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The classification process is to be executed at initial recognition.
In A "relassicification check" needs to be applied in addition at any subsequent posting date till the maturity date of the asset is reached a "relassicification check" needs to be applied..
The solution provides different types of accounting category assignment processes, each taylor-made to individual needs depending on the business of the entity in question.
In general, the user can choose between fully automated processes and a semi-automated process. These processes mainly differ with regard to how the business model will be identified is identified or assigned and how the SPPI test will be executed.
The selection of the appropriate taylor-made classification process will be driven is driven by the complexity of the portfolio and business of the entity.
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- Manual assignment of the accounting category in the front office and import
- Automatic assignment of the accounting category within the solution taking business model and cash flow characteristics into account. For this option two alternatives are supported depending on the available data provided by the source:
- If the source can deliver the SPPI flag and the business model for financial assets, specific components help to derive the appropriate accounting category.
- If the information cannot be delivered, Jabatix Finance components derive the SPPI flag and the business model by analysing the contractual deal information that was imported. In the front office, information that describes the business model and that can be used to determine if the objective of the financial asset is to collect contractual cash flows or sell financial assets, is captured. To this end, it is assumed, for the solution provided, that the business model itself will be captured is captured in the front office and delivered to the solution, or alternatively, criteria will be defined are defined that enable the identification of the business model in a separate step during the ETL process.
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For the consideration of the cash flow characteristics, it is assumed that, based on the “Deal Type Overview”, which is part of a bank´s portfolio analysis during the project, deal information such as floating interest agreements, embedded caps/floors, early repayment rights can be identified to check the SPPI riteriacriteria. Of course such an analysis depends on the availability of comprehensive deal information. For this purpose, the contractual deal information needs to include supplementary agreements such as options and specific rights (e.g. caps, floors, cancellation rights, early repayment rights) as these might have an impact on the accounting category assignment.
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