Response to consultation on Guidelines on disclosure requirements under Part Eight of Regulation (EU)
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Furthermore, revealing information in a standardised exposure weighted PD vs. maturity matrix could be misleading. This is due to difference in treatment of maturity in contracts in different markets/products and due to that the maturity split between different PD grades can be volatile due to credit mitigation actions. Hence, qualitative and confidential information would be needed to be able to make a fair comparison between the banks. This is a good example when more details would create more questions than answers.
Clarification will also be needed regarding the notion « value adjustments » in order to provide relevant information
Moreover, we have not been informed that investors have particular interest in the breakdown of sources of counterparty credit risk.
Therefore, we do not support providing information on the sources of counterparty credit risk for exposures measured under the Internal Model Method.
However, a breakdown of capital requirements under the internal model approach by market risk types is not useful for users as diversification will lead to the sum of the individual components greater than the aggregate number calculated at portfolio level. This would therefore risk confusing the investors. We ask that template MR1-A be re-designed to split information presented under Standardized approach and Internal model approach. In addition, we question the inclusion of settlement risk and large exposures inn this template.
Besides, we suggest not to modify the current disclosures related to market risk until the implementation of the final revision of the market risk capital requirements (FRTB) at 2019 year-end and until its transposition into the European legal framework.
However, we believe that it is necessary to ensure that the Guidelines do not contradict Article 13 CRR that limits the scope of disclosures regarding significant subsidiaries and that enumerates articles of the CRR under which information should be provided. Indeed, article 13 CRR states that “significant subsidiaries of EU parent institutions and those subsidiaries which are of material significance for their local market shall disclose the information specified in articles 437, 438, 440, 442, 450, 451 and 453, on an individual or sub-consolidated basis”.
Regarding differentiated frequency, such as semi-annual and quarterly tables and templates, we consider that an “accompanying narrative” should not be required as it adds to an unnecessary operational burden. Furthermore, the drivers behind significant changes on a Q-o-Q or H-o-H basis could be misguiding”.
Finally, as explained in our general comments, we are not convinced by the interpretation of the articles of the CRR retained by the EBA for requiring separate disclosure related to non-deducted insurance participation. Thus, we advocate for deleting the separate disclosure.
However, we note that the Basel template is still to be finalised and to ensure this standard is applied consistently globally, we believe this is something which should be consulted on after the Basel template is finalised. Affected firms would also benefit from an example template to help facilitate discussion as part of a consultation.
Indeed, issuing disclosures on institutions’ website makes the process more cumbersome. The key issue is to ensure that Pillar 3 data made available in an editable format in addition to the current format of reporting are secured and reliable. Appropriate governance and additional controls over these disclosures need to be set up. Whilst some institutions are already disclosing quantitative disclosure in an editable format, the new channel of information implies that credit institutions would have to deal with issues related to policy, protection of confidential and proprietary information and reliability and security of the data.
Besides, concerning the editable format to be used, institutions should be able to freely decide the editable format that they would use to provide information on their websites.
Please refer to question 11.
Banks can only start to implement new requirements once the new requirements have been finalized and once the “comply or explain” has been completed. They need sufficient time to analyze the final templates, assess them and organize themselves internally. Should also be considered the fact that Banks have already launched their works to collect and issue the year end Pillar 3 data.
Besides, we question the relevance of the early implementation of market risk templates as the current disclosures meet the expectations of the market and as the harmonization of the templates can be postponed after the application of the FRTB requirements (due at the end of 2019).
For these reasons, an early publication of the selected templates can only be envisaged on a best effort basis.
Please refer to Question 13.
Question 1: Do users prefer a comprehensive template providing a breakdown of capital requirements and RWA by exposure classes for credit risk in Template EU OV1-B, or would they prefer to have the detailed breakdown by exposure classes provided in Template EU CR5-B for the Standardised approach and Template EU CR6 for the IRB approach?
Template EU OV1-B provides a sufficiently comprehensive and useful breakdown of capital requirements and RWA. It is also very similar to disclosures already stipulated by the CRR. It is therefore preferable to provide the comprehensive breakdown in OV1-B than to implement it in both EU CR5-B and EU CR6 which would require significant IT investment.Question 2: Do members prefer a breakdown by exposure classes for Article 442 CRR using the granularity from COREP, the CRR or the Transparency exercise? In case users prefer a combination of the different exposure classes available in these breakdowns, please indicate the combination you would favour.
We favor a unique breakdown applied to the all the templates on the basis of the breakdown of the COREP C02 template in order to avoid duplication of various formats that will be burdensome to ensure reliable reporting.Question 3: Do you believe information on the exposure-weighted average maturity by PD grade is useful for understanding of an institution’s IRB RWA?
We question the relevance of an « exposure-weighted average » information as in most cases the information would not add value to the analysis of an institution’s IRB RWA.Furthermore, revealing information in a standardised exposure weighted PD vs. maturity matrix could be misleading. This is due to difference in treatment of maturity in contracts in different markets/products and due to that the maturity split between different PD grades can be volatile due to credit mitigation actions. Hence, qualitative and confidential information would be needed to be able to make a fair comparison between the banks. This is a good example when more details would create more questions than answers.
Question4: Would it be feasible to breakdown the value adjustments and provisions by PD grade for the fixed PD grade bands that are provided in the masterscale? Would this information be useful to users?
Such breakdown is feasible but it would be ad-hoc and on top of regular reporting. For some banks it would require additional work to produce this information. Moreover, the definition of the granular data to be provided should be assessed within the implementation of IFRS 9 and the subsequent changes that will be made to the reporting. Until then, no breakdown of value adjustments and provisions by PD grade should be required. As such, any disclosure in this area should be limited to describing processes rather than quantitative data.Clarification will also be needed regarding the notion « value adjustments » in order to provide relevant information
Question 5: Is information on the sources of counterparty credit risk (breakdown by type of transactions) for exposures measured under the Internal Model Method useful for users? Should this breakdown be expanded to the other methods of computation of the exposure value?
We have concerns over the feasibility of providing this information. IMM is based on the use of probabilistic scenarios for the evolution of risk factors which are combined with pricing model outputs to determine future potential exposures. It is not feasible to attribute scenario outputs to transaction type due to their probabilistic nature and there is no practical solution to creating a meaningful breakdown.Moreover, we have not been informed that investors have particular interest in the breakdown of sources of counterparty credit risk.
Therefore, we do not support providing information on the sources of counterparty credit risk for exposures measured under the Internal Model Method.
Question 6: Is the split of credit derivatives between used for the institution’s own credit portfolio and one for credit derivatives used in the institutions’ intermediation activities useful or relevant to users? What definitions or policies do you currently use to identify credit derivatives used for your own portfolio, and credit derivatives used for your intermediation activities?
The split of credit derivatives between institution’s own credit portfolio and intermediation activities is not required by the BCBS Revised Pillar III guidelines, neither by COREP templates. Such information is burdensome to provide. Therefore, we believe that templates regarding exposures to credit derivatives should be merged.Question 7: Which impediments, if any, including issues of availability of information, currently prevent you from disclosing the information on total (Standardised plus Internal model approaches) capital requirements by types of market risk as required under Article 445 CRR or are likely to render the disclosure of Template EU MR1-A unduly burdensome?
There is no impediment to disclose the information on capital by risk.However, a breakdown of capital requirements under the internal model approach by market risk types is not useful for users as diversification will lead to the sum of the individual components greater than the aggregate number calculated at portfolio level. This would therefore risk confusing the investors. We ask that template MR1-A be re-designed to split information presented under Standardized approach and Internal model approach. In addition, we question the inclusion of settlement risk and large exposures inn this template.
Besides, we suggest not to modify the current disclosures related to market risk until the implementation of the final revision of the market risk capital requirements (FRTB) at 2019 year-end and until its transposition into the European legal framework.
Question 8: Is the separate disclosure of end of period and average values for VaR, stressed VaR, IRC and CRM useful for users?
We question the relevance of level of the details of the disclosure. We do not believe that such details to disclose would be meaningful for users, notably as they have not even been required by the recommendations of the Basel Committee.Question 9: Do you agree with the proposed scope of application of the Guidelines?
We agree with the proposed scope of application of the Guidelines.However, we believe that it is necessary to ensure that the Guidelines do not contradict Article 13 CRR that limits the scope of disclosures regarding significant subsidiaries and that enumerates articles of the CRR under which information should be provided. Indeed, article 13 CRR states that “significant subsidiaries of EU parent institutions and those subsidiaries which are of material significance for their local market shall disclose the information specified in articles 437, 438, 440, 442, 450, 451 and 453, on an individual or sub-consolidated basis”.
Regarding differentiated frequency, such as semi-annual and quarterly tables and templates, we consider that an “accompanying narrative” should not be required as it adds to an unnecessary operational burden. Furthermore, the drivers behind significant changes on a Q-o-Q or H-o-H basis could be misguiding”.
Finally, as explained in our general comments, we are not convinced by the interpretation of the articles of the CRR retained by the EBA for requiring separate disclosure related to non-deducted insurance participation. Thus, we advocate for deleting the separate disclosure.
Question 10: In case you support the development of key risk metric template(s) that would apply to all institutions, which area of risks and metrics would you like to be covered in such template(s)?
We support the development of key risk metric templates as it is a good step towards increased consistency. We believe that key risk metric templates from the BCBS phase 2 consultation on Pillar III or templates provided by significant subsidiaries could be a good basis to assess further metrics to be covered.However, we note that the Basel template is still to be finalised and to ensure this standard is applied consistently globally, we believe this is something which should be consulted on after the Basel template is finalised. Affected firms would also benefit from an example template to help facilitate discussion as part of a consultation.
Question 11: Do you regard making available quantitative disclosures in an editable format as feasible and useful?
Making available quantitative disclosures in an editable format should be seen as a service that institutions are willing to provide. Therefore, they should be able to decide themselves if they want to provide this service to users and to which extent.Indeed, issuing disclosures on institutions’ website makes the process more cumbersome. The key issue is to ensure that Pillar 3 data made available in an editable format in addition to the current format of reporting are secured and reliable. Appropriate governance and additional controls over these disclosures need to be set up. Whilst some institutions are already disclosing quantitative disclosure in an editable format, the new channel of information implies that credit institutions would have to deal with issues related to policy, protection of confidential and proprietary information and reliability and security of the data.
Besides, concerning the editable format to be used, institutions should be able to freely decide the editable format that they would use to provide information on their websites.
Question 12: In case you do not support making available all quantitative information specified in these Guidelines under an editable format, which subset of quantitative information should in your views be made available?
Banks should decide themselves if they want to provide this service to the users.Please refer to question 11.
Question 13: Does an early implementation of a selected set of information specified in these Guidelines appear feasible?
The final guidelines will be probably published at the end of 2016 and will be finalized after further changes will be brought to the final guidelines at the completion of the consultation process. Moreover, by that time, the NCA will not be able to notify to the EBA their compliance with the guidelines.Banks can only start to implement new requirements once the new requirements have been finalized and once the “comply or explain” has been completed. They need sufficient time to analyze the final templates, assess them and organize themselves internally. Should also be considered the fact that Banks have already launched their works to collect and issue the year end Pillar 3 data.
Besides, we question the relevance of the early implementation of market risk templates as the current disclosures meet the expectations of the market and as the harmonization of the templates can be postponed after the application of the FRTB requirements (due at the end of 2019).
For these reasons, an early publication of the selected templates can only be envisaged on a best effort basis.
Question 14: Which amendments, if any, would you bring to the selected set intended to be included in the recommendation for early application?
Banks should be free to select the templates among those proposed by EBA and possibly to adapt them, and thus in a best effort mode.Please refer to Question 13.