High-level investor-backed taskforce issues bank risk disclosure principles

A high-level taskforce of asset management firms, investors and analysts, global banks, credit rating agencies and auditors set up to look at improving large banks’ risk disclosures has come up with seven principles and 32 recommendations.

The Enhanced Disclosure Task Force was set up in May 2012 under the auspices of the Financial Stability Board (FSB), the Basel, Switzerland-based body backed by global central banks and financial regulators.

It had the participation of senior figures from major institutional investors such as PGGM Investments, Hermes Equity Ownership Services and BlackRock.

It was co-chaired by Hugo Bänziger, chairman at the Eurex derivatives exchange, HSBC’s Group Chief Accounting Officer Russell Picot and Christian Stracke, Global Head of Credit Research at fixed income fund giant PIMCO.

The group has now published its findings in a 136-page report called ‘Enhancing the Risk Disclosures of Banks’, which is available via this link.

“Our report is different because it is the product of a unique collaboration between users and preparers of financial reports,” the chairs say in the report.

“It has benefited greatly from the collective expertise of asset management firms, investors and analysts, global banks, credit rating agencies and external auditors.”

As a result, it is said to focus on areas where investors seek better information and banks agree that improvements to disclosures are needed.

Investor representatives on the 30-member panel included Eloy Lindeijer, Chief Investment Management at PGGM, Paul Lee, Co-Chairman of the Shareholder Responsibilities Committee at the International Corporate Governance Network (ICGN) and Director at Hermes EOS, James Alexander, Head of Research atM&G Investment Management and Lauritz Ringdal, Co-head of Global Credit at BlackRock.

The group says that many of the recommendations may be adopted in 2012 or 2013 although some will take longer to develop and implement.

“A unique collaboration between users and preparers of financial reports”

In addition there are a set of 32 specific recommendations. The first of them calls for all related risk information to be presented in a single report. Another calls for definition of risk terminology and risk measures and the presentation of key parameter values used.

“Describe and discuss top and emerging risks, incorporating relevant information in the bank’s external reports on a timely basis,” is the third.

The report was welcomed by at least one major player. Deutsche Bank called it’s a “valuable contribution to the common goal of enhancing risk disclosures”.

The seven principles:
Disclosures should…
1. Be clear, balanced and understandable.
2. Be comprehensive and include all key activities and risks.
3. Present relevant information.
4. Reflect how the bank manages its risks.
5. Be consistent over time.
6. Be comparable among banks.
7. Be provided on a timely basis.