A change in intent and ability to continue with a specific classification to maturity. More specifically, tainting occurs if an entity changes its intent or is no longer able to hold a financial security to its contractual maturity. In this situation, the entire portfolio of financial securities is said to be tainted, and as a result it must be reclassified as available for sale (AFS). Broadly speaking, this situation taints the management’s intent and ability to hold the entire portfolio to maturity, prompting reclassification of it.

In practice, there are many cases where tainting is ruled out, i.e., no reclassification is required:

• Evidence of a substantial deterioration in an issuer’s credit rating.
• In case an entity aims to maintain its credit risk policy or interest rate risk position by entering into a business combination or shedding part of its equity or equity holdings.
• A change in statutory or regulatory requirements that causes an entity to offload held-to-maturity (HTM) financial securities.
• Downsizing due to measures taken in response to increased capital requirements in a jurisdiction, causing the entity to dispose of HTM securities.