The Financial Stability Board (FSB) has welcomed the publication of the Enhanced Disclosure Task Force (EDTF's) progress report, examining major banks' risk disclosures in their 2012 annual reports. This article has been written by Mark Rhys, Deloitte Partner and member of the EDFT. As a member of the task-force, I'm pleased that our efforts are bearing fruit: the survey found that banks are implementing the disclosures and that further implementation is likely to be achieved in the 2013 reporting cycle. Interestingly, banks' self-assessment of their progress is higher than investors' and analysts' assessment of implementation, as the latter expect more detailed quantitative disclosures in some areas. In the UK, the EDTF's recommendations are particularly important as the Bank of England's latest 'Financial Stability Report' includes the Financial Policy Committee's recommendation that the Prudential Regulatory Authority (PRA) "should ensure that all major UK banks and building societies comply fully with the October 2012 recommendations of the Enhanced Disclosure Task Force (EDTF) upon publication of their 2013 annual reports." We have produced our own analysis of banks' implementation, Responding to the EDTF recommendations: a review of 2012 year end reporting. We found that the main areas which the banks reviewed have most 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. But areas that where we expect to see further developments in disclosures include: 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 disclosures on asset encumbrance including quantitative detail; and generally through consolidation of information currently set out in various sections of the annual report, and reducing the volume of disclosures that are not material to help improve clarity and reduce clutter. Should you have any questions regarding the EDTF's recommendations and their implications for banks and building societies, please let me know. Mark RhysMark Rhys is a Partner in Deloitte's Banking and Capital Markets Audit Group in London. He specialises in financial instrument accounting and is currently Deloitte's Global IFRS 9 Banking Co-leader. Mark is Deloitte's global lead contact for interactions with the Financial Stability Board and the firm's representative on the Basel Auditing Subcommittee.
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