Global banks have improved their risk disclosure practices, but analysts suggest that the improvement is less extensive than the banks believe, says a new report from the Enhanced Disclosure Task Force (EDTF).
The EDTF, which is a private sector initiative comprised of senior officials from financial institutions, investors and analysts, and audit firms that was formed at the behest of the Financial Stability Board (FSB), published a progress report today on the implementation of its recommendations for enhancing risk disclosure at the world’s major banks. It finds that the recommendations “are beginning to make a positive impact on the reporting practices of global banks.”
The report says that, based on a survey of global and domestically systemically important banks, that the banks say they have implemented about 50% of the recommendations so far; and, that they expect to incorporate 72% of the recommendations in their 2013 disclosures.
However, the investors and analysts within the EDTF undertook their own review of the disclosures, which found a lower degree of implementation, “particularly for recommendations where they expect more granular, quantitative disclosures.”
The report notes that these differences between what banks say they’ve done, and what analysts say they’ve done, were less pronounced among banks that were involved in the development of the recommendations and therefore had more time to consider them and to adopt them. It also says that the differences “may be attributable partially to the limited familiarity that some responding banks had with the EDTF recommendations prior to completing their 2012 annual reports and due to the principles underlying the report that banks should present disclosure in a way that reflects how they manage their business.”
As a result, it says that some banks may decide not to adopt recommendations where they believe the additional disclosure is not material to their business. In those cases, it says that banks should reference the EDTF recommendations, and discuss when a particular recommendation has not been implemented.
“This will give users an opportunity to understand each bank’s views on particular disclosures in order to inform their own views, encouraging an effective dialogue,” it says.
The EDTF says it sees these results as an opportunity for better dialogue between banks and investors and analysts, which “will provide a mechanism for banks to continue to enhance their disclosure standards while simultaneously helping to restore capital market discipline.”
The FSB calls on banks to “continue to strive to improve risk disclosures, and calls on supervisory authorities to take steps to foster awareness of the EDTF principles and recommendations by banks and markets in their national jurisdictions.”