The Basel Committee today released a technical amendment on additional Pillar 3 disclosure requirements for those jurisdictions implementing an expected credit loss (ECL) accounting model as well as for those adopting transitional arrangements for the regulatory treatment of accounting provisions.
Technical amendments are defined as changes in standards that are not substantial in nature but that cannot be unambiguously resolved based on the current text. This specific amendment is intended to provide users with disclosures that fully reflect any transitional effects for the impact of ECL accounting on regulatory capital, as well as to provide further information on the allocation of accounting provisions in the regulatory categories of general and specific provisions for standardised exposures during the interim period.
The consolidated Pillar 3 disclosure standard issued in March 2017 introduced two new disclosure templates (Templates KM1 and KM2) to provide users of Pillar 3 data with a set of key prudential metrics in a format that facilitates comparisons of a bank’s performance and trends over time, improving market discipline in the process. Template KM1 will provide users of Pillar 3 data with a time series set of key prudential metrics covering a bank’s available capital (including buffer requirements and ratios), its risk- weighted assets (RWA), leverage ratio, Liquidity Coverage Ratio and Net Stable Funding Ratio. Template KM2 requires G-SIBs to disclose key metrics on Total Loss-Absorbing Capacity (TLAC). Both templates must be published quarterly.2
As set out in the Committee’s publication on the regulatory treatment of accounting provisions, the standard requires banks to publicly disclose whether they are applying a transitional arrangement for the impact of expected credit loss accounting on regulatory capital. If a transitional arrangement is applied, Template KM1 will provide users with information on the impact on the bank’s regulatory capital and leverage ratios compared to the bank’s “fully loaded” capital and leverage ratios had the transitional arrangement not been applied.
In order to provide users with disclosures that fully reflect any transitional effects for the impact expected credit loss accounting on regulatory capital, as well as to provide further information on the allocation of ECL accounting provisions in the regulatory categories of general and specific provisions for standardised exposures during the interim period, the following disclosures in the Pillar 3 standard will apply:
- Template KM2 (Key metrics – Total Loss-Absorbing Capacity (TLAC) requirements at resolution group level). Additional disclosures require banks to disclose the “fully loaded” impact of ECL transitional arrangements used in TLAC resources and ratios.
- Template CR1 (Credit quality of assets). Given that the existing regulatory distinction between general provisions (GP) and special provisions (SP) does not directly correspond to how provisions would be measured under the new ECL accounting standards, additional disclosures are required on the allocation between general and specific provisions for standardised approach exposures.
- Table CRB (Additional disclosures related to credit quality of assets). This amendment accompanies those related to CR1. Banks are required to disclose the rationale for their categorisation of ECL accounting provisions in general and specific categories for standardised approach exposures.