Disclosure (market discipline)
The duty of disclosure of own resources for reasons of market discipline is an instrument of European banking supervision . As the so-called 3rd pillar of Basel II , the aim is to strengthen market discipline through extensive disclosure requirements in order to give market participants a better insight into the risk profile and the adequacy of a bank's capital resources.
The disclosure obligations are to be distinguished from the reporting obligations to supervisory authorities.
history
Since the Basel consultation paper of 1999 and the revised Basel framework agreement of June 2004 (Basel II), disclosure has been prescribed for credit institutions at European level to strengthen market discipline . Disclosure has been binding for German credit institutions since the Solvency Ordinance (SolvV) came into force on January 1, 2007. The relevant provisions (Sections 319 to 337 SolvV) were amended with effect from January 1, 2014 by Part 8 (Articles 431–451) of Regulation (EU) No. 575/2013 (Capital Adequacy Regulation) (English abbreviation CRR).
Market discipline
The aim of the Basel framework agreement was to supplement the provisions on capital requirements (Pillar I) and supervisory review processes (Pillar II) for institutions through disclosure - the so-called “third pillar”. The Basel Committee on Banking Supervision intended to increase market discipline by specifying a number of disclosure requirements for the credit institutions "which allow market participants to obtain key information about the scope, equity capital, risk positions, risk measurement methods and - from this derived - to be able to assess the adequacy of the capital adequacy of the institution ”(Item 809).
International insurance supervision also follows a three-pillar approach .
Disclosure Intervals
While the Basle Framework Agreement recommended semi-annual disclosure as a rule (paragraph 818), German law generally assumed an annual disclosure interval. In individual cases, the Federal Financial Supervisory Authority (BaFin) can order more frequent than annual disclosure, "especially if this is appropriate due to the scope and structure of the business and the market activity of the institution" (Section 321 SolvV). In any case, the disclosure had to be made promptly, in accordance with the (technical) availability of the data and based on the external accounting regulations.
Larger and internationally active institutions in particular have, for image reasons and in consideration of the increased sensitivity of the banking public due to the crisis, switched to supplementing the annual disclosure with updates and reports during the year. Added to this are the legal implications of the banking crisis , which have resulted in a tightening of the disclosure requirements for certain portfolios and asset classes (securitisations) since 2011, which in the medium term also affected the frequency of disclosure. Already in the Basel framework, large and internationally active credit institutions and major subsidiaries are required to "disclose their core capital and total capital coefficients, including their components, on a quarterly basis" (item 818).
scope of application
The scope of the disclosure regulations was specified in German law in Section 319 of the SolvV, old version, according to which the requirements are to be applied to institutions, groups of institutions and financial holding groups within the meaning of the German Banking Act (KWG). In the case of an institutional or financial holding group, the disclosure requirements were only to be applied by the higher-ranking institution of the group. The regulations did not apply to subsidiaries of an institute or a financial holding group domiciled in another country of the European Economic Area, provided that group-related reporting regularly published information that is comparable to the disclosure requirements of the Solvency Regulation.
Quantitative and qualitative disclosure
Depending on the approach chosen by the institution - credit risk standard approach (CRSA) or internal ratings-based approach (IRBA) - and the institution-relevant portfolios and exposure classes, the Solvency Ordinance stipulates the quantitative disclosure of 20 to 40 reports, which relate to the area of application, the capital structure, the credit risk, derivative counterparty risk, securitisations, market risk, equity instruments, operational risks and interest rate risks. In addition, qualitative disclosure obligations were stipulated, which concerned in particular the definition of the metrics and terms used and the presentation of the institute's own approaches and methods, for example an explanation of the approach "according to which the institute uses the adequacy of its internal capital to back the current and future Activities assessed ”(Section 325 (1) SolvV old version).
As technical implementation aids, the institutes were given implementation recommendations that have been updated and published regularly since 2004 under the direction of the Bundesbank . The Bundesbank requirements had already tended to lead to a standardization in the cross-institutional presentation of the disclosure reports and to a reduction in the scope for interpretation in terms of legal and content.
Pursuant to Section 320 SolvV old version, the disclosure reports were to be published separately on the company's own internet platform or a comparable medium. The publication must be announced in the electronic Federal Gazette along with a reference to the relevant publication medium. Once the disclosure medium has been chosen, the institute should continuously use it in the interests of market transparency.
In order to protect the banking public, tracing back to the individual customer or transaction level was to be ruled out in the report presentation, i.e. the disclosure had to be made in compliance with the materiality, protection and confidentiality principles according to Section 26a of the German Banking Act (KWG). Instead, the institutes were obliged to display the qualitative and quantitative structure as well as structural changes of the main portfolios and their product-related and / or graphic distribution, which enables (potential) investors, customers and cooperation partners a sustainable classification of the assets and earnings position of the institute over time should.
Due to the legally required information quality and the need to coordinate with the reporting system (bank) as well as the external accounting, the obligation of regular disclosure was associated with high additional IT expenses, especially with regard to the standardized collection and consolidation of the institute-wide data in one revision-proof data warehouse. While smaller (KSA) institutes handled the reporting and analysis requirements associated with disclosure essentially on a case-by-case basis or on the basis of unstructured information procurement with a high level of manual effort, the use of business intelligence systems was common at medium-sized and large institutes and groups of institutes in order to Fulfill the historization requirements stipulated in the SolvV and be able to meet the obligation to promptly prepare reports (Section 321 (2) SolvV old version).
In addition to the "disciplinary" effect resulting from the disclosure for the institutes, the existing commercial and credit law regulations for the publication of key parameters were significantly improved in the direction of greater market transparency. Developments since 2007 have made it clear that disclosure is at best a sufficient protective mechanism and may require further fine-tuning in the direction of higher frequency of use.
See also
literature
- DIIR working group "Basel II": Examination of the reporting system and disclosure according to the SolvV . Journal Internal Revision ZIR 04/2008, pp. 186–191
- Roland Gabriel, Guido Golla, Tobias Hoppe (et al.): Business Intelligence as Enabler of Basel II Reporting - Effects of Disclosure Obligations according to Pillar III of the Basel Framework for the Use of a Reporting System, in: Controlling - Journal for Success-Oriented Corporate Control, 21. Year 2009, issue 10, pp. 538-544.
- Karl-Heinz Hillen, Ullrich Hartmann, Detlef Hosemann (eds.): New regulatory disclosure requirements for credit institutions: Qualitative and quantitative SolvV requirements. Implementation notes - internal / external audits, Heidelberg 2008
Individual evidence
- ↑ Wolfgang Wieshofer: Topic: New equity regulations. Supervisory review procedure and market discipline Raiffeisen-Blatt 4/2001
- ↑ Basel Committee on Banking Supervision : International Convergence of Capital Measurement and Capital Requirements. Revised framework agreement, comprehensive version. Basel, June 2006 ( online ).
- ↑ Federal Law Gazette I p. 2926
- ↑ cf. Half-yearly disclosure report. Disclosure report of the Helaba Group in accordance with CRR June 30, 2018
- ↑ cf. Sections 334 of the SolvV draft of December 10, 2009
- ↑ Deutsche Bundesbank: Examples of use by the “Disclosure Requirements” expert committee for implementing the quantitative requirements under Part 5 of the Solvency Regulation (SolvV) i. V. m. Basel II pillar 3, [o. O.] November 2006.
- ↑ cf. NRW.Bank : Disclosure report in accordance with the Solvency Regulation Regulatory Risk Report, December 31, 2013
