Market discipline has long been recognized as a key objective of the Basel Committee on Banking Supervision (hereafter the “Committee” or BCBS).The provision of meaningful information about common key risk metrics to market participants is a fundamental tenet of a sound banking system. It reduces information asymmetry and helps promote comparability of banks’ risk profiles within and across jurisdictions. Pillar 3 of the Basel framework aims to promote market discipline through regulatory disclosure requirements. These requirements enable market participants to assess more effectively key information relating to a bank’s regulatory capital and risk exposures in order to in confident about a bank’s exposure to risk and overall regulatory capital adequacy. Existing Pillar 3 disclosures 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, Pillar3 also requires supplementary information to be disclosed to improve the understanding of underlying risks.

The Committee continues to believe that a common disclosure framework based around Pillar 1 is an effective means of informing the market. However, in the wake of the 2007-2009 financial crisis(the “crisis”), it became apparent that the existing Pillar framework failed to promote the early identification of a bank’s material risks and did not provide sufficient information to enable market participants to assess a bank’s overall capital adequacy. The Committee, therefore, initiated a review to respond to the lessons learned during the crisis. The findings of the first phase of this review, including proposals for revisions to existing disclosure requirements, are set out in this consultative document.3.A key goal of the revised Pillar 3 disclosures is to improve comparability and consistency. The review, therefore, proposes greater use of templates to achieve this. 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 provide flexibility for senior management to provide commentary to the market on a bank’s specific risk profile.