Featured Product

    EBA Assesses Pillar 3 Disclosures, Issues Pillar 3 Framework Strategy

    March 02, 2020

    EBA published the strategy to implement a comprehensive Pillar 3 framework, along with a report that presents results of the assessment of Pillar 3 disclosures of institutions in EU. The report identifies best practices and potential areas for improvement in institutions’ public disclosures, based on a sample of institutions and a subset of standards included in the guidelines. The report also includes a high‐level assessment of the information on sustainability and on environmental, social, and governance (ESG) risks that institutions are already including in their Pillar 3 reports. Overall, progress was observed in the prudential disclosures by institutions; however, some practices may still impair the proper communication of their risk profile in a comparable way, compromising the ultimate objective of market discipline.

    As part of the Pillar 3 strategy, EBA expects develop the implementing technical standards on

    • Total loss-absorbing capacity (TLAC)/minimum requirement for own funds and eligible liabilities (MREL) disclosures, with a consultation in the fourth quarter of 2019 and the expected application date of June 2021
    • Interest rate risk in the banking book (IRRBB) disclosure requirements, with a consultation in the second half of 2021 and the expected application date in June 2021
    • Disclosure of global systemically important institutions (G-SIIs) indicators, with a consultation in the first half of 2020 and the expected application date in June 2021
    • Disclosures required of investment firms under IFR, with a consultation in the second half of 2020 and expected application date in 2021
    • Disclosures of ESG risks, including climate change risks, with a consultation paper in the fourth quarter of 2020 and the expected application date in June 2022

    In the assessment report, EBA observes that institutions are on the correct path toward achieving consistency and comparability through the implementation of common disclosure formats, accompanied by qualitative explanations that help communicate meaningful prudential information. However, room for improvement exists as the following findings may hamper the ability of users to access, understand, and compare the information:

    • Omissions or incomplete disclosures without any indications or explanations
    • Unclear identification and location of Pillar 3 reports that hinders the ability of users to find them
    • Lack of consistency in the structure of Pillar 3 reports and of some of the information reported, particularly qualitative information
    • Oversimplification of interim reports compared to the end-of-year reports
    • Lack of reconciliation of quantitative information across disclosure templates or inconsistent ways to calculate quantitative flows of information

    Furthermore, EBA has observed that, although the disclosure of information on ESG risks is still scarce and presented in a dispersed way, institutions recognized in their Pillar 3 reports that integration of sustainability considerations in their strategic agenda plays an increasingly important role in the reputation of a company. Institutions also recognized that issues such as sustainability and digital transformation have started to take on a leading role in the regulatory agenda. The report specifies that, in line with the policy expectations described in EBA action plan on sustainable finance (published in December 2019), EBA expects institutions to:

    • Provide a comprehensive and meaningful picture of their risk profile, including ESG and climate change risks, in their Pillar 3 reports
    • Elaborate on the potential impact of these risks and how they are integrating them into their risk management framework
    • Focus, in the short term, on simple metrics that help to explain how they are embedding these type of risks into their strategy and risk management, such as a green assets ratio, building on existing disclosure standards

    In the medium or long term, EBA policy work on implementing the disclosure on ESG risks, as required in the amended Capital Requirements Regulation (CRR2), will contribute to enhanced Pillar 3 disclosures on ESG risks by institutions. This high‐level assessment of information on ESG risks will be a valid input to the EBA policy work on ESG risks disclosures, which will be carried out in 2020 and will follow the mandate included in Article 434a of CRR2. The assessment covers 12 systemically important credit institutions and is based on the end-2018 disclosure reference date, with some extended and partial assessment of the disclosures as of June 2019.

     

    Related Links

    Keywords: Europe, EU, Banking, Pillar 3, Disclosures, Basel III, ESG, CRR2, Sustainable Finance, Climate Change Risk, IRRBB, TLAC, MREL, EBA

    Featured Experts
    Related Articles
    News

    EBA Updates List of Validation Rules for Reporting by Banks

    EBA issued a revised list of validation rules with respect to the implementing technical standards on supervisory reporting.

    September 10, 2020 WebPage Regulatory News
    News

    EBA Responds to EC Call for Advice to Strengthen AML/CFT Framework

    EBA published its response to the call for advice of EC on ways to strengthen the EU legal framework on anti-money laundering and countering the financing of terrorism (AML/CFT).

    September 10, 2020 WebPage Regulatory News
    News

    NGFS Advocates Environmental Risk Analysis for Financial Sector

    NGFS published a paper on the overview of environmental risk analysis by financial institutions and an occasional paper on the case studies on environmental risk analysis methodologies.

    September 10, 2020 WebPage Regulatory News
    News

    MAS Issues Guidelines to Promote Senior Management Accountability

    MAS published the guidelines on individual accountability and conduct at financial institutions.

    September 10, 2020 WebPage Regulatory News
    News

    APRA Formalizes Capital Treatment and Reporting of COVID-19 Loans

    APRA published final versions of the prudential standard APS 220 on credit quality and the reporting standard ARS 923.2 on repayment deferrals.

    September 09, 2020 WebPage Regulatory News
    News

    SRB Chair Discusses Path to Harmonized Liquidation Regime for Banks

    SRB published two articles, with one article discussing the framework in place to safeguard financial stability amid crisis and the other article outlining the path to a harmonized and predictable liquidation regime.

    September 09, 2020 WebPage Regulatory News
    News

    FSB Workshop Discusses Preliminary Findings of Too-Big-To-Fail Reforms

    FSB hosted a virtual workshop as part of the consultation process for its evaluation of the too-big-to-fail reforms.

    September 09, 2020 WebPage Regulatory News
    News

    ECB Updates List of Supervised Entities in EU in September 2020

    ECB updated the list of supervised entities in EU, with the number of significant supervised entities being 115.

    September 08, 2020 WebPage Regulatory News
    News

    OSFI Identifies Focus Areas to Strengthen Third-Party Risk Management

    OSFI published the key findings of a study on third-party risk management.

    September 08, 2020 WebPage Regulatory News
    News

    FSB Extends Implementation Timeline for Framework on SFTs

    FSB is extending the implementation timeline, by one year, for the minimum haircut standards for non-centrally cleared securities financing transactions or SFTs.

    September 07, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5796