Basel releases consultation on disclosure requirements
27 February 2018 Zurich
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The Basel Committee on Banking Supervision (BIS) has released a consultation paper to update Pillar 3 disclosure requirements, a framework that seeks to promote market discipline through regulatory disclosure requirements.
Many of the proposed disclosure requirements are related to the finalisation of the Basel III post-crisis regulatory reforms in December 2017 and include new or revised requirements.
The revisions focus on credit risk, which includes provisions for prudential treatment of assets, operational risk, and the leverage ratio and credit valuation adjustment.
BIS explained that this would benchmark a bank's risk-weighted assets (RWA) as calculated by its internal models with RWA calculated according to the standardised approaches which
provide an overview of risk management, key prudential metrics and RWA.
BIS requested respondents’ views on the proposed disclosure requirements set out within the consultative document as well as views on the advantages and disadvantages of expanding the scope of application of Template CC1 to resolution groups, relative to retaining its current scope of application to the consolidated group.
Template CC1 provides a breakdown of the constituent elements of a bank’s capital—after the transition period for the phasing-in of deductions ends on 1 January 2018.
In addition, the consultation proposes new disclosure requirements on asset encumbrance and capital distribution constraints.
According to the consultation paper, “the committee views disclosure of information by banks on encumbered and unencumbered asset breakdowns as meaningful to users of Pillar 3 data, providing a preliminary overview on the extent to which a bank’s assets remain available to creditors in the event of insolvency”.
It also stated: “The Committee is thus proposing the introduction of a new template, which would require banks to disclose information on their encumbered and unencumbered assets.”
Concerning capital distribution constraints, Basel said: The Committee is also proposing disclosure requirements to provide users of Pillar 3 data with information on the capital ratio of a bank that would result in national supervisors imposing constraints on capital distributions.”
Though it added: “The Committee is mindful that the proposed disclosure could, under certain circumstances, lead to a bank disclosing its Pillar 2 requirements, which could be deemed by supervisors to be sensitive information. The template thus sets out that the disclosure would be mandatory for banks only when required by their national supervisors.”
The Committee previously added revisions to the Pillar 3 disclosure requirements in March 2017.
The March 2017 standard completed the second phase of the Committee’s review of the Pillar 3 framework.
It comprised a consolidation of all existing and prospective BIS disclosure requirements into the Pillar 3 framework, as well as an introduction of a dashboard of a bank’s key prudential metrics and a disclosure requirement for banks which record prudent valuation adjustments.
In addition, it also comprised of revisions and additions to the Pillar 3 standard arising from changes to the regulatory policy framework.
The Committee has asked for comment to be given by 25 May 2018.
Many of the proposed disclosure requirements are related to the finalisation of the Basel III post-crisis regulatory reforms in December 2017 and include new or revised requirements.
The revisions focus on credit risk, which includes provisions for prudential treatment of assets, operational risk, and the leverage ratio and credit valuation adjustment.
BIS explained that this would benchmark a bank's risk-weighted assets (RWA) as calculated by its internal models with RWA calculated according to the standardised approaches which
provide an overview of risk management, key prudential metrics and RWA.
BIS requested respondents’ views on the proposed disclosure requirements set out within the consultative document as well as views on the advantages and disadvantages of expanding the scope of application of Template CC1 to resolution groups, relative to retaining its current scope of application to the consolidated group.
Template CC1 provides a breakdown of the constituent elements of a bank’s capital—after the transition period for the phasing-in of deductions ends on 1 January 2018.
In addition, the consultation proposes new disclosure requirements on asset encumbrance and capital distribution constraints.
According to the consultation paper, “the committee views disclosure of information by banks on encumbered and unencumbered asset breakdowns as meaningful to users of Pillar 3 data, providing a preliminary overview on the extent to which a bank’s assets remain available to creditors in the event of insolvency”.
It also stated: “The Committee is thus proposing the introduction of a new template, which would require banks to disclose information on their encumbered and unencumbered assets.”
Concerning capital distribution constraints, Basel said: The Committee is also proposing disclosure requirements to provide users of Pillar 3 data with information on the capital ratio of a bank that would result in national supervisors imposing constraints on capital distributions.”
Though it added: “The Committee is mindful that the proposed disclosure could, under certain circumstances, lead to a bank disclosing its Pillar 2 requirements, which could be deemed by supervisors to be sensitive information. The template thus sets out that the disclosure would be mandatory for banks only when required by their national supervisors.”
The Committee previously added revisions to the Pillar 3 disclosure requirements in March 2017.
The March 2017 standard completed the second phase of the Committee’s review of the Pillar 3 framework.
It comprised a consolidation of all existing and prospective BIS disclosure requirements into the Pillar 3 framework, as well as an introduction of a dashboard of a bank’s key prudential metrics and a disclosure requirement for banks which record prudent valuation adjustments.
In addition, it also comprised of revisions and additions to the Pillar 3 standard arising from changes to the regulatory policy framework.
The Committee has asked for comment to be given by 25 May 2018.
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