Key issues of the circular:
Part 8 of Regulation (EU) No 575/2013 ("CRR") stipulates rules, under which institutions are obliged to disclose information regarding their business. Articles 431 to 455 CRR give details on which information must be disclosed and to what extent.
On 23 December 2014, the European Banking Authority ("EBA") published guidelines on materiality, proprietary, confidentiality and disclosure frequency. Those guidelines address credit institutions and investment firms and specify the disclosure requirements with which institutions must comply under part 8 of CRR. In June 2015, the German Federal Financial Supervisory Authority ("BaFin") published a circular regarding the interpretation of those guidelines.
The BaFin circular complies with the guidelines set out by the EBA. It implements the EBA guidelines into German law.
The key issues are:
1. Subject matter, scope and definitions:
2. The guidelines are addressed to institutions that are required to comply with the obligations regulated in part 8 of the CRR. The guidelines specify the concept of materiality (Art. 432 para. 2 CRR), provide rules on treatment of proprietary or confidential information (Art. 432 para. 2 CRR) and provide details on the determination of the frequency of disclosure (Art. 433 CRR).
Considerations for assessing materiality of disclosures:
Institutions are allowed to waive the disclosure requirements of the CRR, with the exception of information relating to their own funds and to their remuneration policy, if the information provided by such disclosures is not regarded as material. On the other hand, assessing an item of information as material as per the provisions can lead institutions to provide disclosure exceeding the applicable disclosure requirements. In these cases institutions should pay attention to the following criteria (without being limited):
- Business model, based on individual indicators, and long-term strategy;
- The size - expressed as a share of regulatory, financial or profitability metrics or aggregates or as a nominal amount - of the item of information or element to which the information is related and for which materiality is assessed;
- The influence of the element to which an item of information is related on the development of total risk exposures or the overall risk profile of the institution.
The guidelines give indications as to whether an item of information may be considered material. Some considerations (without being limited) are:
- Materiality should be assessed for both qualitative and quantitative disclosure requirements;
- Materiality should be assessed at the level of each individual disclosure requirement and, where relevant, on an aggregate basis. In particular institutions should assess whether the cumulative effect of omitting specific disclosure requirements that are regarded individually as immaterial would result in the omission of information that could influence the economic decisions of users;
- Materiality should be assessed taking into consideration the circumstances and the broader context at the time of disclosure - for example the influence of the economic and political environment.
3. Considerations for assessing the proprietary or confidential nature of disclosure:
The guidelines give detailed indications about whether an item of information may be proprietary or confidential.
4. Considerations regarding the need to assess the disclosure of information more frequently than annually:
All institutions should assess the need to disclose some or all information required by the CRR more frequently than annually in light of the criteria specified by the CRR and in accordance with the rules set out by the BaFin guidelines.
The BaFin guidelines also give an indication about the circumstances under which there might be the need to provide more frequent disclosures.
5. Disclosures to be provided by institutions when applying disclosure waivers:
If an institution decides not to disclose information or a set of requirements due to immateriality, it has to clearly state this fact.
In cases where information is assessed as proprietary or confidential in accordance with the BaFin guidelines, the institutions are obliged to provide special information about the type of confidential information and the reasoning for non-disclosure.
6. Disclosures to be provided more frequently than annually:
There may be a need to provide information more frequently than annually. The details are described in the guidelines.
7. Processes and internal arrangements:
The formal institutional policies for assessing the appropriateness of disclosure, including the frequency of disclosure, should include an adequate process covering the use of waivers for omitting disclosures in accordance with the CRR as well as the assessment of the frequency of disclosures in accordance with the CRR.
The process may be included in an existing process, designed to take decisions related to disclosure topics, as long as it complies with special features defined in the BaFin guidelines.
Institutions should fully document and maintain internally appropriate evidence of their implementation of the processes described above.
For more information, please refer to the BaFin homepage.