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?
You will need to make your Pillar 3 disclosures when you have calculated your CRD capital requirements. Disclosures should be made on an annual basis at a minimum and as soon as practicable. The precise date for the Pillar 3 disclosures will be determined by you. It will be influenced by a variety of factors such as the accounting period and the legal status of your firm.
You may need to differentiate between disclosures that are based on accounting year-end data and those that are not:
- Pillar 3 disclosures that are readily available to the firms (not based on accounting year-end data) should be disclosed during the calendar year. For example, if a firm receives authorisation to use an advanced prudential approach during 2008, but its accounting year-end is on 31 December 2008, then these Pillar 3 disclosures (not based on accounting year-end data) should be published during 2008.
- Pillar 3 disclosures that are not readily available to the firms and are based on accounting year-end data will have to be published as soon as practicable after the year-end. For example, if a firm receives an advanced prudential approach during 2008, but its accounting year-end is on 31 December 2008, then the section of Pillar 3 disclosures that are linked to the accounting year-end data may be published in early 2009.
Where should Pillar 3 disclosures be made?
It is up to each firm to determine the most appropriate medium (e.g. website or annual report) and location of publication. If Pillar 3 disclosures are not included in one location, you must indicate where they can be found.
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