Final draft ITS on disclosure (Revised 14/11/2024)

General Information

This document is the final draft of the implementing technical standards (ITS) related to the public disclosure obligations of financial institutions, prepared by the European Banking Authority (EBA) in 2024. It aims to update and replace Implementing Regulation (EU) 2021/637, incorporating amendments introduced by Regulation (EU) 2024/1623 which transposes the international Basel III standards into the European regulatory framework. The scope covers prudential requirements for credit institutions, notably the disclosure of own funds, risk-weighted assets, leverage ratios, credit, market, operational risks, as well as environmental, social, and governance (ESG) risks. The document concerns all institutions subject to Regulation (EU) No 575/2013, with entry into force planned for 1 January 2025 (p. 1-14).

Executive Summary

The final ITS draft on public disclosure aims to harmonize and update disclosure formats of financial institutions in line with European and international regulatory developments, notably the integration of Basel III standards via Regulation (EU) 2024/1623. This update is essential to ensure transparency, comparability, and consistency of published information on own funds, risk exposures, leverage ratios, liquidity, ESG risks, and crypto-assets. Key novelties include the introduction of new disclosure templates for market risk under the FRTB framework, consideration of the output floor for internal models, and enhanced requirements for ESG risk disclosure aligned with Regulation (EU) 2020/852. The document also specifies disclosure modalities for crypto-asset exposures during the transitional period. The EBA is tasked with developing IT solutions to facilitate implementation and data comparability. The regulation will enter into force on 1 January 2025, with transition periods for certain aspects, notably market risk. Institutions will need to adapt their systems to comply with these new obligations, which strengthen the quality and transparency of information provided to stakeholders and supervisory authorities (p. 1-14).

Context and Objectives

This document was drafted to update the implementing technical standards related to the public disclosure of prudential information by financial institutions, in response to European and international regulatory developments, notably the integration of Basel III standards into the European framework via Regulation (EU) 2024/1623. The objective is to ensure uniform, consistent, and transparent application of disclosure requirements, covering own funds, credit, market, operational risks, as well as risks linked to ESG factors and crypto-assets. The document also aims to facilitate market and authority access to comparable and comprehensive information to assess the financial soundness of institutions. Limitations include dependency on the availability of ESG data from counterparties not subject to certain reporting obligations, and the need for an adaptation period for institutions (p. 1-6).

Summary of Key Points by Theme

Prudential standards and disclosure: The document updates disclosure formats to reflect the requirements of Regulation (EU) 2024/1623, integrating Basel III standards, notably the disclosure of own funds, risk-weighted assets (RWA), leverage ratio, and liquidity requirements (liquidity coverage ratio, net stable funding ratio) (p. 2-8).

Credit risks: Institutions must disclose credit risk exposures according to standardized and IRB approaches, with increased granularity for different exposure classes (institutions, corporates, mortgage loans, etc.), as well as credit risk mitigation techniques (p. 8-9).

Market risks: Introduction of a new capital requirement calculation framework for market risk based on the Fundamental Review of the Trading Book (FRTB) by the Basel Committee. Institutions using alternative internal models must provide qualitative and quantitative information at first application (p. 9-10).

Operational risks: Adoption of a single non-modelled approach based on the Business Indicator Component (BIC) for capital requirement calculation, with disclosure of annual operational losses over 10 years for informational purposes (p. 10).

ESG risks: ESG disclosure requirements are aligned with Regulation (EU) 2020/852, including qualitative and quantitative information on climate-related risks, sustainable economic activities, and mitigation actions. Data collection from counterparties not subject to certain obligations is voluntary and may be supplemented by internal estimates (p. 10-12).

Crypto-assets: Specific provisions for disclosure of exposures to crypto-assets during the transitional period before the entry into force of definitive rules (p. 12).

IT solutions: The EBA will develop IT solutions to facilitate disclosure according to uniform formats, allowing flexibility in graphical representation while ensuring data completeness (p. 12-13).

Frequency and disclosure modalities: Institutions must publish information on a quarterly, semi-annual, or annual basis, with precise rules on reference periods and data presentation (p. 13).

Main Findings and Lessons Learned

Established facts: The regulation establishes a harmonized and updated framework for prudential information disclosure, integrating Basel III standards, the FRTB framework for market risk, and ESG requirements in accordance with Regulation (EU) 2020/852. It specifies disclosure obligations on own funds, credit, market, operational risks, as well as exposures to crypto-assets (p. 1-14).

Assumptions: ESG data collection partly relies on voluntary cooperation of counterparties not subject to legal reporting obligations, which may limit information completeness (p. 11).

Interpretations: The EBA considers that implementing these standards will enhance transparency and data comparability, thereby improving the capacity of markets and authorities to assess the soundness of financial institutions (p. 5-6).

Uncertainties: The transition to new requirements, notably for market risk under FRTB and crypto-asset disclosure, requires adaptation of institutions’ internal systems, with potential risks related to data quality and availability (p. 5-13).

Conclusions and Author’s Recommendations

The final regulation adopted by the European Commission replaces the previous Implementing Regulation (EU) 2021/637 as of 1 January 2025, with a transitional period until 31 December 2025 for certain provisions related to market risk. It requires financial institutions to comply with new uniform disclosure formats covering a wide range of prudential risks, including ESG risks and crypto-assets. The EBA is responsible for providing IT solutions to facilitate implementation and ensure data consistency. Institutions must adapt their information systems to meet these requirements, ensuring clarity, accuracy, and comparability of published information. The regulation aims to strengthen transparency on loss absorption capacity, risk management, and sustainability, thus contributing to the stability of the European banking sector (p. 5-14).