The Financial Accounting Standards Board (FASB) issued an Exposure Draft on June 17, 2026, proposing targeted amendments to hedge accounting guidance under ASC 815. At Derivative Path, we work directly with financial institutions to manage balance sheet interest rate risk every day. These proposed changes matter, and we wanted to share our perspective on what they mean in practice.
Our Hedge Accounting team submitted comments to FASB as part of the public comment process. Here is what we told them, and why it matters for the institutions we serve.
Hedging HTM securities: closing a real gap
The most consequential change in the proposed update is permission to designate interest rate risk as a hedged risk for held-to-maturity (HTM) debt securities.
For financial institutions, this has been a persistent friction point. The economic risk embedded in an HTM portfolio is real. An institution holding HTM securities is still fully exposed to interest rate movements, regardless of how those securities are classified on the balance sheet. The accounting classification does not neutralize the risk. It simply prevented the institution from applying hedge accounting treatment that accurately reflected their risk management activity.
The proposed guidance acknowledges this disconnect and would correct it. Because the proposed guidance builds on existing frameworks rather than introducing new criteria or classifications, implementation should be operationally manageable for most hedging entities. It is the kind of practical improvement that makes accounting reflect reality rather than constrain it.
SOFR tenor flexibility: aligning accounting to how institutions actually hedge
The second significant proposed change expands the definition of the SOFR Overnight Index Swap Rate to permit any SOFR tenor to be treated as a benchmark interest rate for hedge accounting purposes.
In practice, financial institutions typically do not hedge using a single SOFR reference. They are often exposed to the full tenor curve, and they trade across SOFR variants based on their funding strategy and market conditions. Today’s framework creates an inconsistency: Term SOFR can be designated as a hedged risk in a cash flow hedge, but not as a benchmark rate in a fair value hedge. That inconsistency is not reflective of how institutions manage risk, and it creates unnecessary complexity in hedge design.
The proposed expansion of the benchmark definition is a straightforward fix with meaningful practical impact. It would allow institutions to maintain hedge accounting treatment as they optimize their funding mix in response to market conditions, without having to restructure hedging programs solely to satisfy accounting requirements.
That said, we raised one area for FASB’s consideration. The current framework limits the definition of hedged items to payments of a single frequency. Many institutions have actively managed funding programs with sources that pay biweekly, monthly, quarterly, or annually. When these sources carry similar underlying risks, grouping them is economically equivalent and operationally sound. The existing single-frequency constraint can force institutions to fragment their hedging approach in ways that do not reflect their actual risk management strategy. We believe this is worth FASB’s attention as the guidance is finalized.
Transition and timing: straightforward by design
The proposed transition approach is prospective, which we believe is the appropriate choice. We believe that retrospective implementation would have imposed significantly greater complexity with limited corresponding benefit. The proposed disclosures are consistent with what preparers and auditors would expect from previous ASU transitions.
The bottom line
These proposed amendments collectively move hedge accounting guidance closer to how financial institutions actually manage risk. We believe the proposed changes are practical, operationally tractable, and consistent with existing frameworks. They would not require institutions to change their risk management strategies; they allow accounting to better follow those strategies.
At Derivative Path, our platform is purpose-built to support complex hedging programs at banks, credit unions, and alternative investment managers. When the accounting framework works the way risk management works, institutions can execute their strategies with greater confidence and clarity. We are encouraged by these proposed amendments and look forward to their implementation.
To discuss how your institution should be thinking about these changes, reach out to our team at [email protected]
Disclaimer: The content of this article is provided for illustrative purposes only and should not be construed as accounting advice.