On 11 December 2018, the Basel Committee on Banking Supervision (Basel Committee) published its final standards on the updated framework for Pillar 3 disclosure requirements (the Standards).
The Basel Committee has updated the Pillar 3 disclosure requirements following a consultation that took place between 27 February 2018 and 25 May 2018.
The updated Pillar 3 disclosure requirements cover three elements:
- revisions and additions to the Pillar 3 framework arising from the finalisation of the Basel III post-crisis regulatory reforms in December 2017. These include the revised disclosure requirements for credit risk, operational risk, leverage ratio, credit valuation adjustment and overview templates on risk management, risk-weighted assets (RWA) and key prudential metrics. It also covers new disclosure requirements to compare RWA outcomes of banks’ internal models with RWA calculated according to the full standardised approaches;
- new disclosure requirements on asset encumbrance. This standard introduces new disclosure requirements which require banks to disclose information on their encumbered and unencumbered assets; and
- new disclosure requirements on capital distribution constraints. This standard includes new disclosure requirements to provide users of Pillar 3 data with information on the capital ratio of a bank that would result in national supervisors imposing constraints on capital distributions. The disclosure will primarily enable users of Pillar 3 data to make more informed decisions about the risks of coupon cancellation for capital instruments, thereby potentially enhancing both price discovery and market stability. This disclosure is mandatory for banks only when required by their national supervisor at the jurisdictional level.
Section 1 of the Standards provides an overview of the new and revised Pillar 3 disclosure requirements, which are explored in more depth in the succeeding sections.
A schedule is provided on pages 11 to 14 of the Standards offering the format, frequency and timing of publication for the disclosure requirements for the three Pillar 3 standards (published in 2015, 2017 and 2018). The implementation deadline for the disclosure requirements related to the finalised Basel III framework remains unchanged at 1 January 2022, to align with the implementation of the framework.