Pillar 3 Disclosures Need Further Improvement
In a recent report the European Banking Authority (EBA) has noted some improved consistency in Pillar 3 prudential disclosures, although further improvements are necessary.
Pillar 3 disclosures are designed to foster increased transparency and market discipline by requiring regulated firms to make a range of prudential information about banks (and insurance companies) public. However, the disclosures are typically difficult to find on company websites, the data is often criticised as too aggregate and it tends to lack comparability and structure. The practical utility of some of these disclosures tends to be limited.
The recent introduction of the common Pillar 3 framework of common disclosure formats and qualitative explanations has, to some extent, introduced more consistency and comparability within Pillar 3 disclosures. However, as the EBA’s report identities, there is still room for improvement. Reports are still hard to find, inconsistent, and oversimplified, there is a lack of consistency in the information reported, and frequent omission of information – without reasons – can be observed.
Our view? Introducing common disclosure formats is a step in the right direction. However, for Pillar 3 disclosures to be really useful they should be reported in Inline XBRL (or xBRL-JSON) meaning that the data would be digital, searchable, interoperable and comparable. Until data in this area is structured and machine-readable, Pillar 3 disclosures will not provide proper transparency or broadly useful, widely accessible information.
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