A task force comprised of bankers, investors, analysts, auditors and credit ratings’ officers has issued seven principles that should make it easier for shareholders to grasp the risks posed by banks and help restore their trust in the financial industry.
The principles from the Enhanced Disclosure Task Force (EDTF), which was formed in May at the initiative of the Financial Stability Board (FSB), is different from recommendations by banking regulators because they arise from discussions between users and prepares of financial reports.
“These principles provide a firm foundation for developing high-quality, transparent disclosures that clearly communicate banks’ business models and the key risks that arise from them,” said the report, co-chaired by Hugo Baenziger, supervisory board chairman of Eurex, Russell Picot, group general manager of HSBC, and Christian Stracke, managing director of Pimco.
The principles are mainly aimed at improving risk disclosure by large international banks, but should also be applicable to all banks that access equity and debt markets.
The task force will present its recommendations to the major regulatory bodies, such as the Basel Committee on Banking Supervision, the International Organisation of Securities Commissions and the International Association of Insurance.
EDTF hopes that many of its principles will be adopted this year or next.
The seven fundamental principles for enhanced risk disclosures are:
• Disclosures should be clear, balanced and understandable.
• Disclosures should be comprehensive and include all of the bank’s key activities and risks.
• Disclosures should present relevant information.
• Disclosures should reflect how the bank manages its risks.
• Disclosures should be consistent over time.
• Disclosures should be comparable among banks.
• Disclosures should be provided on a timely basis.
The EDTF report is available at the FSB's website: http://www.financialstabilityboard.org