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.