The Basel Committee on Banking supervision, in its Framework “International convergence of capital measurement and capital requirements” of June 2004, for the first time, supplemented the provisions on minimum capital requirements (Pillar 1) and the banking supervisory review process (Pillar 2) by also requiring transparency requirements (Pillar 3), which are intended to allow the complementary use of market mechanisms for prudential objectives. This is based on the expectation that well-informed market participants will reward risk-conscious management and effective risk management of credit institutions in their investment and credit decisions or sanction riskier behaviour accordingly. This gives credit institutions an additional incentive to control and manage their risks efficiently.
As a result of the international financial crisis of 2007, disclosure has become much more important and has continued to evolve in subsequent years. Since 1 January 2014, the disclosure requirements at the European level have been enshrined in part 8 of the Capital requirements Regulation (CRR) and thus directly applicable EU law.
In terms of content, the transparency requirements of Pillar 3 relate to the following areas:
- Scope of the capital rules
- Risk management objectives and policies
- Own funds and capital requirements
- Information on the risks incurred
- Indicators of global systemic importance
- Unencumbered assets
- Leverage Ratio
- Liquidity requirements
- Environmental, social and governance risks
In order to further improve the transparency and comprehensibility of disclosure reports and to increase their comparability between institutions, the CRR, which was amended as part of the EU banking package, mandates the EBA to draw up uniform disclosure formats in table form. For selected disclosure areas, the frequency of disclosure is also increased. In addition, the principle of proportionality is more strongly supported than before, with regard to the frequency and scope of disclosure. According to this, large, capital market-oriented institutions must fully comply with the disclosure requirements, while the other institutions will benefit from relief. For unlisted small and non-complex institutions, disclosure is restricted to the annual publication of a few regulatory metrics.