7.3 Accounting for Servicing Rights

Under U.S. GAAP, ASC 860-50-30-1 requires that servicing assets and liabilities retained by the transferor in a sale or securitization of financial assets be initially recognized and measured at fair value.

Under paragraph 3.2.10 of IFRS 9, when a transfer of a financial asset qualifies for derecognition in its entirety and a right to service the financial asset is retained, that servicing right is recognized as a servicing asset or liability. If the fee received for servicing the asset is expected to more than adequately compensate the servicer, a servicing asset is initially recognized at the allocated previous carrying amount of the transferred financial asset on the basis of the relative fair values of the assets that continue to be recognized and the assets that are derecognized. A servicing asset under IFRS Accounting Standards, unlike a servicing asset under U.S. GAAP, is not initially recognized at fair value; however, if the transferred asset was previously measured at fair value, the amount allocated to the servicing asset may be expected to equal its fair value. Nevertheless, if the fee received for servicing the asset is not expected to adequately compensate the servicer, a servicing liability is recognized at fair value.

Under IFRS Accounting Standards, while the initial recognition of a servicing asset or liability resulting from a transfer of financial assets is within the scope of IFRS 9, a servicing right is not considered a financial instrument. Therefore, the subsequent measurement of a servicing right is not within the scope of IFRS 9. If the servicing right recognized is an asset, an entity would look to IAS 38 for guidance on subsequent measurement, while a servicing liability would be within the scope of IAS 37.