This is a real improvement over the incurred loss approach which proved to be inadequate - enabling banks to window-dress asset values and consequently their capital. However, the manner in which IFRS9 is implemented creates risks comparable to those observed in the case of internal models recognized in the Basel framework.
Banks have strong incentives to produce outcomes which minimize provisioning needs by relying on complex models where assumptions are not appropriately disclosed. Furthermore, supervisors need to be equipped with skills to review such sophisticated models, to ensure that provisioning is adequate and not underestimated. Having dealt with internal models in the capital adequacy context, a common challenge remains for accounting models.