The Financial Stability Board is forming a task force to champion improved risk disclosure from financial firms, it said Tuesday
Last December, the FSB hosted a roundtable on financial firms’ risk disclosures, which involved investors and analysts, asset managers, credit rating agencies, financial firms, auditors, and regulators. In the wake of that meeting, the FSB has now agreed to form a task force to develop principles for improved disclosures.
The task force will involve investors, financial institutions, and auditors, and it will be asked to develop proposed principles later this year for implementation in year end 2012 annual reports.
The FSB reports that participants in the roundtable said that enhanced disclosure is particularly important in several areas, including: information on governance, risk management strategies, risk exposures and remuneration. They also agreed that risk disclosure should be timely, clear, prioritized, consistent and comparable between firms. It says analysts recommended more use of executive summaries of the key risk categories, which should include key metrics on entity-wide risk exposure and risk management effectiveness; and, they said that disclosures should better differentiate market risk components, and that firms should avoid voluminous, or boilerplate, disclosures presented as a compliance exercise.
The task force will be encouraged to have dialogue with standard-setting bodies, such as the International Organization of Securities Commissions, the Basel Committee on Banking Supervision, the International Association of Insurance Supervisors, and the International Accounting Standards Board, among others, as it develops the principles.
The FSB notes that a key theme raised at the roundtable was that while participation from the private sector is essential in driving improved risk disclosures, the public sector also plays a vital role in promoting financial stability and in encouraging improved disclosure practices, and some felt that the private sector would not initially be able to carry out this work on its own.
It adds that if the private sector doesn’t make sufficient progress in this area, the international standard-setting bodies will be asked to consider working on the principles. The FSB also said that it will consider holding another international roundtable in late 2012 to facilitate further discussion by investors, financial institutions, auditors, standard setters, and regulators.