In Finance, What Is a Direct Transfer?

The transfer of financial assets refers to the transfer or delivery of financial assets by an enterprise (transferr) to another party (transferr) other than the issuer of the financial asset.

Transfer of financial assets

Classification of financial asset transfer:

1. Overall transfer of financial assets: Generally refers to a transfer of identifiable financial assets.

2. Partial transfer of financial assets: Generally refers to the transfer of a part of a group of similar financial assets.

Partial transfers of financial assets include:

Transfer specific and identifiable portions of cash flows from financial assets.

For example, the company transfers the interest receivable of a group of similar loans.

Transfer a certain percentage of all cash flows generated by financial assets.

For example, an enterprise transfers a certain percentage of the total principal and interest receivable of a group of similar loans.

Transfer a certain percentage of specific and identifiable portions of cash flows generated by financial assets.

For example, a company transfers a certain percentage of interest receivable for a group of similar loans.

According to the financial asset transfer guidelines, the transfer of corporate financial assets includes the following two situations:

(1) Transfer of the right to receive cash flows from financial assets to another party

The confirmation of the transfer of financial assets mainly solves the problem of whether the transferred financial assets should be derecognized in the transfer of financial assets and the derecognition.

(1) Transfers that meet the conditions for termination of confirmation

Derecognition refers to the resale of financial assets or financial liabilities from an enterprise's account and balance sheet. According to the financial asset transfer guidelines, if a financial asset transfer meets the following conditions, the enterprise shall terminate the recognition of the financial asset:

(1) The enterprise has transferred almost all risks and rewards of ownership of financial assets to the transferee;

(2) The company neither transfers nor retains almost all the risks and rewards of ownership of financial assets, but renounces control over the financial assets.

1. The company has transferred almost all risks and rewards of ownership of financial assets to the transferee

When judging whether almost all the risks and rewards of ownership of financial assets have been transferred to the transferee, the enterprise should compare the risks of the net present value and time distribution of the future cash flows of the financial assets before and after the transfer. The risks faced by the enterprise due to substantial changes in the transfer of financial assets, which makes the retained risk significantly less significant than the overall change in the net present value of the future cash flows of the transferred financial assets, indicating that the company has almost The risks and rewards are transferred to the transferee.

Here, "almost all risks and rewards", enterprises should make judgments based on specific circumstances. However, when it is necessary to calculate whether almost all risks and rewards of ownership of financial assets have been transferred to the transferee, all reasonable and possible cash flow fluctuations should be considered when calculating the net present value of future cash flows of financial assets. And use the appropriate prevailing market interest rate as the discount rate.

Generally, by analyzing the terms in the financial asset transfer agreement, it can be relatively easy to determine whether the company has transferred almost all the risks and rewards of ownership of financial assets to the transferee. The following situations indicate that the company has transferred almost all risks and rewards of ownership of financial assets to the transferee:

(1) Selling financial assets without any recourse. When an enterprise sells financial assets, according to the agreement with the purchaser, if the cash flow of the sold financial assets cannot be recovered, the purchaser cannot recover from the enterprise, and the enterprise does not bear any future losses. At this time, the enterprise can determine that almost all risks and rewards have been transferred, and it should terminate the recognition of the financial asset.

(2) For the sale of financial assets with a repurchase agreement, the repurchase price is the fair value of the financial assets at the time of the repurchase. By signing an agreement with the purchaser, the enterprise sells a financial asset to the purchaser at a certain price, and at the same time, it is agreed that the enterprise will repurchase the financial asset at the expiry date, and the repurchase price is the fair value of the financial asset at the expiry date. At this time, if the financial asset is impaired, its impairment losses shall be borne by the purchaser. Therefore, it can be determined that the enterprise has transferred almost all the risks and rewards in the ownership of the financial asset, so it should terminate the recognition of the financial asset. Similarly, after the transfer of financial assets, the company only retains the right to repurchase the financial assets at fair value (in the case that the transferee sells the financial assets), it should also terminate the recognition of the transferred financial assets.

(3) Sale of financial assets with significant out-of-the-money put options (or significant out-of-the-money call options). The company sells financial assets and signs a put (or call) option contract with the buyer, but judging from the terms of the contract, the option is a significant out-of-the-money option, which makes it extremely likely that the option will be exercised at or before expiration. At this time, it can be determined that the enterprise has transferred almost all the risks and rewards in the ownership of the financial asset, so it should terminate the recognition of the financial asset.

2. The company neither transferred nor retained almost all the risks and rewards of ownership of financial assets, but gave up control of the financial assets

The enterprise neither transfers nor retains almost all the risks and rewards of ownership of financial assets, that is, the enterprise retains some but not all of the risks and rewards of financial assets. According to the financial asset transfer guidelines, at this time, the enterprise should determine whether Give up control of the financial asset. If control over the financial asset is waived, the recognition of the financial asset should be terminated.

To determine whether the control over the transferred financial assets has been abandoned, the actual ability of the transferee to sell the transferred financial assets should be focused on. If the transferee can sell the transferred financial assets as a whole to a third party that does not have a related party relationship, and there are no additional conditions to restrict this sale, it indicates that the transferee has the actual ability to sell the financial assets, and It indicates that the enterprise (the transferee) has given up control of the financial assets and should therefore derecognize the transferred financial assets. Whether the transferee can sell the transferred financial assets as a whole to a third party that does not have a related party relationship, it should pay attention to whether there is an active market for the financial asset. It should be emphasized that if there is no active market, even if the contract stipulates that the transfer The acquirer has the right to dispose of the financial assets, nor does it indicate that the transferee has "actual capacity", and it cannot be judged that the transferor has given up control of the transferred financial assets.

Whether the transferee can freely dispose of the transferred assets is also an aspect of judging whether the transferee has the actual ability to sell financial assets. "Be able to dispose freely" shows that the transferee can sell the transferred financial assets separately and has no additional conditions to restrict the sale and make it independent of others; and there are no binding clauses closely related to the sale . For example, the transferee sells the transferred financial assets with a call option, and the call option is a significant in-the-money option, so that it can be determined that the transferee is likely to exercise in the future. In this case, it does not indicate that the transferee has the actual ability to sell the transferred financial assets.

When an enterprise derecognizes a financial asset, if the financial asset transfer causes the enterprise to newly acquire a certain right or assume a certain obligation, or retain a certain right, the enterprise should recognize these rights or obligations as assets or liabilities, respectively. .

(2) Transfers that do not meet the conditions for termination of confirmation

Corresponds to the derecognition. Without derecognition, an enterprise shall not resell financial assets or financial liabilities from its account and balance sheet. According to the financial asset transfer guidelines, if an enterprise retains almost all the risks and rewards of ownership of a financial asset, the financial asset should not be derecognized.

As with the above derecognition conditions, when determining whether almost all risks and rewards in ownership of financial assets have been transferred to the transferee, the company should compare the fluctuations in the net present value and time distribution of future cash flows of the financial asset before and after the transfer. Its risks. The fact that the risks faced by the enterprise have not changed substantially due to the transfer of financial assets indicates that the enterprise still retains almost all the risks and rewards of ownership of financial assets.

The following scenarios usually indicate that a business retains almost all the risks and rewards of ownership of financial assets:

1. Selling financial assets with recourse. When an enterprise sells financial assets, if according to the agreement with the purchaser, if the cash flow of the sold financial assets cannot be recovered, the purchaser can recover from the enterprise and the enterprise should also bear any future losses. At this time, it can be determined that the enterprise has retained almost all the risks and rewards of ownership of the financial asset and should not terminate the recognition of the financial asset.

2. Sell the credit assets or receivables as a whole, while guaranteeing full compensation for credit losses that may occur to buyers of financial assets. The company sells the credit assets or receivables as a whole, which meets the conditions for the transfer of financial assets. However, because the company makes a commitment when selling the financial assets, when the transferred financial assets have a credit loss in the future, the company (the seller) will make the full amount. make up. In this case, the enterprise has substantially retained all the risks and rewards of ownership of the financial asset, and therefore should not derecognize the financial asset sold. This situation often occurs in the practice of asset securitization, for example, banks have achieved credit enhancement of securitized assets by holding secondary equity or promising specific cash flow guarantees. If, through this credit enhancement technology, an enterprise retains almost all the risks and rewards of ownership of the transferred assets, then the enterprise should not derecognize the financial assets.

3 For the sale of financial assets with a repurchase agreement, the repurchase price is fixed or the original selling price plus a reasonable return. In the sale of financial assets with a repurchase agreement, if the transferor will repurchase the same or substantially the same assets as the financial assets sold, the repurchase price is fixed or the original selling price plus a reasonable return indicates that the company retains In view of almost all the risks and rewards of ownership of the financial asset, the financial asset sold should not be derecognized. For example, buyout repo, pledged repo transactions are used to sell bonds.

4 The sale of financial assets with a total return swap, which swaps market risk back to the seller of the financial assets. In the sale of financial assets with total return swap, the company sold a financial asset and reached a total return swap agreement with the transferee, such as paying the company's interest cash flow from the asset to the company in exchange for a fixed payment. All or any changes in the fair value of the asset shall be borne by the enterprise, so that market risks and the like are transferred back to the enterprise. In this case, the enterprise retains almost all the risks and rewards of ownership of the financial asset, and therefore should not derecognize the financial asset sold.

5. Sale of financial assets with put-in-the-money put options (or put-in-the-money call options). The buyer of the financial asset holding the put option is likely to exercise when or before the option expires. The company sells financial assets and signs a put (or call) option contract with the buyer. However, judging from the terms of the contract, the option is a significant in-the-money option, which makes it highly likely to exercise at or before expiration. At that time, it can be determined that the enterprise has retained almost all the risks and rewards of ownership of the financial asset, and therefore, the financial asset should not be derecognized.

(3) Transfer of financial assets under conditions of continued involvement

If an enterprise neither transfers nor retains almost all the risks and rewards of ownership of financial assets, but does not abandon control of the financial assets, it shall confirm the relevant financial assets according to the extent to which it continues to be involved in the transferred financial assets, and confirm the relevant liabilities accordingly.

The degree of continued involvement in the transferred financial assets refers to the level of risk that the enterprise faces due to changes in the value of the financial assets. In this case, the transfer actually reflects the company's risk exposure to the transferred financial assets' risks and rewards. This risk exposure is not related to the asset as a whole, but is limited to a certain amount. That is, the extent to which the enterprise continues to be involved in the transferred assets.

The main ways to continue to involve: enjoy the right to continue service, sign

(1) Transfer of financial assets that meet the conditions for derecognition

If the overall transfer of a financial asset meets the conditions for derecognition, the financial asset shall be derecognized and the related profit or loss shall be confirmed according to the following formula: the book value of the transferred financial asset is reduced: the consideration received for the transfer is reduced: the original Accumulated gains from changes in fair value (if accumulated losses, it should be added)

Explanation of profit and loss resulting from the overall transfer of financial assets:

(1) The consideration received for the transfer = the fair value of the newly acquired financial assets due to the payment received for the transfer transaction-the fair value of the service assets acquired as a result of the transfer-the fair value of the new financial liability assumed. Among them, newly acquired financial assets or newly assumed financial liabilities, including call options, put options, guaranteed liabilities, forward contracts, swaps, etc .; (2) Accumulated gains or losses on changes in fair value that were directly included in owner's equity , Refers to the cumulative amount of changes in fair value before the transfer of financial assets (available-for-sale financial assets) is directly included in the owner's equity.

(2) Transfer of financial assets that do not meet the conditions for derecognition

If the transfer of financial assets does not meet the conditions for derecognition, the financial assets shall continue to be recognized, and the consideration received is recognized as a financial liability. Such financial asset transfers are essentially financing in nature and cannot offset financial assets with recognized financial liabilities. For example, after an enterprise sells government bonds, it promises to repurchase them at a fixed value. The amount received for selling government bonds should be separately recognized as a financial liability. If a financial asset transfer agreement involves a derivative instrument (such as a call option), and the derivative instrument causes the transfer of the financial asset to not meet the derecognition conditions, the derivative instrument cannot be recognized separately.

(3) Financial asset transfers that continue to involve

Continued involvement in financial asset transfer refers to a situation where an enterprise neither transfers nor retains almost all the risks and rewards of ownership of financial assets, and does not abandon control of the transferred financial assets. For the transfer of financial assets using the continued involvement method, the enterprise shall recognize a financial asset and a financial liability at the same time as the degree of continued involvement in the transferred financial assets. The confirmed financial assets and financial liabilities should fully reflect the rights reserved and obligations assumed by the enterprise.