Covid-19 pandemic impacts on banking disclosure requirements

Flexibility in publishing Pillar 3 disclosures

Taking into account the impact of the Covid-19 pandemic, the PRA (following the EBA’s recommendations) announced that it will be flexible in assessing compliance with deadlines for the Pillar 3 disclosures. Although the Capital Requirement Regulation (CRR) requires that Pillar 3 disclosures are published along with (or shortly after) the financial statements, the PRA will be flexible if there is a lag time between the two publications.

The EBA and the PRA advised that in the event of a delay in publishing the Pillar 3 disclosures, they will expect firms to inform their supervisors and market participants.

Additional disclosures expected by the supervisors and market participants

In March 2020, the EBA recommended that competent authorities and institutions assess the need for additional Pillar 3 disclosures on prudential information that may be necessary to properly convey the risk profile of a firm in the context of the Covid-19 pandemic. The EBA remained vague on how this may impact Pillar 3 disclosures.

Liquidity Coverage Ratio

In April 2020, the PRA clarifies that where firms follow the EBA's recommendation to assess the need for additional disclosures and, in that context, choose to make additional disclosures relating to the LCR, these should be calculated using the average of 12-monthly end points[1].  

Credit risk exposures

Late April 2020, the European Commission issued a legislative proposal to amend the CRR in response to the Covid-19 pandemic. This amendment extends the transitional period for the IFRS 9 application to mitigate the impact of a sudden increase in Expected Credit Loss (ECL) provisions due to the economic consequences of the Covid-19 crisis.

As per the Article 473a of the CRR proposal, institutions should provide insightful disclosures on the determination of ECL under IFRS 9, including information on potential negative. Also, the institutions that have decided to apply the transitional arrangements should disclose the amounts of own funds, Common Equity Tier 1 capital and Tier 1 capital, the Common Equity Tier 1 capital ratio, the Tier 1 capital ratio, the total capital ratio and the leverage ratio they would have in case they were not to apply. Such disclosures would allow market participants to make informed assessments on the credit risk exposures of banks.

In June 2020, the EBA published guidelines on reporting and disclosure of exposures subject to measures applied in response to the Covid-19 crisis. The guidelines comprised a set of new templates to report on exposures, subject to legislative and non-legislative moratoria and on newly originated exposures, subject to public guarantee schemes applied in response to the Covid-19 crisis.

The disclosure should take place twice a year with the first reference date as of 30 June 2020. National supervisors have the discretion to apply a proportionality principle, considering size, nature, scope, complexity of activities and risk profile of institutions, the specificities of their banking sector and waive application of certain reporting requirements for individual or groups of institutions.

Other aspects

Despite the lack of guidance, it is generally expected that firms assess and disclose significant changes in their approach to risk management, risk appetite, regulatory capital, stress testing and important variance in risk weighted assets, liquidity profile and exposures. In response to the pandemic, most firms have been impacted and adjusted various aspects of their operations. It is recommended that they disclose those changes in their Pillar III disclosures.

Upcoming revisions of the Pillar 3 requirements

European Commission

In May 2019, the European Commission issued a revision to the CRR (CRR2) outlining that current disclosure requirements prescribed in Part Eight are disproportionate and burdensome for smaller institutions. Therefore, these should be required to produce less frequent and detailed disclosures than their larger peers. The main application date for CRR2 is 28 June 2021. In the context of the current pandemic, this has now been further postponed.

Basel Committee for Banking Supervision

In March 2020, the Group of Governors and Heads of Supervision (GHOS) announced a deferral of Basel 3.1 implementation to increase operational capacity of banks and supervisors, in response to Covid-19. The implementation date of the revised Pillar 3 disclosures requirements has been deferred to 1 January 2023.

For more information about our capabilities please contact us.

[1] as specified in the EBA guidelines on the LCR disclosure