For an asset to be classified at fair value through other comprehensive income or F-E-O-C-I.

Under IFRS, the same two tests are replied as are for amortized cost.

With the business model test, the asset needs to be managed on a hold to collect and sell basis.

But what does this actually mean? Well, it means the bank intends to hold the financial asset with a view to collecting interest and principal repayments.

However, the bank is also fully prepared to sell the asset if necessary.

Let's move on to the cashflow characteristics. Here.

We need to look at the contractual cash flows associated with the financial asset.

Are these cash flows solely made up of interest and principle repayments? What we are of course, talking about is a debt instrument, not equity.

So if we have an instrument, say a bond with a stated maturity where the cash flows are entirely principal interest, then this clearly meets the test.

Clearly, the intention here is to capture financial instruments that are effectively just basic lending arrangements such as bonds.

If the financial asset meets both tests, then it'll fall within the fair value through OCI category of financial assets.

However, although this sounds like only debt instruments could ever be classified as F-B-O-C-I, there is an option for banks to classify equity investments as F-V-O-C-I.

However, this can only be done on an irrevocable basis, meaning the asset can never be reclassified to another financial instrument type.

This means that the treatment is typically only used for term strategic equity investments.