Pillar 3
Practical Information for firms on Pillar 3
Why do the markets need more disclosures and why Pillar 3?
Pillar 3 complements the minimum capital requirements (Pillar 1) and the supervisory review process (Pillar 2). Its aim is to encourage market discipline by developing a set of disclosure requirements which will allow market participants to assess key pieces of information on a firm's capital, risk exposures and risk assessment processes. The disclosures are to be made to the market for the benefit of the market.
The FSA is adopting a risk-based approach to monitoring and enforcing firms' compliance with the market discipline disclosure requirements. We expect the market to play a key role in monitoring and promoting compliance with the Pillar 3 disclosure requirements.
For more information on the Pillar 3 requirements, see chapter 15 of CP05/3, chapter 17 of CP06/3 and the Handbook rules and guidance in BIPRU 11.
Under which conditions could disclosures not be required?
We do not expect disclosures to be made if the information is regarded as immaterial or proprietary/confidential.
- Information should be considered as material if its omission or mis-statement could change or influence the assessment or decision of a user relying on it to make economic decisions.
- Proprietary or confidential information could include information which, if shared with competitors, would render a firm's investments less valuable or if the information comprises obligations to customers or other counterparty relationships binding a firm to confidentiality.
When does a firm subject to CRD need to make its first Pillar 3 disclosures?
Disclosure requirements do not apply until you have calculated your firm's capital requirements as described in the Capital Requirements Directive (CRD). The following table sets out when we expect firms to make P3 disclosures.
| Approach | Standardised and foundation Internal Ratings Based (IRB). | Advanced IRB. |
|---|---|---|
| Timing of P3 disclosures for the first time | 2007 or 2008, but no later than 31 December. | 2008 or 2009 depending on your accounting year end. |
Firms using advanced approach
You should release P3 disclosures that are readily available (not based on accounting year-end data) during the calendar year 2008. For example, if you receive authorisation to use an advanced prudential approach during 2008, you should publish P3 disclosures (not based on accounting year-end data) during 2008.
P3 disclosures that are not readily available to the firms and are based on accounting year-end data must be published as soon as practicable after the year-end. For example, if your firm receives authorisation to use an advanced prudential approach during 2008 and your accounting year-end is 31 December 2008, then you should publish the section of P3 disclosures that are linked to the accounting year-end data as soon as possible after the year-end 2009. If your accounting year-end is 30 June 2008 and you have received authorisation to use an advanced prudential approach during 2008, then you should publish the section of P3 disclosures linked to your accounting year-end data as soon as possible after 30 June 2009.
Firms using standardised approach
For firms using standardised or Foundation IRB approach, you should release P3 disclosures as soon as possible in 2007 or 2008 depending on when your firm moves to the full set of CRD rules. For example, if your P3 disclosures are based on accounting year-end data and if the accounting year-end is 30 November 2008, then you should publish P3 disclosures as soon as possible after the year-end.
A firm must be able to demonstrate that it has published its P3 disclosures as soon as was practicable, and without any undue delay.
Where should Pillar 3 disclosures be made?
BIPRU 11.3.1R requires firms to publicly disclose information required under Pillar 3. The purpose of Pillar 3 is to make disclosures easily available to the market.
Firms may publish Pillar 3 disclosures in their annual accounts. However, where they choose to publish disclosures in a separate document, a firm must indicate in its financial statements where the disclosures can be found. Where a firm chooses to present its Pillar 3 disclosures in a separate document and does not have its own website to host the disclosures, it should consider the availability of third party websites to host disclosures.
To the degree feasible, a firm must provide all disclosures in one location. However, if Pillar 3 disclosures are not included in a single location, firms must indicate where they can be found by providing adequate cross references. A firm must follow the provisions of BIPRU 11.3.10R.
How does Pillar 3 interact with other disclosure requirements?
There will be some overlap between the CRD requirements and other disclosure requirements such as the accounting disclosures IFRS 7. There are also disclosure requirements such as those required by Statute or Listing rules. We expect the overlap to be greater for qualitative rather than quantitative disclosures.
The FSA is not going to publish a list of accounting disclosures that could be considered to be equivalent to Pillar 3 disclosures. The reason for that is that firstly, accounting disclosures are based on financial accounting whereas Pillar 3 is based on prudential accounting and secondly what is deemed to be equivalent for one firm might not be equivalent for another firm.
We expect management to be able to justify and explain which Pillar 3 disclosures are deemed to be equivalent to accounting disclosures or not.
Pillar 3 embedded waivers
Pillar 3 waivers are available to firms which have a non EEA parent and can demonstrate that disclosures made by their parent are comparable to FSA disclosure requirements.
Information on the Pillar 3 waiver and guidance on how to apply