Disclosure
The Basel Committee on Banking Supervision, in its Framework “International Convergence of Capital Measurement and Capital Standards” of June 2004, for the first time, supplemented the provisions on minimum capital requirements (Pillar 1) and the supervisory review and evaluation process (Pillar 2) by introducing transparency requirements (Pillar 3), which are intended to allow the complementary use of market mechanisms for prudential objectives. This approach is based on the expectation that well-informed market participants will reward risk-conscious management and effective risk management of credit institutions in their investment and credit decisions or sanction riskier behaviour accordingly. This provides additional incentives to credit institutions to monitor and manage their risks efficiently. In terms of content, Pillar 3 transparency requirements include the disclosure of both qualitative and quantitative information.
As a result of the international financial crisis of 2007, disclosure has become much more important and has continued to evolve in subsequent years. As of 1 January 2014, the disclosure requirements of the Basel Committee were transposed into detailed European requirements (Part 8 of the Capital Requirements Regulation) and thus constitute directly applicable EU law. In order to ensure that the disclosure reports are comprehensible and comparable between institutions, the CRR mandates the EBA to develop an Implementing Technical Standard (ITS) with uniform disclosure formats in table form and accompanying explanatory notes. The disclosure requirements of the institutions need to be fulfilled in these formats. The EBA adapts the ITS to new legal requirements if necessary.
Currently, in addition to the disclosure of risk management objectives and policies, the ITS also requires the disclosure of own funds and of own funds and liquidity requirements as well as the leverage ratio. Furthermore, the ITS requires to disclose information on different risks (such as credit, market, interest rate, environmental, social and governance risks) and (un-)encumbered assets. Additionally, the disclosure also provides transparency about the institution’s remuneration policy. Global systemically important institutions must also disclose information on the indicators of global systemic importance.
The consideration of proportionality aspects is of particular interest, especially for the large number of small institutions in Germany. The frequency and scope of disclosure is based on the size, complexity and (potential) exchange listing of an institution. Based on these indicators the scope of the information to be disclosed differs. Large listed institutions must fully comply with the disclosure requirements, while other institutions benefit from relief. For unlisted small and non-complex institutions, disclosure is limited to the annual publication of key parameters (key metrics).
In addition, the establishment of a data platform at the European level is being discussed to further improve the transparency and use of the disclosed data.