The Pillar 3 of the Basel frame work aims to promote market discipline through regulatory disclosure requirements. BCBS has set out following five guiding principles for banks’ Pillar 3 disclosures.
Principle 1: Disclosures should be clear:
The disclosure shall be in a simple language understandable to all the stake holders along with presentation of risk related information.
Principle 2: Disclosures should be comprehensive
Disclosures should describe a bank’s main activities and all significant risks with the sufficient information on a bank’s processes and procedures for identifying, measuring and managing those risks
Principle 3: Disclosures should be meaningful to users
The disclosures should focus the information on how the significant current and emerging risks are managed by the bank. Further the information which is no longer meaningful or relevant to users or do not add value to users should be removed.
Principle 4: Disclosures should be consistent over time
Disclosures should be consistent over time to enable key stakeholders to identify trends in a bank’s risk profile across all significant aspects of its business including those arising from a bank’s specific, regulatory or market developments.
Principle 5: Disclosures should be comparable across banks
The level of detail and the format of presentation of disclosures should enable key stakeholders to perform meaningful comparisons of business activities, prudential metrics, risks and risk management between banks and across jurisdictions.
Accordingly, the disclosures made by the banks should be clear, comprehensive, meaningful to users, consistent over time and comparable across banks. As per the disclosure specifications, 10 tables of qualitative information, to be reported annually and 38 templates of quantitative information, to be reported quarterly, which are fully flexible in form. The information in the tables and templates is far-reaching and covers general disclosures, risk management, scope of application, capital requirements, credit risk, counterparty credit risk and market risk.
In India, Banks are also required to comply with the Accounting Standard 1 (AS 1) on Disclosure of Accounting Policies issued by the Institute of Chartered Accountants of India (ICAI). The enhanced disclosures have been achieved through revision of Balance Sheet and Profit & Loss Account of banks and enlarging the scope of disclosures to be made in ‘Notes to Accounts’ with the 16 detailed prescribed schedules to the balance sheet.