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APRA adopts BIS Pillar 3 disclosures standards


Banking regulators worldwide are continually striving to ensure the stability of banking and financial systems. Following the global financial crisis in 2008, the Basel Committee on Banking Supervision (BCBS), the primary global standard setter for prudential regulation, introduced the Basel III reforms. The BCBS fits into the framework of the BIS, the Bank for International Settlements, as one of its primary committees. Basel III consists of three pillars, with Pillar 3 specifically concentrating on market discipline through heightened public disclosure requirements. These requirements aim to enhance transparency in financial markets and promote market discipline by disclosing pertinent regulatory information to participants.


The Australian Prudential Regulation Authority (APRA), as a member of the BCBS, is implementing these reforms in Australia, with the new Pillar 3 requirements coming into effect on 1 January 2025. In the Australian context, Pillar 3 is executed through the Australian Prudential Standard (APS) 330 – public disclosure. The changes to disclosure requirements hold particular significance for the larger banks in Australia ("Significant Financial Institutions"). 

 

This article examines the key changes introduced by APRA in its Pillar 3 disclosure requirements and assesses their impact on disclosing entities due to the additional disclosures mandated.


APRA Pillar 3 objectives 

In its August 2022 discussion paper, APRA has revised the Pillar 3 requirements with the following objectives: 

  • Aligning local disclosures with the Basel Committee's updated public disclosure requirements 

  • Enhancing the comparability of disclosures 

  • Embedding proportionality into public disclosure requirements. 


These objectives are consistent with the five key principles outlined in international guidelines for the public disclosure of information: 

  • Principle 1 – disclosures should be clear

  • Principle 2 - disclosures should be comprehensive

  • Principle 3 - disclosures should be meaningful to users. 

  • Principle 4 - disclosures should be consistent over time. 

  • Principle 5 - disclosures should be comparable between ADIs. 


The key changes to APS 330 – Public Disclosure 

The key elements of the Pillar 3 (APS 330) changes are outlined as follows: 

  • Public disclosure of information is mandated (only) for Significant Financial Institutions (SFI) and commences on 1st January 2025

  • A SFI means an ADI or authorised NOHC that is either: (a) not a foreign ADI and has total assets in excess of AUD $20 billion; or (b) determined as such by APRA.

  • For non-SFI entities, APRA has introduced a centralised publication known as ‘Quarterly authorised deposit-taking centralised publication’ as part of quarterly ADI statistics. 

  • SFI disclosure requirements includes: 

    • Aligning with BCBS disclosure requirements in terms of frequency and timings. 

    • Publishing these disclosures concurrently with the lodgement of financial reports or as soon as practical, if no financial report is to be produced. 

    • ADIs should maintain a separate ‘Regulatory Disclosure’ section on their website, for convenient access to information. 

    • All quantitative information must be disclosed in a CSV file on the ADI’s website (which should be machine readable) 

    • Providing at-least 12 months of prior information on the website. 

    • SFIs are obligated to make prudential disclosures in accordance with the BCBS standard titled "Disclosure requirements," with specified modifications outlined in Attachment A to the APS 330. The BCBS Standard, including disclosure templates and tables, is accessible on the BIS website

    • In case of any inconsistency between BCBS and local requirements, ADIs can adjust the disclosures with appropriate explanations, but APRA must be informed of these modifications in advance. 


APRA's list of SFI's as of Feb 2024: AMP Bank Limited, Australia and New Zealand Banking Group Limited, Bank of Queensland Limited, Bendigo and Adelaide Bank Limited, Commonwealth Bank of Australia, Heritage and People's Choice Limited, HSBC Bank Australia Limited, ING Bank (Australia) Limited, Macquarie Bank Limited, National Australia Bank Limited, Newcastle Greater Mutual Group Ltd, Rabobank Australia Limited, Suncorp-Metway Limited, Westpac Banking Corporation


 

The timing of the disclosures 

The implementation of the new standard is set to commence on January 1, 2025. Various disclosures will be mandated, including quarterly, semi-annual, and annual disclosures. The reporting periods of disclosures will vary based on the financial year-end of the reporting entity. 


The table below offers a summary of the timing for the initial year, 2025, outlining the disclosure requirements for different ADIs with different financial year end. 


Pillar 3 reporting timeline Australia
Pillar 3 reporting timeline Australia


The disclosures required and transition 

The new APS 330 standard directly refers to the disclosure requirements outlined on the BIS website (except for Market risk and remuneration disclosures). This implies that Australian banks must stay vigilant regarding any changes made by the Bank for International Settlements (BIS) to the disclosure requirements. 


The BIS Pillar 3 framework includes tables and templates covering all Basel disclosure requirements. The disclosures presented in the Basel Consolidated Framework are divided into multiple chapters arranged as follows:

  • Overview of the bank’s risk management, its prudential metrics and its risk-weighted assets (RWAs) that allows users to assess a bank’s position ”at a glance” and that discloses and compares modelled and standardised RWAs.

  • Separate chapters relate to the composition of capital, links between financial statements and regulatory exposures, asset encumbrance.

  • These are followed by chapters presenting disclosure requirements for each risk type (credit risk, market risk, interest rate risk in the banking book, operational risk, leverage risk and liquidity risk) and its components (such as credit risk, counterparty credit risk, securitisation and credit valuation adjustment risk).

  • Also included is a chapter describing disclosures related to macroprudential supervisory measures, such as the assessment methodology for global systemically important banks and the countercyclical capital buffer. Each chapter includes qualitative disclosure tables – for instance, for describing the governance, organisation, risk management and policies for a specific risk type – and quantitative disclosures, which may be complemented by disclosures explaining the methodology and assumptions underpinning the data and showing how these data are reconciled with accounting data.


Pillar 3 allows disclosures to be specified as either fixed or flexible format templates or tables. Disclosure frequencies vary between quarterly, semi-annual and annual, depending on the nature of the requirement. For instance, disclosures related to linkages between financial statements and regulatory exposures are generally annual; disclosures related to the composition of capital are semiannual; and disclosures of RWAs are quarterly.


Expand the chapters to view the disclosure template name and reporting frequency.


DIS20: Overview of risk management, key prudential metrics and RWA (4)

Templates

Name

Frequency

Key metrics (at consolidated group level)

Quarterly

Key metrics – total loss-absorbing capacity (TLAC) requirements (at resolution group level)

Quarterly

Bank risk management approach

Annual

Overview of risk-weighted assets (RWA)

Quarterly

DIS21: Comparison of modelled and standardised RWA (2)

DIS25: Composition of capital and TLAC (6)

DIS26: Capital distribution constraints (1)

DIS30: Links between financial statements and regulatory exposures (4)

DIS31: Asset encumbrance (1)

DIS40: Credit risk (16)

DIS42: Counterparty credit risk (8)

DIS43: Securitisation (5)

DIS45: Sovereign exposures (3)

DIS51: Credit valuation adjustment risk (6)

DIS60: Operational risk (4)

DIS70: Interest rate risk in the banking book (2)

DIS75: Macroprudential supervisory measures (2)

DIS80: Leverage ratio (2)

DIS85: Liquidity (3)


APRA has only accredited a small number of Australian Banks with approved Internal Rating Based models (IRB) (generally only the big 4 banks + Macquarie). So for Australian banks, we can summarise the new Pillar 3 requirements for two main groups: disclosures for Standardised (SA) ADIs and disclosures for Internal Rating Based (IRB) ADIs.


The table below offers a concise overview of the reporting requirements for SA and IRB ADIs:



Pillar 3 requirements summary
Pillar 3 requirements summary


The new Pillar 3 framework is a significant step-up from the current APS 330 regime, especially for the Standardised Approach Banks. SA ADIs will need to allocate significant resources to ensure they meet the new Pillar 3 requirements starting on 1 January 2025.


Fulfilling the new Pillar 3 requirements

Banks will need to assess the impact of the new Pillar 3 requirements across all pillars of their disclosure framework: 

 

These pillars are intricately interconnected, with each holding equal importance. The creation of a repeatable process hinges on having knowledgeable and well-trained individuals. Data alignment for reporting from the source system, enabled by fit-for-purpose technology to ensure consistent and high-quality disclosures are foundational. Governance and controls play a crucial role in ensuring that the established framework produces the desired outcome. 

 

By leveraging these five pillars, organizations can implement lasting regulatory changes, providing peace of mind to responsible individuals within the organisation.

 

How we can help 

APRA is rolling out its multi-year program aimed at reforming its prudential and reporting structure. Key indicators of this focus include Basel reforms, direction for data initiative, Pillar 3 disclosures, and a new data collection platform APRA Connect. The regulatory reporting landscape is emerging as a distinct area of emphasis for entities. 

Under BEAR/FAR, wherein responsible peoples bear personal responsibility, it is crucial for entities to establish a robust reporting system for Pillar 3 disclosures. RegCentric can support your organisation in transforming regulatory challenges into strategic opportunities.


Backed by a team of experts in both APRA regulations and technology, RegCentric provides cost-effective, flexible, and scalable services and solutions tailored to your specific needs. Whether complementing your existing teams or delivering our award-winning technology solution for reporting, we deliver enduring solutions to address your requirements.


To start a conversation about how we can support you, contact us today.

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