1.Market discipline has long been recognized as a key objective of the Central Bank of the UAE. The provision of meaningful information about common key risk metrics to market participants is a fundamental principle of a sound banking system. It reduces information irregularity and helps promote comparability of banks’ risk profiles within UAE. Pillar 3 of the Basel framework aims to promote market discipline through regulatory disclosure requirements. These requirements enable market participants to access key information relating to a bank’s regulatory capital and risk exposures in order to increase transparency and confidence about a bank’s exposure to risk and the overall adequacy of its regulatory capital.

2.The revised Pillar 3 disclosures in this guidance focus on regulatory measures defined in Pillar 1 of the Basel framework, which requires banks to adopt specified approaches for measuring credit, market and operational risks and their associated resulting risk-weighted assets (RWA) and capital requirements. In some instances, Pillar 3 also requires supplementary information to be disclosed to improve the understanding of underlying risks. Central Bank continues to believe that a common disclosure framework based around Pillar 1 is an effective means of informing the market and allowing market participants to take informed investment decisions. However, in the wake of the 2007–09 financial crisis, it became apparent that the existing Pillar 3 framework failed to promote the identification of a bank’s material risks and did not provide sufficient, and sufficiently comparable, information to enable market participants to assess a bank’s overall capital adequacy and to compare it with its peers. The revised Pillar 3 disclosure requirements in this guidance are based on an extensive review of Pillar 3 reports.

3.A key goal of the revised Pillar 3 disclosures is to improve comparability and consistency of disclosures. However, it is recognized that a balance needs to be struck between the use of mandatory templates that promote consistency of reporting and comparability across banks, and the need to allow senior management sufficient flexibility to provide commentary on a bank’s specific risk profile. For this reason, the revised disclosure regime introduces a “hierarchy” of disclosures; prescriptive fixed form templates which are used for quantitative information that is considered essential for the analysis of a bank’s regulatory capital requirements, and templates with a more flexible format are proposed for information which is considered meaningful to the UAE market but not central to the analysis of a bank’s regulatory capital adequacy. In addition, senior management may accompany the disclosure requirements in each template with a qualitative commentary that explains a bank’s particular circumstance and risk profile.