Basel IV: Disclosure

The Basel Committee on Banking Supervision has undertaken a comprehensive revision of banks' regulatory disclosure ("Pillar 3") in two phases so far (BCBS 309 and 356). The aim is to improve the comparability of institutions' disclosures and, among other things, to encourage institutions to be more transparent by imposing minimum disclosure requirements over and above the regulatory reports and economic requirements of Pillar 1 and Pillar 2. Of course, disclosure was also adapted to the new regulatory requirements of Pillar 1 and Pillar 2, such as the new standardised approaches for counterparty and market risks or also for interest rate risks in the banking book and SREP surcharges.

At the European level, the proposals of the Basel Committee were initially implemented through an EBA guideline to ensure their application at least for systemically important banks from the end of 2017. The guideline provides 56 format requirements for quantitative and qualitative disclosures as well as textual explanations. The structure is based on a standardised format that is already established within the framework of the COREP and FINREP Pillar 1 reports. In addition, the guideline includes a higher reporting frequency: the amount of own funds or the risk-weighted exposure values are to be reported every six months, for example. The new regulations initially apply only to global and otherwise systemically important institutions (GSRI/ASRI), but an extension to other banks is possible at the discretion of the supervisors.

The draft CRR II, which is currently in the EU trilogue process, provides for adjustments to regulatory disclosure for all banks. These concern, among other things, the new Pillar 1 capital approaches, but also investments in material participations in insurance companies that are not deducted from own funds, LCR and NSFR, hypothetical RWA according to standard approaches for model users, RWA changes in internal models, interest rate risks in the banking book, OpRisk losses, MREL requirements and SREP surcharges. In addition, the CRR II draft includes more proportional disclosure requirements in terms of scope and frequency depending on the size and complexity of the institutions.

For the banks, the changes result in several implications and need for action. On the one hand, the Pillar 3 infrastructure of the banks must guarantee granular, reconcilable and consistent reporting. The disclosure strategy should also harmonise with the company's communication strategy. In addition, there are also high requirements and implementation efforts with regard to the data budgets. In particular, an IT implementation closely based on the reporting system (COREP and FINREP) is necessary. Finally, the increased transparency requirements also result in a need for explanations regarding the bank's own positions as well as deviations from comparable banks in a peer group. Therefore, active management of the disclosed information to achieve the best possible presentation of the bank is of great value.

KPMG provides banks with advice and support in this regard through institution-specific analyses and gap analyses on disclosure processes and the scope of information to be disclosed, taking into account the size and complexity of the institution. Building on extensive project experience and benchmark know-how/peer comparisons, we help you to ensure adequate disclosure.