Report Recommends Improved Disclosure Practices for Financial Intermediaries
26 April 2001
A multidisciplinary working group sponsored by four financial services regulatory organisations today issued a report recommending improvements to the disclosure practices of financial intermediaries world wide.
The recommendations of the Multidisciplinary Working Group on Enhanced Disclosure (MWG) are the product of a joint venture sponsored by the Basel Committee on Banking Supervision (BCBS), the Committee on the Global Financial System of the G-10 central banks (CGFS), the International Association of Insurance Supervisors (IAIS), and the International Organization of Securities Commissions (IOSCO), and are addressed to the sponsoring organisations for their consideration. Peter Fisher, executive vice president, Federal Reserve Bank of New York served as chairman of the MWG.
The report makes a number of recommendations concerning disclosures that should be provided by financial intermediaries that incur a material level of the relevant financial risks, through periodic reports to their shareholders, creditors and counterparties. These disclosures should be expressed in ways consistent with firms' internal risk management practices, and include,
- intraperiod high, median and low, and period-end value-at-risk (VaR) of actively managed or marked-to market exposures;
- substantive qualitative discussion of funding liquidity risk that includes some quantitative information supporting the discussion; and
- information about credit exposures broken out by type of exposure or business line, credit quality, and maturity.
In addition, certain areas, such as liquidity risks, were identified where quantitative information would fill an important gap in financial disclosures, but where further development of risk assessment concepts and methods or consideration of their costs and benefits would be necessary before reaching a judgement on such disclosures.
The report is based on nineteen months of work including a pilot study of data collected from forty-four financial institutions from a variety of sectors in nine countries. The pilot study data provided the basis for a discussion between the MWG and the participating firms about disclosure concepts on financial risks, focussing on market, credit and liquidity risks.
According to the MWG, the recommendations on possible further steps suggest a basis for collaboration between the public and private sectors and also among the authorities in different financial sectors on improvements in disclosure of financial risks.
The Financial Stability Forum (FSF) welcomes publication today of the report. Earlier, at its fifth meeting on 22-23 March 2001, the FSF welcomed the completion of the MWG's report and urged that its recommendations be taken forward.