The Swedish Financial Supervisory Authority (Finansinspektionen) has published a deep-dive analysis of how credit institutions apply IFRS 9, finding practices are largely aligned with established approaches, including the use of multiple macroeconomic scenarios in expected credit loss calculations. At the same time, it identifies variations in models and processes that could lead to late recognition of deteriorating credit risk and performance challenges in the models used. Key observations include the use of the low credit risk exemption (LCRE) in assessments of significant increase in credit risk (SICR), where broad application may delay when rising risk is captured. Some exposures are primarily identified as SICR through backstop criteria such as 30 days past due, pointing to a need for earlier-warning indicators and systems. Thresholds based on changes in probability of default (PD) are central, with most institutions using relative measures or a mix of relative and absolute measures; certain designs may also detect risk changes later, while the percentile method is used only to a limited extent and needs strong justification and ongoing evaluation. The review also notes a need to ensure sufficient incorporation of relevant forward-looking information, strengthen governance, controls and documentation around expert judgements, and address model risk issues including forward-looking calibration, deviations from established practice in some model components, mixed results from outcome testing, and key-person dependency in smaller institutions that can hinder independent validation.
Finansinspektionen 2026-04-14
Swedish Financial Supervisory Authority reviews IFRS 9 application and flags weaknesses in early credit risk identification and model governance
The Swedish Financial Supervisory Authority (Finansinspektionen) has published an analysis of credit institutions’ application of IFRS 9, finding overall alignment with established approaches but highlighting model and process variations that may delay recognition of deteriorating credit risk. The review flags broad use of the low credit risk exemption, reliance on backstop criteria for significant increase in credit risk, limited and sometimes late-detecting probability of default thresholds, and insufficient forward-looking information. It also identifies weaknesses in governance, documentation of expert judgement, model risk management, outcome testing, and key-person dependency.