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The evolving landscape of Pillar 3

  • 28 Jun 2018
  • Karthik Sathuragiri
  • General

Pillar 3 is part of a framework designed by the Basel Committee on Banking Supervision (BCBS) for capital measurement and capital standards.

Specifically, Pillar 3 focuses on the public disclosure requirements that banks and insurance companies must follow. These disclosures range from information related to the risks these entities face to what their risk management policies are, as well as information related to regulatory capital and remuneration policies.

The aim of the Pillar 3 disclosures is to promote increased transparency and discipline across financial markets, and to bolster confidence in them.

Although the core disclosure requirements of Pillar 3 may have changed over time, such amendments show a consistent commitment to responsible reporting and disclosure on the part of banks and insurers.

Consultation on changes to Pillar 3 disclosure requirements

The requirements under Pillar 3 have gone through a number of changes over the years. For example, the 2004 Pillar 3 disclosure requirements were revised in January 2015. Then, in March 2017, further revisions to the remit of Pillar 3 disclosures were made. Together, these revisions were known as the first and second phases of the Pillar 3 disclosure framework.

However, still more changes are underway. On 27 February 2018, the BCBS issued a consultation to discuss updating the framework for Pillar 3.

The proposals follow the finalisation of the post-crisis regulatory reforms undertaken in December 2017 in relation to Basel III and include proposals for both new and revised disclosure requirements.

In terms of what’s new, there are proposals to include disclosure requirements relating to asset encumbrance and capital distribution constraints as well as a new disclosure to benchmark the risk-weighted asset (RWA) outcomes of banks’ internal models with RWA calculated according to the standardised approaches.

There are numerous revisions proposed, including revised disclosure requirements regarding credit risk, operational risk, leverage ratio, and credit valuation adjustment. There are also proposals to revise requirements when it comes to overview templates covering areas such as key prudential metrics, RWA, and risk management.

These proposals are expected to comprise a single Pillar 3 framework, in conjunction with the first and second phases of the framework.

The consultation ended on 25 May 2018, and responses to the consultation are expected to be shown on the BIS (Bank for International Settlements) website.

Are further revisions on the cards?

It’s safe to say that the BCBS has its hands full already with the recent consultation on Pillar 3. However, there’s always a chance that further changes are on the horizon.

XBRL, for example, recently reported that the European Insurance and Occupational Pensions Authority (EIOPA) may be looking into whether Pillar 3 disclosures should be structured, following comments made by EIOPA during the recent Eurofiling XBRL week in Warsaw.

If Pillar 3 disclosures were to be structured, this would certainly help increase the transparency of such disclosures to the general public and could help further improve the comparability of reports between entities. However, for now, we will have to wait and see whether anything comes of it.

DataTracks specialises in the latest regulatory and legislative frameworks, including Pillar 3 reporting. If you are looking for a cost-effective and accurate reporting solution visit www.datatracks.eu for the solutions we offer. We look forward to hearing from you!

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