09 December 2013
The European Banking Authority (EBA) published today a follow-up review aimed at assessing the disclosures made by 19 European institutions in response to the Basel Pillar 3 requirements, as set out in the EU Capital Requirements Directive (CRD). Overall, despite improvements in some specific areas, credit institutions' compliance with disclosure requirements remains unchanged compared to last year's assessment where no bank had fully met all the requirements. The report also highlighted that comparability and consistency of disclosures between the different institutions could be improved.
This EBA report focused, in particular, on those areas where the need for improvement had already been identified in the past: namely scope of application, own-funds and disclosures related to credit exposures under the Internal Ratings Based (IRB) approach, securitisation, market risk and remuneration. For each of these areas, the report identified best practices, and encourages institutions to implement them so as to improve their compliance with disclosure requirements, as well as the relevance of their disclosures. Best practices sometimes resulted from the implementation of recommendations from other official or industry-led initiatives carried out in 2012 and 2013 to improve disclosure.
The report also highlighted some improvements on scope of application and own-funds, with an increase in information on the differences between the accounting and regulatory scope of consolidation, as well as on the reconciliation between the accounting own-funds and the capital instruments. Nevertheless, improvements are still needed on the applicability of disclosure requirements, the granularity of deductions from capital, and information on the terms and conditions of capital instruments.
On the other hand, disclosures regarding credit exposures under the IRB approach, securitisation activities and market risk have showed only marginal improvements, if any. In particular, for IRB exposures, improvements are needed regarding information on losses and their back testing, and additional granularity should be provided in the description of rating processes as well as in the breakdown of exposures by internal grades. Compliance of securitisation disclosures should be improved especially in regard to risk management descriptions and the scope of quantitative disclosures. As for disclosures on market risk, improvements have been made with respect to disclosures on VaR and backtesting of models, but more remains to be done, especially regarding the breakdown of capital requirements, internal model methodologies by portfolios and prudent valuation of exposures.
Finally, disclosures on remuneration were assessed as satisfactory, although quantitative information should, in general, be improved, especially regarding the breakdown of remuneration outstanding by business lines and vested and unvested amounts.
The findings of this assessment were presented to the public on November 28, 2013 and are available on the EBA Transparency Workshop page.
Based on the findings and content of this report, the EBA will continue to promote more compliant, consistent and comparable disclosures and in line with its mandate set out in the CRR, it will produce Guidelines on different areas of disclosure. In addition, the EBA will continue to push for improvements in the consistency of disclosures, including in the short term.