Pillar 3 Disclosures to be Structured?
Many readers familiar with financial supervision and regulation will be aware of the so-called “Pillar 3” disclosure requirements which oblige banks and insurance companies to make a range of quantitative and qualitative public disclosures about the risks that they face and they way they manage them. There is much to be said for using disclosure as an additional policy lever to encourage prudent behaviour, as it allows markets to gain at least a partial insight into the risk management and compliance performance of financial institutions.
The problem with Pillar 3 reports is that they are not readily discoverable, nor are they usable or especially comparable. Today’s rules require simply that Pillar 3 reports are made available to the public. In practice this means that there is somewhere on the web site of each financial institution a PDF document, or documents, that can give you this information. The Principles governing these disclosures state that “Information should be disseminated in ways best designed to bring it to the attention of market participants, but taking into account the relative costs of different methods of dissemination. One method of dissemination that supervisors could strongly encourage is disclosure through electronic channels (e.g. internet).” Today, this is not enough.
The data is not structured, and pulling together this kind of information, is, in practice, extremely complex.
So last week in Warsaw it was very encouraging to hear from the European Insurance and Pensions Regulator, EIOPA, that they will be examining whether to structure the Pillar 3 disclosures in their upcoming agenda. Since this presumably represents a relatively straightforward subset of existing XBRL-based filings to the insurance supervisors in Europe, this would not involve significant burden.
Of course, there is still the question of discovery — even structured data on company websites is not necessarily easily found. One more thing to consider. We’ll post links to the slides as soon as they are available.