Disclosure of Financial Information – Commission Regulations and EBA Recommendations

FINANSTILSYNET Postboks 1187 Sentrum 0107 Oslo Circular Disclosure of financial information – Commission regulations and EBA recommendations CIRCULAR: 5/2018 DATE: 06.12.2018 THE CIRCULAR APPLIES TO: Banks Financing undertakings Credit institutions Holding companies in financial groups (not insurance groups)

Disclosure of financial information – Commission regulations and EBA recommendations 2 | Finanstilsynet 1 Introduction The Norwegian capital adequacy regulatory framework is adapted to the EU Directive on access to the activity of credit institutions and investment firms (Directive 2013/36/EU, CRD IV) and the EU Capital Requirements Regulation (575/2013, CRR). In the EU regulatory framework, disclosure requirements are given in Part 8 of the Capital Requirements Regulation, which is implemented in Norwegian rules in Part IX of the Capital Requirements Regulation. The EU Commission has adopted several technical standards on the disclosure of financial information. These are EEA-relevant and will therefore be incorporated into the EEA Agreement and implemented in Norwegian law as regulations. The European Banking Authority (EBA) has published several recommendations on the disclosure of financial information. The recommendations aim to contribute to harmonized implementation of the regulatory framework at the European level. This circular provides an overview of the technical standards and recommendations that Finanstilsynet assumes undertakings use in the disclosure of financial information. Templates and guidelines resulting from technical standards will be translated when incorporated into the EEA Agreement. Finanstilsynet does not intend to translate templates and guidelines resulting from EBA recommendations. 2 Technical standards on disclosure 2.1 Disclosure of information on own funds The disclosure requirements related to own funds are specified in Commission Regulation (EU) 2013/1423. 1 The standard templates and accompanying guidelines are translated into Norwegian in Finanstilsynet's Circular 14/2014 on disclosure of information on own funds. 2.2 Disclosure of information on the countercyclical capital buffer requirement Supplementary provisions for the disclosure of information on the countercyclical capital buffer are given in Commission Regulation (EU) 2015/1555. 2 The standard tables and accompanying guidelines are translated into Norwegian in Finanstilsynet's Circular 17/2016 on undertakings' calculation and disclosure of the countercyclical capital buffer requirement. 1 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32013R1423 2 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32015R1555

Disclosure of financial information – Commission regulations and EBA recommendations Finanstilsynet | 3 2.3 Disclosure of information on the unweighted leverage ratio requirement Supplementary provisions for the disclosure of information on the unweighted leverage ratio are given in Commission Regulation (EU) 2016/200.3 The Commission Regulation contains three templates (LRSum, LRCom and LRSpl), which undertakings must use to explain the relationship between balance sheet assets and the exposure measure, and additionally to decompose the exposure measure and balance sheet items. The Regulation also contains a template where undertakings must assess risks associated with debt build-up and which factors have affected the unweighted leverage ratio during the period. 2.4 Disclosure of information on encumbered and unencumbered assets Commission Regulation (EU) 2017/22954 sets out standardized templates that undertakings must use when disclosing information on encumbered and unencumbered assets. For undertakings with assets under management of less than 30 billion euros at the company level, where encumbered assets constitute less than 15 percent of total assets and collateral, there is no requirement to allocate assets by quality level (EHQLA/HQLA). 3 Recommendations on disclosure 3.1 Undertakings' assessment of material, proprietary and confidential information EBA's guidelines of 23 December 2014 (EBA/GL/2014/14)5 provide guidance on how undertakings should assess:

• disclosure of information beyond the minimum requirements
• disclosure of confidential or proprietary information
• timing and frequency of disclosure 3.2 Disclosure requirements in Part 8 of the Capital Requirements Regulation EBA published on 14 December 2016 a recommendation on the disclosure requirements in Part 8 of the Capital Requirements Regulation (EBA/GL/2016/11)6, which is based on recommendations from the Basel Committee. 3 https://eur-lex.europa.eu/eli/reg_impl/2016/200 4 https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32017R2295 5 https://eba.europa.eu/documents/10180/937948/EBA+GL+2014+14+(Guidelines+on+disclosure).pdf 6 Final report – Guidelines on disclosure requirements under Part Eight of Regulation (EU) No 575/2013

Disclosure of financial information – Commission regulations and EBA recommendations 4 | Finanstilsynet The recommendation is comprehensive and consists of 38 standardized templates and 10 templates with flexible reporting format. The reporting format is, where possible, based on undertakings' capital and financial reporting (COREP and FINREP). The recommendation applies to systemically important undertakings. Finanstilsynet assumes that systemically important undertakings follow the recommendation and use the templates relevant to the undertaking. The recommendation also defines a set of templates and recommendations that apply to all undertakings. This applies to 4.2 B (non-material, proprietary or confidential information), 4.2 E (timing and frequency of disclosures), 4.3 (risk management, objectives and policies), 4.3 C (information on governance arrangements), 4.5 (own funds), 4.7 (macroprudential supervisory measures), 4.12 (unencumbered assets), 4.14 (remuneration) and 4.15 (leverage ratio). 7 In addition, Part 4.2 (general requirements for disclosures) and Part 4.3 (risk management, objectives and policies) apply. Undertakings using the standardized approach for credit risk should also use the templates in Part 4.9 (Credit risk and CRM in the standardised approach). Supervisory authorities may require parts of the recommendation to also apply to other undertakings. Finanstilsynet expects undertakings using the IRB method to use the templates and tables resulting from Part 4.8 (Credit risk and general information on CRM), 4.9 (Credit risk and CRM in the standardised approach) and 4.10 (Credit risk and CRM in the IRB approach). Undertakings should assess whether the use of other templates is appropriate to improve the quality of disclosure. Part 4.2 E of the recommendation sets out supplementary provisions for the timing and frequency of disclosure. Undertakings should assess the need for more frequent disclosure of information than annually, in light of the characteristics of the undertaking's business and the size of assets under management. Finanstilsynet expects undertakings to specifically assess the need for more frequent reporting of own funds, calculation bases and capital requirements broken down by risk types and exposure categories, unweighted leverage ratio and information on risk exposure, especially IRB information. 3.2.1 Disclosure of IRB information Information on IRB models (Table 9: EU CRE) should include a description of the models' data basis, underlying assumptions and explanatory variables, and procedures for setting risk parameters. Information on the data basis should include the use of internal and external default and loss data in calibration. Furthermore, Finanstilsynet assumes that undertakings' description of the models includes uncertainty in the use of the models and how this uncertainty has been taken into account in model calibration. Finanstilsynet assumes that the period the undertaking uses to compare risk estimates with observed values corresponds to the period the undertaking uses in validation. For example, the period used to compare predicted and observed default frequencies (Template 24 EU CR9) should correspond to the period the undertaking uses to assess long-term calibration levels and cyclical properties. Finanstilsynet expects undertakings to perform further breakdown by significant portfolios, for example by industry or geographic location, where this is natural. 7 This is discussed in points 2.1–2.4 of this circular. See also the recommendations discussed in points 3.1 and 3.4.

Disclosure of financial information – Commission regulations and EBA recommendations Finanstilsynet | 5 Regarding information on collateral (Table 7 EU CRC), Finanstilsynet requests undertakings to provide information on main types of collateral and use of collateral when setting loss given default (LGD) for significant portfolios, including the effect of collateral coverage for loans secured by real estate. 3.3 Disclosure of information on the liquidity coverage ratio (LCR) Undertakings must disclose compliance with the liquidity coverage ratio requirement quarterly together with financial reporting. The disclosure requirement applies to all currencies in aggregate and must be fulfilled separately for significant currencies. EBA's recommendation from June 2017 (EBA/GL/2017/01)8 sets out supplementary provisions. The recommendation contains a template on liquidity risk management (Table EU LIQA) and a template on key information related to LCR (Templates EU LIQ1). Quarterly figures should correspond to the average of observations at the end of the months in the quarter. Finanstilsynet expects systemically important undertakings to use Table EU LIQA and Template EU LIQ1. Undertakings must use the template for all currencies in aggregate and for each significant currency. EBA has granted some relaxations for other undertakings for reasons of proportionality, who may choose to disclose only the LCR indicator itself, total liquidity reserves and total net outflows. Finanstilsynet, however, encourages undertakings to use the table and template to improve the quality of disclosure. 3.4 Remuneration Undertakings must disclose information on the undertaking's remuneration policy. EBA's recommendation on remuneration (EBA/GL/2015/22)9 provides further guidance on how remuneration practices in undertakings should be disclosed. 3.5 Disclosure of indicators for identifying globally systemically important undertakings Undertakings with an exposure measure for the unweighted leverage ratio of over 200 billion euros must, according to EBA's recommendation (EBA/GL/2016/01)10, disclose indicator values for identifying systemically important undertakings. 8 Guidelines on LCR disclosure to complement the disclosure of liquidity risk management under Article 435 of Regulation (EU) No 575/2013 9 Guidelines on sound remuneration policies under Articles 74(3) and 75(2) of Directive 2013/36/EU and disclosures under Article 450 of Regulation (EU) No 575/2013 10 Finale Guidelines – Revised guidelines on the further specification of the indicators of global systemic importance and their disclosure

Disclosure of financial information – Commission regulations and EBA recommendations 6 | Finanstilsynet

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