Risk Mitigation Accounting (RMA) – the successor to portfolio fair value hedge accounting under IAS 39

On 3 December 2025, the International Accounting Standards Board (IASB) published the long-awaited exposure draft on Risk Mitigation Accounting (RMA) – which had previously been announced and discussed under the name Dynamic Risk Management (DRM).

This future framework for the financial reporting of (interest rate) risk management (the successor to IAS 39 Portfolio Fair Value Hedges) will fundamentally change the interplay between treasury, risk control and accounting, and has numerous implications. Our experts support companies in preparing for these complex challenges.

What is risk mitigation accounting?

Risk Mitigation Accounting (RMA) addresses the long-standing gap between the bank’s overall economic interest rate management via interest rate derivatives as portfolio hedges and the way this is reflected in IFRS accounting.

It is set to replace IAS 39 portfolio hedge accounting – which is currently still used in many places as an interim solution – and will therefore primarily affect numerous banks and, potentially, insurance companies as well.

The core idea behind RMA is to make the dynamic risk management of open net risk positions visible in financial reporting, whilst also taking certain model portfolios into account. This is intended to address, in the long term, the existing weaknesses of current hedge accounting approaches – including, amongst other things, the assumption of rigid hedge relationships and a gross perspective.

Basic functionality of the RMA

At the start of the period, once the open interest rate risk position as at a specific date (net repricing risk exposure) and the target risk profile (Risk Mitigation Objective) against the limits set out in the risk management strategy (Risk Limits), synthetic ‘perfect hedges’ (benchmark derivatives) are generated and compared with the actual designated derivatives.

By comparing the performance of the designated derivatives with that of the benchmark derivatives at the end of the period using the ‘lower-of’ mechanism, RMA adjustments are determined in such a way that matches in the profit and loss account (P&L) are neutralised and discrepancies remain in the P&L. In doing so, the benchmark derivatives (in line with actual risk management) are adjusted for unforeseen changes in the net repricing risk exposure.

In addition, net interest income (NII) from the derivatives is recognised or neutralised on an accrual basis, so that both fair value effects and interest components are taken into account. With RMA, portfolio NII hedges now also appear to be fundamentally eligible for hedge accounting.

The close interlinking of treasury, risk controlling and accounting gives rise to new challenges and dependencies, such as a possible discontinuation of the hedging relationship in the event of (significant) changes to the risk management strategy.

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The RMA timeline: When the final standard is expected

The Exposure Draft (ED) will be published in December 2025, with an expected consultation period of 240 days (until July 2026). The final standard after evaluation of the consultation is expected in 2027.

IFRS Risk Mitigation Accounting: What do banks and insurance companies need to do now?

Due to the considerable scope and the necessary interlinking of treasury, risk controlling and accounting, it is advisable to derive a target picture - including the simulation of quantitative effects - at an early stage.

How we support you in the implementation of IFRS Risk Mitigation Accounting

Our experts use tried-and-tested approaches to efficiently integrate complex requirements into existing systems and processes. We support you from the functional design in accounting, risk and treasury to the technical implementation and automation of processes.

Proven process model and preliminary study

We offer a structured phase model from enablement, gap analysis and TOM workshops through to customised simulation of the RMA model. We have already conducted initial preliminary studies at banks on the basis of previous staff papers - you benefit from concrete findings.
End-to-end expertise

As consultants in accounting, risk and treasury, we combine IFRS design (RMA mechanics, booking logic, disclosure) with risk management/IRRBB, treasury processes as well as data and IT implementation - including market practices for CNOP and the target profile and for mapping behavioural models and hedging strategies.

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Risk mitigation accounting

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The three-phase plan up to 2031

Preliminary study (2026): Enablement, gap analysis, target image TOM
Conception and prototyping (2028)
Implementation and go-live (2029 - 2030 ff):

Enablement: RMA fundamentals, impact of the model on NII/EVE, requirements for risk management strategy/Risk Mitigation Objective
Gap analysis: Comparison of relevant, current hedging processes (Risk/Treasury/Accounting) with the requirements of the Exposure Draft; Identification of quick wins/no-regrets
Target Operating Model (TOM): Roles, processes, data/IT target architecture, decision logic
Quantification: Initial simulation calculations (net repricing risk exposure, construction of benchmark derivatives, RMA adjustment, NII effects)
Active participation and risk reduction: Utilising the opportunity to provide individual feedback as part of the consultation process

Aligning current processes, data structures, tools, policies and documentation with the final standard
Alignment of the new hedge accounting processes with the risk management strategy (focusing, amongst other things, on limits, strategic position, definition of the risk management intention, and the treatment of internal hedges and external derivatives within a potential IRT desk (Internal Risk Transfer) in the trading book)
Detailing the methodology (buckets, limits, creation of a benchmark for derivatives, capacity and alignment tests), data models, accounting and disclosure logic
Prototypes and process tests, as well as parallel calculations
Simulating the impact on balance sheet risks / volatility and IRRBB earnings
Initial adjustment of the normative ICAAP within the 3-year outlook for 2028/29/30

Establishment of the end-to-end RMA process (front-to-ledger), automation, controls, trial runs
Initial implementation for financial years from 1 January 2031 (expected)
Stabilisation and ongoing optimisation in day-to-day operations
Gradual integration into planning and long-term interest income simulations
Gradual adjustment of risk measurement metrics (e.g. IRRBB earnings for the derivatives portfolio)

Simulation tool for quantifying RMA effects

To enable a robust assessment of the impact of the RMA proposals, we provide a powerful simulation tool. It realistically models the mechanics of the Exposure Draft and provides a clear picture of the effects on the profit and loss account and net interest income.

Figure 1: User interface of the KPMG RMA simulator.

Portfolio data relating to principal and hedging transactions, yield curves, limits and other RMA-relevant parameters are captured via data upload or through structured input forms.

The simulator guides users step by step through the RMA logic – from parameterisation to the calculation of benchmark derivatives and the RMA adjustment (including across multiple periods).

Tables and charts show the results and the drivers of the various RMA sub-steps separately. This allows for a quick analysis of the effects on value and profit, as well as residual volatility, within the interplay between economic risk management and the balance sheet-based RMA approach.

The chart shows how the RMA adjustment neutralises fair value fluctuations in the profit and loss account – and which effects remain visible in the profit and loss account.

Figure 2: An illustrative visualisation of the trend in the derivatives profit and loss account over time, before and after the application of RMA. The NII from derivatives serves as a reference line