CFM INDOSUEZ Wealth Management - 2020 Annual Report

62 Equity instruments Equity instruments are recognised by default at fair value through profit or loss, with the exception of an irrevocable optionof classificationat fair value throughnon-recyclable equity, provided that these instruments are not held for trading. Equity instruments at fair value through profit or loss Financial assetsmeasured at fair value through profit or loss are initially recognised at fair value, excluding transaction costs (which are directly recorded in profit or loss). They are recorded on the settlement date. They are subsequentlymeasuredat fair valueandchanges in fair value are recognised in income, under net banking income, offset against balances outstanding. No impairment is recorded on these financial assets. Equity instruments at fair value through other comprehensive income not recyclable to income (irrevocable option) The irrevocable option to recognise equity instruments at fair value through other comprehensive income not recyclable to income is applied per transaction (line by line) and is effective from the date of initial recognition. These securities are recorded on the trade date. The initial fair value includes transaction costs. In subsequent valuations, changes in fair value are recorded in other comprehensive income not recyclable to income. In the event of sale, these changes are not recycled to income; the profit or loss is recognised in equity. Only dividends are recognised in income if: the entity ’s right to receive the payment is established; it is likely that the economic advantages associatedwith thedividendswill go to theentity; the amount of dividends can be measured in a reliable manner. Reclassification of financial assets In the event of amajor change in the business model for the management of financial assets (new business, acquisition of entities, sale or discontinuation of a significant activity), a reclassification of these financial assets is required. The reclassification applies to all the financial assets in the portfolio from the date of reclassification. In other cases, the business model remains unchanged for existing financial assets. If a new business model is identified, it applies prospectively to new financial assets grouped in a newmanagement portfolio. 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 commercial reasons in the absenceof financial difficulties for the counterparty or for the purpose of developing ormaintaining a business relationship are derecognised at the renegotiation date. The new loans granted to clients are recorded at such date at their fair value at the renegotiation date. Subsequent accounting treatment will depend on the business model and the SPPI test.