The Basel Committee released a Consultative Document in mid-2014 which proposed a review of the Basel "Pillar 3" disclosure requirements, which aim to promote market discipline through market disclosure of meaningful information about banks' key risk metrics and risk profiles, in response to the failings within the Pillar 3 framework which were highlighted by the global financial crisis. The Consultative Document made several proposals for revisions to the existing Basel Pillar 3 requirements, primarily to introduce a "hierarchy" of disclosures and the mandatory use of new, prescriptive reporting templates. The first phase of the review focused on the disclosure requirements in the areas of credit risk, market risk, counterparty credit risk, equity risk and securitisation. The Basel Committee has now released its final set of Revised Pillar 3 Disclosure Requirements, which are described as not introducing additional requirements as compared to the existing regime (rather the intention is to formulate clearer requirements in order to improve consistency and comparability), and as a result: (i) amend the reporting frequency of certain disclosures, over a quarterly, semi-annual and annual schedule; (ii) streamline the requirements for the disclosure of credit risk exposures and credit risk mitigation techniques; and (iii) clarify and streamline the disclosure requirements for securitisation exposures. Banks are required to submit completed disclosure templates (covering general disclosures about their risk management approach, their overall risk-weighted assets, differences between accounting and regulatory reports, credit risk, counterparty risk, market risk, operational risk, interest rate risk in the banking book, and securitisation) according to a set publishing frequency, and according to new principles that their disclosures must be clear, comprehensive, meaningful to users, consistent over time and comparable across banks. In relation to the mandatory securitisation disclosures, banks must make qualitative disclosures about their securitisation exposures, using table SECA which requires banks to provide qualitative information on their objectives, strategy and risk management with respect to securitisation, a list of SPVs, ABCP conduits, affiliated entities, entities to which implicit support is being provided, their accounting policies for securitisation, the rating agencies used to rate deals, and their implementation of Basel III. Banks must also complete quantitative disclosure templates SEC1, SEC2, SEC3 and SEC4, which capture information about the amount of securitisation exposures in their banking books and trading books, and (where securitisations meet the requirements for risk transfer recognition), separate information about exposures where the bank acts as originator/sponsor or as investor. The qualitative disclosures related to securitisation are required to be disclosed annually (using a flexible format), and the quantitative disclosures are required to be made semi-annually (using a mix of flexible and fixed format templates). Narrative commentary must accompany the disclosure templates which should present information additional to banks' business models that may not be adequately captured by the templates. Competent authorities are to enforce the new disclosure requirements from end-2016 (i.e. banks will be required to publish their first Pillar 3 report under this revised framework concurrently with their year-end 2016 financial reports), although early adoption is encouraged.
Basel Committee Consultative Document (June 2014)
Basel Committee Final Standard -Revised Pillar 3 Disclosure Requirements