The Centralization of Pillar 3 Disclosures: How the EBA’s New Data Hub Will Transform Banking Transparency and Efficiency

Introduction:

The EU agenda to create a cohesive powerhouse constituted from its members continues to drive the European Banking Authority (EBA) and European Central Bank (ECB) workplans.  The latest to make significant progress in realising a standardised framework across financial institutions is the EBA’s Pillar 3 disclosure requirements. Although not a new requirement, by any means, the EBA has sought to seek a standard in the structure and data points it captures.  And moving away from being purely a published requirement they have more recently brought it into the EBA Reporting Taxonomy, since version 3.4, where it can now be submitted via XBRL.  This was a pre-requisite to the Pillar 3 Data Hub becoming a reality.

What is the Pillar 3 Disclosure?

Pillar 3, part of the Basel III framework, is designed to improve market transparency by requiring banks to disclose comprehensive information on their capital adequacy, risk management, and governance structures. Alongside Pillars I (minimum capital requirements) and II (supervisory review), Pillar 3 encourages greater market discipline, allowing stakeholders to assess the financial health and risk profiles of banks more accurately.

The current challenge globally for Pillar 3 data disclosure is the inconsistency of reporting the data and the access of this information by interested parties.  Pillar 3 is a requirement defined globally to all jurisdictions observing the requirements defined by the Basel Committee on Banking Supervision (BCBS), however, this only stipulates the type of data required to be published but nothing on where it should be stored and the standard format that must be used to present the information.  Therefore across the globe this information requires searching, digestion and interpretation to fully be able to compare banks.

How will the EBA Pillar 3 Data Hub improve the disclosure?

The EBA, via the Pillar 3 Data Hub, is working on centralising the publishing and accessibility of the Pillar 3 disclosures.  Where the EBA have already defined a standard structure to the disclosure reporting to be made publicly available on the banks websites, this goes another step further through the digitised submission of the disclosure information straight to the EBA for dissemination.  For large institutions and select SNCI’s they will be required to submit their Pillar 3 disclosures to the EBA directly, where the EBA will publish the data within a repository accessible via their website.  Utilising their EUCLID platform, which they are extending for this project, the banks will submit the XBRL version of their reporting data to the platform where it will undergo some basic checks before it is published.

What about those banks not in scope?

For the lucky few, smaller institutions will not be required to generate and publicly disclose against Pillar 3 and instead the national authoriites shall utilise the reporting under COREP and FINREP to generate a Pillar 3 disclosure on their behalf.

The benefits of a Centralised Pillar 3 Repository

For those with a keen understanding of how Pillar 3 data can be leveraged to benchmark, analyse and understand more about an institution, the benefits will be of no surprise.  However, via this centralised repository the process of benefiting from the use of this information is about to get a lot easier.  Through the EBA website, the banks will be able to consume the data points of their peers to quickly and efficiently achieve:

• Peer to Peer Benchmarking
• Identify common risks/emerging risks across the market
• Comparing risk management practices within their peer group
• Identify liquidity and funding position information
• Evaluating leverage levels across the industry

And while this may already be achievable the cost to the institution will drastically reduce.  The European authorities are considered one of the top innovators in regulatory frameworks, and this change is one that is hoped will become pervasive around the world.

Supporting Regulatory Oversight and Convergence

For regulators, the Pillar 3 Data Hub will significantly enhance supervisory convergence across the EU. With all prudential data centralized in one location, it will be easier for regulatory bodies to monitor the health of the banking sector, assess systemic risks, and enforce compliance with capital requirements. This streamlined access will not only support day-to-day supervision but will also be invaluable in stress testing exercises and crisis management.

Furthermore, the hub supports broader EU initiatives, such as the Environmental, Social, and Governance (ESG) agenda. As part of its future roadmap, the EBA plans to integrate ESG risk disclosures into the hub, aligning with the Sustainable Finance Disclosure Regulation (SFDR) and other sustainability-focused frameworks. This will ensure that market participants have access to crucial information on how banks are managing their ESG risks, promoting sustainable practices across the industry.

When will Pillar 3 Data Hub come into effect?

The European Banking Authority (EBA) launched a consultation on October 11, 2024, for draft Implementing Technical Standards (ITS) supporting the upcoming Pillar 3 Data Hub (P3DH) specifically around the submission of data to the EBA using its EUCLID platform. The consultation will accept feedback until November 11, with a public hearing scheduled for October 21. Following stakeholder feedback and pilot testing, the EBA aims to finalize and submit the ITS to the European Commission. The P3DH is expected to be operational by 2025, with large institutions beginning disclosures that year and smaller institutions following by year-end, aligning with CRR3 requirements.

Conclusion: Adopting the future of Disclosure Centralisation

The EBA’s Pillar 3 Data Hub is more than just a regulatory requirement; it represents a significant leap forward in how the banking industry approaches transparency and reporting. While banks may face challenges in aligning with the new technical standards, the long-term benefits in terms of efficiency, market discipline, and regulatory oversight are undeniable.

For the wider financial industry, this centralized hub will be a game-changer. With easier access to high-quality, standardized data, the entire ecosystem will benefit from a clearer understanding of the risks and opportunities within the banking sector. Ultimately, this project is poised to enhance the stability and resilience of the European banking system, promoting greater accountability and harmonization across the board.

As the consultation continues and the EBA finalizes its technical standards, the banking world is watching closely, anticipating a new era of transparency and efficiency.