23 Feb 2023
| Par

The EBA's Pillar 3 reconciliation exercise is improving standards and discipline in banks' reporting. Find out how, plus learn more about the Invoke solution that can help you get your Pillar 3 disclosures right, first time.

  • Banking
  • Banking regulatory reporting
  • e-Regulatory

Under the Basel framework, the ECB's mission is to promote market discipline (Pillar 3) and to improve the consistency and comparability of information disclosed by banks. In this context, they need to assess the compliance of banks with Pillar 3 obligations. This assessment is undertaken on an annual basis and consists of reconciling a sample of Pillar 3 information disclosed by selected banks, with supervisory reporting data. Where misalignments are identified, banks are asked by the ECB to correct their information.

Published in November 2022, the latest assessment highlighted a number of discrepancies between the two datasets for the majority of banks. Indeed, amongst the sample of 108 banks assessed by the ECB, more than half had to republish their Pillar 3 public disclosures, and a quarter had to reissue their prudential data to correct mismatches. The remaining banks also presented data consistency issues in the information presented in the accompanying notes to the 2021 financial statements.

The fact that more than half of banks republished their reports either in full or part shows the significant positive impact the exercise has on improving consistency between regulatory supervisory data and the Pillar 3 disclosures.

Scope of the exercise

In 2022, the exercise focused on the following data:

  • solvency
  • leverage
  • liquidity coverage
  • net stable funding ratios

Disclosure templates covering counterparty credit risk (CCR) were also a major focus of the exercise; CCR has posed a risk both to individual banks, and a potential systemic risk, since the financial crisis of 2008.

Key causes of mismatched data

The most common issues reported in the last year fell mainly into three categories: methodological issues, missing submissions and formatting issues. The five main issues identified during the reconciliation audit were:

  • the LCR being disclosed as a point-in-time value, instead of as an average over the preceding 12 months
  • not disclosing the overall leverage ratio requirement in template EU KM1
  • unnecessarily including exposures to central counterparties in EU CCR1 disclosures
  • disclosing counterparty credit risks (CCR) templates in the wrong format (merging columns or deleting rows) and not sticking to the fixed format
  • omitting information from templates, forgetting to disclose templates entirely and omitting row or column references of the templates in disclosure documents (this is especially important to include given that disclosures can be published in any EU language)

How Invoke can help

Either as an extension of our e-Regulatory reporting solution, or as a standalone tool, the Invoke Analyzer application can be used to automatically produce your Pillar 3 public disclosures from your submitted regulatory data, thus ensuring perfect alignment of your prudential and accounting data.

The tool allows users to anticipate questions from supervisory authorities and avoid re-filings so that disclosures can be right first time.

Invoke Analyzer is used by several European supervisory authorities as part of the e-Regulatory for Supervisors solution; and now, regulated entities can benefit from the same innovative technology as they produce their Pillar 3 disclosures.

Find out more about Invoke Analyzer capabilities here, contact us for more details or join our March webinar to see the Invoke Analyzer in action!