Pillar 3 disclosures: completion of stage 2 | KPMG | IE

Pillar 3 disclosures: completion of stage 2

Pillar 3 disclosures: completion of stage 2

Following the first stage of the Basel Committee’s revised Pillar 3 disclosure requirements (in January 2015) the Committee has now completed the second stage.

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Following the first stage of the Basel Committee’s revised Pillar 3 disclosure requirements (in January 2015) the Committee has now completed the second stage (PDF 191 KB).

This second stage introduces:

  1. A consolidation of all existing Basel Committee disclosure requirements into the Pillar 3 framework. This includes the composition of capital, the leverage ratio, the Liquidity Coverage Ratio and Net Stable Funding Ratio (NSFR), the indicators for determining globally systemically important banks (G-SIBs), the countercyclical capital buffer, interest rate risk in the banking book, and remuneration.
  2. Revisions and additions to Pillar 3 disclosure arising from continuing reforms to the regulatory policy framework. This includes the total loss-absorbing capacity (TLAC) regime for G-SIBs issued in November 2015, and revised disclosure requirements for market risk arising from the market risk framework issued in January 2016.
  3. Two enhancements to the Pillar 3 framework: (i) a “dashboard” of a bank’s key prudential metrics which will provide users of Pillar 3 data with an overview of a bank’s prudential position; and (ii) a new disclosure requirement for those banks which record prudent valuation adjustments (PVAs), to provide users with a granular breakdown of how a bank’s PVAs are calculated.

Overall, this combination of consolidation and enhancement results in the specification of 63 templates that banks should complete and publish (although not all the templates are relevant to all banks).The frequency of reporting varies across the templates, with some being quarterly, some half-yearly, and some annual.

Reflecting the state of policy development and the implementation dates for each policy, the implementation date for each template also varies. Many apply from end-2016, but others will be introduced from end-2017 (leverage ratio, LCR), 2018 (composition of capital, NSFR, interest rate risk in the banking book, and PVA adjustments), and 2019 (TLAC, and the second phase of market risk).

This second stage does not include any disclosure requirements that may arise from the Committee’s “finalisation of Basel III” (credit risk, operational risk and any “capital floor”).The Committee has therefore commenced work on a third stage of its review of Pillar 3, to develop disclosure requirements for:

  • The proposed revisions to credit risk capital requirements;
  • The proposed revisions to operational risk capital requirements;
  • How banks using internal models for credit and/or market risk would also disclose a standardised approach calculation;
  • Asset encumbrance; and 
  • Any other policy reforms that have not yet been finalised.

Although Basel requirements are not binding immediately on banks, they do provide insights into supervisory expectations of best practice and they also ultimately inform the EU rule makers.

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