Scope of application

4.The revised disclosure requirements presented in this guidance supersede the existing Pillar 3 disclosure requirements issued in 2009. These revised requirements are an integral part of the Basel framework and they complement other disclosure requirements issued separately by Central Bank, which are uploaded on Central Bank's website/online portal for banks to download. Pillar 3 applies to all banks in the UAE at the top consolidated level for local banks and all branches of foreign banks. Banks having a banking subsidiary will be required to be consolidated at Group level as one Pillar 3 report as well as at subsidiary solo level as a separate Pillar 3 report Banks offering Islamic financial services should comply with these disclosure requirements. These requirements are applicable to their activities that are in line with Islamic Sharia rules and principals, which are neither interest-based lending nor borrowing but are parallel to the activities described in these Guidance and Explanatory Notes

Implementation date

5.The Pillar 3 tables and disclosures will be effective from the beginning of 2019 for the previous year's figures and every year going forward. Banks need to report in each table as per the requirements for that table set out in the Appendix since few tables are required to be reported every quarter or semi-annually or annually.

Reporting

6.Banks should publish their Pillar 3 report in a stand-alone document on the bank’s UAE-specific website that provides a readily accessible source of prudential measures for users. The Pillar 3 report may be appended to form a discrete section of a bank’s financial reporting, but the full report will be needed to be disclosed separately in the Pillar 3 tables as well.

7.Signposting of disclosure requirements is permitted in certain circumstances, as set out in paragraphs 21–23 below. Banks should also make available on their websites a 5-year archive of Pillar 3 reports (i.e. quarterly, semi-annual or annual) relating to prior reporting periods (past 5 years’ data)

Frequency and timing of disclosures

8.The reporting frequencies for each disclosure requirement are set out in the schedule in paragraph 27 below. The frequencies vary between quarterly, semi-annual and annual reporting depending upon the nature of the specific disclosure requirement. If a bank publishes interim financial statements, then the bank should publish the quarterly Pillar 3 report, three (3) weeks after the interim financial statements are published. For banks who do not have an interim financial statement, the Pillar 3 quarterly report needs to be published 6 weeks from quarter end.

9.A bank’s Pillar 3 report should be published with its financial report for the corresponding period as mandated in paragraph 8 above. If a Pillar 3 disclosure is required to be published for a period when a bank does not produce any financial report, the disclosure requirement should be published as soon as possible. However, the time lag should not exceed that allowed to the bank for its regular financial reporting period-ends (e.g. if a bank reports only annually and its annual financial statements are made available six weeks after the end of the annual reporting period-end, interim Pillar 3 disclosures on a quarterly and/or semi-annual basis should be available within six weeks after the end of the relevant quarter or semester).

Assurance of Pillar 3 data

10.The information provided by banks under Pillar 3 should be subject, at a minimum, to the same level of internal review and internal control processes as the information provided by banks for their financial reporting (i.e. the level of assurance should be the same as for information provided within the management discussion and analysis part of the financial report).

1. •The Pillar 3 Disclosures and reports have to be reviewed by internal audit of all bank for all Pillar 3 reports.
2. •All local banks and large foreign banks will need to have the annual Pillar 3 reports externally audited every two (2) years and smaller foreign banks (as defined in paragraph 27) will need to have the annual Pillar 3 reports externally audited every four (4) years.

11.Banks should also have a formal board-approved disclosure policy for Pillar 3 information that sets out the internal controls and procedures for disclosure of such information. The key elements of this policy should be described in the year-end Pillar 3 report. The board of directors and senior management are responsible for establishing and maintaining an effective internal control structure over the disclosure of financial information, including Pillar 3 disclosures. They should also ensure that appropriate review of the disclosures takes place. One or more senior officers of a bank, ideally at board level or equivalent, should attest in writing that Pillar 3 disclosures have been prepared in accordance with the board-agreed internal control processes. For larger banks, Board member attestation will be expected.

Proprietary and confidential information

12.The Central Bank believes that the disclosure requirements set out below strike an appropriate balance between the need for meaningful disclosure and the protection of proprietary and confidential information. In exceptional cases, disclosure of certain items required by Pillar 3 may reveal the position of a bank or contravene its legal obligations by making public information that is proprietary or confidential in nature. In such cases, a bank would need to approach the Central Bank first and obtain approval for non-disclosure of such information they deem to be confidential. The Central Bank will review the information and provide approval if the bank does not need to disclose those specific items, but should disclose more general information about the subject matter of the requirement instead. The bank should also explain to Central Bank the specific items of information that cannot be disclosed and the reasons for this.

13.The Central Bank has agreed upon five guiding principles for banks’ Pillar 3 disclosures. Pillar 3 complements the minimum risk-based capital requirements and other quantitative requirements (Pillar 1) and the supervisory review process (Pillar 2) and aims to promote market discipline by providing meaningful regulatory information to investors and other interested parties on a consistent and comparable basis. The guiding principles aim to provide a firm foundation for achieving transparent, high-quality Pillar 3 risk disclosures that will enable users to better understand and compare a bank’s business and its risks.

14.The principles are as follows:

Principle 1: Disclosures should be clear

Disclosures should be presented in a form that is understandable to key stakeholders (i.e. investors, analysts, financial customers and others) and communicated through an accessible medium. Important messages should be highlighted and easy to find. Complex issues should be explained in simple language with important terms defined. Related risk information should be presented together.

Principle 2: Disclosures should be comprehensive

Disclosures should describe a bank’s main activities and all significant risks, supported by relevant underlying data and information. Significant changes in risk exposures between reporting periods should be described, together with the appropriate response by management.

Disclosures should provide sufficient information in both qualitative and quantitative terms on a bank’s processes and procedures for identifying, measuring and managing those risks. The level of detail of such disclosure should be proportionate to a bank’s complexity.

Approaches to disclosure should be sufficiently flexible to reflect how senior management and the board of directors internally assess and manage risks and strategy, helping users to better understand a bank’s risk tolerance/appetite.

Principle 3: Disclosures should be meaningful to users

Disclosures should highlight a bank’s most significant current and emerging risks and how those risks are managed, including information that is likely to receive market attention. Where meaningful, linkages should be provided to line items on the balance sheet or the income statement. Disclosures that do not add value to users’ understanding or do not communicate useful information should be avoided. Furthermore, information, which is no longer meaningful or relevant to users, should be removed.

Principle 4: Disclosures should be consistent over time

Disclosures should be consistent over time to enable key stakeholders to identify trends in a bank’s risk profile across all significant aspects of its business. Additions, deletions and other important changes in disclosures from previous reports, including those arising from a bank’s specific, regulatory or market developments, should be highlighted and explained.

Principle 5: Disclosures should be comparable across banks

The level of detail and the format of presentation of disclosures should enable key stakeholders to perform meaningful comparisons of business activities, prudential metrics, risks and risk management between banks and across jurisdictions.

Templates and tables

15.The disclosure requirements are presented either in the form of templates or of tables. Templates should be completed with quantitative data in accordance with the definitions provided. Tables generally relate to qualitative requirements, but quantitative information is also required in some instances. Banks may choose the format they prefer when presenting the information requested in tables.

16.In line with Principle 3 above, the information provided in the templates and tables should be meaningful to users. The disclosure requirements in this guidance that necessitate an assessment from banks are specifically identified. When preparing these individual tables and templates, banks will need to consider carefully how widely the disclosure requirement should apply. If a bank considers that the information requested in a template or table would not be meaningful to users, for example because the exposures and RWA amounts are deemed immaterial, it may choose not to disclose part or all of the information requested. In such circumstances, however, the bank will be required to explain in a narrative commentary why it considers such information not to be meaningful to users. It should describe the portfolios excluded from the disclosure requirement and the aggregate total RWAs those portfolios represent.

Templates with a fixed format

17.Where the format of a template is described as fixed, banks should complete the fields in accordance with the instructions given.

18.If a row/column is not considered to be relevant to a bank’s activities the bank may delete the specific row/column from the template, but the numbering of the subsequent rows and columns should not be altered. Banks may add extra rows and extra columns to fixed format templates if they wish to provide additional detail to a disclosure requirement by adding sub-rows or columns, but the numbering of prescribed rows and columns in the template should not be altered.

Templates/tables with a flexible format

19.Where the format of a template is described as flexible, banks may present the required information either in the format provided in this guidance or in one that better suits the bank. The format for the presentation of qualitative information in tables is not prescribed.

20.However, where a customized presentation of the information is used, the bank should provide information comparable with that required in the disclosure requirement (i.e. at a similar level of granularity as if the template/table were completed as presented in this document).

Signposting

21.Banks may disclose in a document separate from their Pillar 3 report (e.g. in a bank’s annual report or through published regulatory reporting) the templates/tables with a flexible format, and the fixed format templates where the criteria in paragraph 22 are met. In such circumstances, the specific Pillar 3 table(s) may form a section in a bank’s financial reporting, but the full table will be needed to be disclosed in the Pillar 3 tables separately as well.

22.The disclosure requirements for templates with a fixed format can be disclosed by banks in a separate document other than the Pillar 3 report provided all of the following criteria are met:

1. •the information contained in the signposted document is equivalent in terms of presentation and content to that required in the fixed template and allows users to make meaningful comparisons with information provided by banks disclosing the fixed format templates;
2. •the information contained in the signposted document is based on the same scope of consolidation as the one used in the disclosure requirement;
3. •the disclosure in the signposted document is mandatory.

Banks should note that although signposting may be allowed in the annual report, the bank would still need to disclose this table separately in the Pillar 3 Disclosure along with all other tables mentioned in paragraph 27 below.

23.Banks can only make use of signposting to another document if the level of assurance on the reliability of data in the separate document are equivalent to, or greater than, the internal assurance level required for the Pillar 3 report (see sections on reporting and assurance of Pillar 3 data above).

Qualitative narrative to accompany the disclosure requirements

24.Banks are expected to supplement the quantitative information provided in both fixed and flexible templates with a narrative commentary to explain at least any significant changes between reporting periods and any other issues that management considers to be of interest to market participants. The form taken by this additional narrative is at the bank’s discretion.

25.Disclosure of additional quantitative and qualitative information will provide market participants with a broader picture of a bank´s risk position and promote market discipline.

26.Additional voluntary risk disclosures allow banks to present information relevant to their business model that may not be adequately captured by the standardised requirements. Additional quantitative information that banks choose to disclose should provide sufficient meaningful information to enable market participants to understand and analyze any figures provided. It should also be accompanied by a qualitative discussion. Any additional disclosure should comply with the five guiding principles set out in paragraph 14 above.

27.The schedule below presents a summary of the disclosure requirements, whether they are required in a fixed or flexible format. It also lists the publishing frequency associated with each template and table. Please also note that the below tables will be available as an Excel file on the Central Bank alert portal on the Central Bank's website for download.
Please note: It is mandatory for all local banks to report all tables as per below schedule. It is also mandatory for branches of foreign banks with RWA of more than AED 5 billion to report all tables as per below schedule.
Branches of foreign banks with RWA of less than AED 5 billion should report the below tables highlighted in Yellow and BOLD only as mandatory.

Question 1: One or more senior officers of a bank, ideally at board level or equivalent, should attest in writing that Pillar 3 disclosures have been prepared in accordance with the board-agreed internal control processes.For banks of foreign branches, is Country Manager or CFO at Head office attestation sufficient?
For local banks and large foreign banks, Board member attestation will be expected. For smaller foreign bank branches, Country Manager/GM will be sufficient

Question 2: There are requirements on the Pillar III disclosure that is dependent on the BASEL returns (BRF 95), in relation to this, the submission that mentions 6 weeks after the end of the relevant quarter starts from the BASEL quarter reporting deadline or actual quarter end?
Pillar 3 disclosure submission will be 6 weeks after the quarter end date. For example, December quarter submission will be 6 weeks from December 31^st and not 6 weeks from January 31^st. Since the BRF95 should mandatorily be submitted by banks within 4 weeks from quarter end, the bank still has additional 2 weeks to complete the Pillar 3 disclosures based on BRF95.

Question 3: Pillar 3 applies to all banks in the UAE at the top consolidated level for local banks...Please clarify in case of subsidiary of a bank, whether revised pillar 3 disclosures will be required to be prepared at consolidated Group level or stand-alone level?
Bank subsidiaries will be consolidated at stand-alone subsidiary level and the group bank will be consolidated at the stand-alone of the group bank only without the bank’s subsidiary data.

Question 4: Pillar 3 disclosures can be presented in a separate report; however, Can it be signposted to the audited financial statements?
Signposting is allowed if the bank chooses to use the same template in their audited financial statements but a separate reporting template needs to be prepared as per Pillar 3 templates which is mandatory and cannot be omitted from the Pillar 3 tables.

Question 5: If any section/ table of Template is not applicable to the Bank (i.e.DSIBs, Securitisation), shall the Bank exclude this section/ table completely irrespective of type of table.
Yes, banks can exclude the tables/templates not pertaining to the bank, for example DSIB and Securitisation

Question 6: Banks should also have a formal board-approved disclosure policy for Pillar 3 information that sets out the internal controls and procedures for disclosure of such information.Should this formal Disclosure policy still be submitted to Central Bank along with ICAAP or it shall only be published / disclosed as mentioned?
The formal disclosure policy should not be submitted but should be available on request by Central Bank of UAE.

Question 7: Will it be sufficient to publish Basel 3 disclosures on its investor relations page on the bank’s website without any physical printouts?
Banks should publish their Pillar 3 report in a stand-alone document on the bank’s UAE-specific website. This can be anywhere on the website but it needs to be clearly visible and easily available for all stakeholders. Banks which do not have a UAE-Specific website should create a website specific to UAE so that all stakeholders can have access to the Pillar 3 disclosures of the bank.

Question 8: For REM1 template, is Central Bank expecting the Bank to report overseas earnings or only the locally paid compensation? Are deferrals awarded in the current year only to be reported? If an employee has a deferral which has a tranche of a prior year paid out after they have left the Branch, is it expected that this would be reported or not? If a prior year tranches awarded is reported should this be reported if the individual is no longer an employee of the Branch?
All contract earnings of all employees need to be reported even if the employee is earning compensation in UAE and outside UAE. The full contractual award needs to be mentioned and not only the physical payout

Question 9: Is the End of Service Benefit (EOSB) i.e.severance payment for a normal leaver to be reported depending upon the definition of “other material risk taker” OR are banks also required to report any additional payment such as a redundancy type payment? Should a transfer of Senior Management personnel or Other Material Risk-takers to other branch of the Bank be considered as severance for reporting purpose?
All payments regardless of the type of payment based on the contract needs to be reported

Question 10: For branches of foreign banks where the Head Office reports to the home regulator, there are pre-fixed formats prepared and submitted at a frequency as stipulated by home regulator.Can the branch of foreign banks provide such reports in UAE which are submitted to the home regulator as a part of UAE Pillar 3 Disclosures?
Reports sent between Head Office and UAE needs to be separated and only the Pillar 3 disclosures as per this Guidance needs to be reported for UAE branches in the mandatory formats published here.

Question 11: What does “Fully loaded” ECL accounting model mean and what is the difference between total capital and fully loaded capital?
"Fully Loaded" means bank’s regulatory capital compared with a situation where the transitional arrangement had not been applied

Question 12: For branches of foreign banks, would Central Bank allow for a transition period if the threshold for partial disclosure is reached? (i.e.if RWA exceed AED 5 billion)
Transition will be granted on a case by case basis

Question 13: Currently CCyB buffer is 0% in UAE.In this case, what do banks need to report in CCyB template?
Currently CCyB is not applicable in UAE but if banks in UAE have branches in other countries this needs to be reported if CCyB is being reported as per that foreign country’s regulations. Banks, hence, need to calculate and fill the CCyB1 as explained in the Capital Supply standards.

Question 14: In Sheet CR5, for "Unrated" Category, should we include the Post CRM and CCF amounts in their respective Risk Weight categories or should we club it under "Others"?
Yes, it can be placed in “Others” along with any other ratings.

Question 15: In Sheet OV1, is the minimum requirements simply 10.5% of the RWA.
Pillar 1 capital requirements at the reporting date will normally be RWA*10.5% but may differ if a floor is applicable or adjustments (such as scaling factors).

Question 16: CCR8 requires Bank to report Exposures to Non QCCPs (excluding initial margin and default fund contribution) arising of (i) OTC derivatives, (ii) Exchange-traded derivatives, (iii) Securities financing transactions & (iv) Netting sets where cross-product netting has been approved.Does this mean the Exposures computed under SA-CCR which are eligible under Netting Jurisdiction to be disclosed under (iv)?
Currently, UAE has no netting jurisdiction but such exposures reported will be taken into consideration on a case-by-case basis.

Question 17: LIQA, Liquidity exposures and funding needs at the level of individual legal entities, foreign branches and subsidiaries, taking into account legal, regulatory and operational limitations on the transferability of capital.Are insurance or non-bank subsidiaries to be included?
All entities that are consolidated by the bank must be included.

Question 18: LIQA, Balance sheet and off-balance sheet items broken down into maturity buckets and the resultant liquidity gaps.Is there any format for reporting the liquidity gap report?
As per BRF 9 reported by the bank. The bank may add a section for Off Balance sheet as required