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EBA Guidelines on Materiality, Proprietary Nature, Confidentiality and Frequency of Disclosures (CRR Part Eight)

Core Content

The European Banking Authority (EBA) issued guidelines in accordance with Articles 432 and 433 of Regulation (EU) 575/2013 (CRR), aimed at enhancing the quality, comparability, and consistency of disclosures by financial institutions. These guidelines cover the criteria for determining materiality, the treatment of proprietary and confidential information, and the frequency of disclosures.

Main Points

1. Mandate, Scope and Format

• Scope: The guidelines apply to institutions already subject to CRR disclosure requirements.
• Disclosure Waivers: Institutions may omit certain information if it is not material, but there are exceptions:
  • Information on internal models (e.g., IRB Approach, AMA, internal market risk models), credit risk mitigation techniques, own funds, remuneration, and diversity policy for board members must not be omitted.
• Frequency of Disclosures: Disclosures should be published at least annually. Institutions may choose to disclose more frequently if needed, especially for items prone to rapid change.
• Guidelines Issuance: The EBA issued these guidelines by 31 December 2014 and implemented them from 1 January 2015.

2. Processes and Internal Policies

• Dedicated Process: Institutions should have a dedicated process for assessing the use of disclosure waivers and determining the frequency of disclosures.
• Internal Policies:
  • Must be approved by management and implemented by senior management.
  • Should include a transparency dimension.
  • Internal Transparency: Documentation and evidence of the policy implementation.
  • External Transparency: Summary of the policies included in the disclosure document.

3. Materiality

• Definition: Materiality is an institution-specific concept and depends on its risk profile.
• Assessment Criteria:
  • Regular assessment (at least annually) of each disclosure requirement.
  • Consideration of the context, including the institution's business model, economic environment, and risk trends.
  • Size and nature of the information.
  • Impact on risk profile and RWA.
  • Amplitude of change compared to previous years.
• Dynamic Nature: Materiality can change over time, leading to variations in the types and extent of disclosures.
• Transparency Requirement: If information is not disclosed due to materiality, a statement should be provided explaining the rationale.

4. Confidentiality and Proprietary Nature

• Proprietary Information: Information that, if disclosed, could significantly impact the institution's results or competitive position (e.g., products, systems, business strategies).
• Confidential Information: Information protected by legal confidentiality regimes, such as names of counterparties.
• Transparency Requirement: Institutions must state the type of information considered confidential or proprietary and the justification for its classification.
• Disclosure Standards: Information disclosed after using these waivers must still convey the comprehensive risk profile of the institution.

5. Frequency of Disclosures

• No New Requirements: The guidelines do not extend the scope of CRR disclosure requirements or add new ones.

• Applicability: Only institutions already under CRR disclosure requirements are subject to these guidelines.

• Key Indicators for More Frequent Disclosures:

  • Being one of the three largest institutions in the home Member State.
  • Consolidated assets exceeding €30 billion.
  • 4-year average of total assets exceeding 20% of the home Member State's GDP.
  • Leverage ratio exposures exceeding €200 billion.

• Minimum Disclosures:

  • Quarterly for institutions with leverage ratio exposures > €200 billion:
    • Capital amounts, adjustments, and ratios (Tier 1, AT1, Tier 2, Total capital).
    • Leverage ratio.
    • Capital requirements and RWA (credit, market, securitisation, operational risk).
    • Items prone to rapid change.
  • Semi-annually for other institutions:
    • Capital amounts, adjustments, and ratios.
    • Leverage ratio.
    • Capital requirements and RWA.
    • Risk exposures and items prone to rapid change.

• Flexibility: More frequent disclosures are expected but not mandatory. Institutions may choose to disclose more than the minimum if needed.

Key Information

• Implementation Date: Guidelines were to be issued by 31 December 2014 and implemented from 1 January 2015.
• Consultation Period: Open until 13 September 2014 via the EBA website.
• Consideration of Basel Committee: Final guidelines will take into account the Basel Committee's analysis on Pillar 3 disclosure requirements.

Questions for Consultation

• Q1 & Q2: Should the process for using disclosure waivers and assessing frequency be formalized? What features of the process should be included or excluded?
• Q3 & Q4: Should the guidelines be more detailed on what is expected from institutions when assessing materiality? Are the current principles and indicators sufficient?
• Q5 & Q9: What additional elements should be considered in the assessment of confidentiality and proprietary nature? What techniques could be used to disclose meaningful information while respecting confidentiality?
• Q6, Q10 & Q11: Are the current indicators for determining the need for more frequent disclosures appropriate? Should the frequency or the list of information be adjusted?
• Q12 & Q13: Do you agree with the proposed implementation date? Is the analysis of the impact of the proposals accurate?

Conclusion

The EBA guidelines aim to provide a common and flexible framework for financial institutions to assess and apply disclosure waivers, and to determine the frequency of disclosures. They emphasize transparency, consistency, and institution-specific considerations in the context of regulatory requirements.