Insights into new recommendations for banks’ risk disclosures
Established in May 2012 by the Financial Stability Board in response to concerns that banks’ risk reporting was not meeting investors’ needs, the Enhanced Disclosure Task Force (EDTF) was established to provide recommendations on the way in which banks report risk to their stakeholders.
The EDTF recommendations set out to improve the clarity, timeliness and usefulness of information that banks provide to investors. Specifically, the report recommends banks reduce opacity in their reporting by better explaining their business model, providing more detailed information on the composition of capital and how risk-weighted assets are calculated and setting out more explicitly the manner in which market and credit risks affect them.
The intention is that improvements to the quality of banks’ risk disclosures will prevent a repeat of the loss of confidence that occurred during the financial crisis because banks’ reports did not always provide the information investors sought. Banks will need to consider how they will respond to users’ demands for clearer risk information, including assessing whether the governance and controls over the production of such information are fit for this purpose.