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Wednesday, February 18, 2015

Pillar III Reports go through a makeover

The bank for International Settlements has been very busy over the last few months publishing amendments to both Basel II and Basel III, and it was only a matter of time before Pillar III was swung in for a similar maker over.

New Pillar III Requirements
A few days ago the Bank for International Settlements released a revised pillar 3 disclosure requirements standard [LINK] that as the regulator puts it; will be "mandatory for all banks" which are currently publishing pillar 3 information.

Is this a big deal? ... Well for some banks it will be because their pillar 3 submissions are currently very basic and this document is pretty extensive.  Here are a few of the catches for risk managers that will need attention, starting with showing the attribution of risk across the balance sheet.

Many risk departments don't report risk in this manner but in silos and they list credit risk in one section of their reports and market risk in another but not anymore.  Going forwards, the various market, credit and counterparty risk exposures for different balance sheet items need to be referenced or tagged across a balance sheet in a balance sheet view.

There is also the introduction to an obligatory "qualitative section" in the pillar III report or as the Bank for International Settlements describes it, "figures must also be accompanied by a qualitative discussion"

Pillar III - Qualitative Disclosure

The Bank for International Settlements has made an effort to detail in a relatively explicit way what should appear in these qualitative write ups so that banks are kept on the straight and narrow with what they say.

Finally, there is also going to be a tightening on the conformity with which banks must report, taking in; [1] The frequency of reporting, [2] What is to be reported and [3] How it is to be tabled.  There is going to be nowhere to hide in this report once banks are brought inline with what is stipulated.

Pillar III - Mandatory Fields

Some banks aren't even reporting counterparty risk or flow statements and backtests, so for them; this could be a lot of work and they have just under two years to meet the deadline.

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