Shearman & Sterling LLP | Financial Regulatory Developments Focus | <span >Basel Committee Proposes Revisions to Pillar 3 Disclosure Framework</span >
Financial Regulatory Developments Focus
  • Basel Committee Proposes Revisions to Pillar 3 Disclosure Framework

    The Basel Committee on Banking Supervision has published a Consultation on its proposals for the third phase of the Pillar 3 Framework. Pillar 3 comprises a set of quantitative and qualitative disclosure requirements applicable to banks in relation to capital, risk exposures and risk assessment processes, which are designed to allow other market participants to assess each bank’s capital adequacy.

    The Pillar 3 framework was last updated in March 2017, following a Basel Committee review. The Basel Committee now proposes some revisions and additions to the Pillar 3 framework which result from the finalization of the Basel III framework in December 2017. The Consultation sets out revised disclosure requirements for: credit risk (including disclosures for prudential treatment of problem assets); operational risk; leverage ratio; credit valuation adjustment (CVA); and for overview templates on risk management, risk-weighted assets (RWA) and key prudential metrics. The Consultation also sets out new disclosure requirements to benchmark the RWA outcomes of banks’ internal models with RWA calculated according to the standardised approaches.

    The Basel Committee believes disclosure of information by banks on encumbered and unencumbered asset breakdowns is meaningful to users of Pillar 3 data, as this information enables a preliminary overview on the extent to which a bank’s assets remain available to creditors in the event of insolvency. To capture this information, the Basel Committee proposes to introduce a new template for banks to disclose information on their encumbered and unencumbered assets.

    The Basel Committee is also proposing 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 template for this disclosure will provide that the disclosure would be mandatory for banks only when required by their national supervisors.

    Finally, Template CC1, which was introduced in March 2017 to provide for disclosures on the composition of a bank’s regulatory capital, currently applies at the level of the consolidated group. The BCBS seeks feedback on the advantages and disadvantages of expanding the scope of application of Template CC1 to resolution groups.

    Comments on the Consultation are invited by May 25, 2018.

    View the Consultation.

    View the feedback form.