions under IFRS 15. Equity instruments (at fair value through profit or loss or at fair value through other comprehensive income not recyclable to income) are not affected by impairment provisions. 62 CFM Indosuez Wealth Management