With the introduction of Basel II, the expanded disclosure under Pillar III became an integral part of the basic Basel concept. The background to this is that transparency requirements should enable the complementary use of market mechanisms for supervisory purposes. In their investment and lending decisions, well-informed market participants - so it is assumed - reward risk-aware executive boards and effective risk management and impose sanctions in response to more risky behaviour. Hence, credit institutions have an incentive to control their risks and to manage them efficiently and, thus, to act "reasonably" (in this regard please see the Introduction to Basel II on the website of the 'Deutsche Bundesbank').
Compared with Basel II, the CRD IV package, which emerged subsequently to Basel III, contains substantially revised and new disclosure requirements and the respective rules in the CRR "went live", with very few exceptions, when it entered into force on 01.01.2014.
Besides the issue of the need for more frequent disclosure (in this regard please see the BaFin Circular 05/2015), currently, the big challenge for institutions is the radical overhaul by the Basel Committee of the Pillar III "disclosure framework", which can be viewed as "disclosure 2.0" (please see the final Basel standard from 28.01.2015).
The aim of the new Basel disclosure framework is the further encouragement of market discipline. The new regulations are intended to reduce information asymmetries further and to expand the comparability of information relating to the risk profile of banks - across borders, too. Market participants should have access to comprehensive, meaningful information about the most important risk parameters of a bank in order to be able to make a correct assessment of the risk profile and capital adequacy. The focus of the revised regulations for Pillar III is still the information for Pillar I. Where required, supplementary qualitative information will have to be provided in order to improve the understanding for market participants.
The new framework replaces the BCBS Framework from 2004, including the adjustments from July 2009 and supplements other documents published by the BCBS that are mentioned in Annex II of the standard. This is relevant for banks with international operations at the highest consolidation level. The implementation by the standard-setter is planned for 31.12.2016 and it is recommended that the disclosure report should be published for the first time in accordance with the new legislation together with the balance sheet as at 31.12.2016.
The new framework is concerned not only with a structured presentation but also with one that is considerably more comprehensive than required under the CRR and there is a commitment to differentiate between annual, semi-annual and quarterly disclosure. Moreover, the disclosure requirements will be implemented through 29 templates and 11 tables and, in addition a hierarchy will be introduced: fixed formats for information that is important in order to be able to analyse regulatory capital adequacy, and flexible formats that are concerned with other information that is important for market participants.
New Features - Example 1: Template "LI1“
Annually disclosed template, based on an individual balance sheet, that highlights the differences between the accounting and regulatory scopes of consolidation at the line item level in the balance sheet. Furthermore, the mapping to regulatory risk categories of "adjusted" balance sheet items will also occur (thus items after adjusting for the regulatory scope of consolidation). The format is flexible, however, it has to be aligned with the balance sheet of the institution concerned.
New Features - Example 2: Template "CCR5“
Semi-annual disclosure of a template that shows the fair values of all collateral posted or received in connection with counterparty credit risk exposures from derivative transactions and repo/lending transactions. Here, the differentiation is according to types of collateral and, in part, whether or not this collateral is held in a "bankruptcy-remote" manner. The format is fixed.
New Features - Example 3: Template "CCR7“
Quarterly disclosure of a template that shows changes in counterparty credit risk RWA that are subject to the IMM "treatment". In this respect, based on the value at the start of the reporting period, there is a mapping of the calculation to show how the amount at the end of the period has been derived. In principle, the format is fixed however banks may make additions.
[Source: final Basel standard from 28.01.2015]
These examples are representative for the complex requirements of the new framework and they serve to underline that it would be appropriate to engage with this issue now already. This is particularly true given that, apparently, there is a desire to stick to the proposed "implementation road map" at the European level, too. It has been stated that the EBA is already working on guidelines that should enable the institutions to adhere to the timetable.