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Responding to the EDTF recommendations

A review of 2012 year end reporting

Responding to the EDTF recommendations - A review of 2012 year end reporting

Background

Enhanced risk disclosures are an important opportunity for banks to communicate better with their stakeholders. The EDTF Report ‘Enhancing the Risk Disclosure of Banks’ was published in October 2012 and represents a collaborative effort by banks and key stakeholders.

The EDTF Report included 32 recommendations for enhancing banks’ risk disclosures and our review focuses on the implementation of these recommendations, for banks that were members of the EDTF Working Group, highlighting examples of good practice for others to consider in their 2013 planning.

Given the EDTF Report was published in late 2012, it is encouraging that the banks reviewed have considered and adopted some of the recommendations in their 2012 reporting and acknowledge that there will be further enhancements to disclosures in subsequent reporting periods.

Please note: This review includes a number of examples taken from the year end reports of the banks reviewed and is therefore 21.5MB in size.

Key findings

The main areas which the banks reviewed have more consistently adopted the recommendations are:

  • information on regulatory capital including risk weighted asset (RWA) information at the consolidated level and the inclusion of a reconciliation between accounting and regulatory capital;
  • combined annual reports and pillar 3 reports or publication of both reports simultaneously;
  • details of principal risks and uncertainties;
  • risk governance structures;
  • credit risk disclosure for specific portfolios or exposure types; and
  • the application more generally of the qualitative recommendations.

Areas that we expect to see further developments in disclosures are:

  • the more widespread inclusion of liquidity and funding measures such as the Net Stable Funding Ration (NSFR) and the Liquidity Coverage Ratio (LCR). This might be driven by investor and market demands but  is clearly a sensitive disclosure issue for some banks;
  • the inclusion of overall risk appetite metrics and how banks have performed against these;
  • quantitative information in respect of market risk, particularly around sensitivity information and back testing details and exceptions
  • stress testing information across many areas including market risk, funding and liquidity
  • more consistency in the inclusion of disclosures on asset encumbrance including quantitative detail; and
  • generally through consolidating information, currently in various sections of the annual report, and to reduce the volume of disclosures that are not material, to help improve clarity and reduce clutter.

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