EBA finalizes Pillar 3 ESG, shadow banking disclosure updates
The European Banking Authority (EBA) has published its Final Draft Implementing Technical Standards (ITS) amending Pillar 3 disclosure requirements. The update finalizes new rules for ESG-related risks, equity exposures, and aggregate exposure to shadow banking entities, aiming for simplification.
ESG disclosures expand, simplify
The EBA's Final Draft ITS significantly expands the scope of institutions required to disclose ESG-related risk information.
This now includes large non-listed institutions, small and non-complex institutions (SNCIs), and large subsidiaries, moving beyond only large, listed entities.
Despite this broader reach, the EBA has designed a proportionate and streamlined approach, offering tailored frameworks with different sets of templates based on an institution's size and complexity.
For instance, SNCIs will only disclose essential ESG risks, including physical and transition risks and exposures to fossil fuel sectors.
For large listed institutions, the framework enhances clarity and usability of existing requirements, incorporating insights from received Questions and Answers without introducing entirely new obligations.
This aligns with the broader EU agenda on regulatory simplification while ensuring comprehensive coverage.
Shadow banking and equity updates
The ITS also implement new disclosure requirements for aggregate exposures to shadow banking entities and update those for equity exposures, maintaining proportionality and simplification.
These changes are part of the broader implementation of the Capital Requirements Regulation (CRR3), transposing the Basel Committee on Banking Supervision's (BCBS) post-crisis regulatory reforms into EU law.
The EBA's roadmap prioritizes these mandates.
Furthermore, the ITS incorporate the new NACE Rev 2.1 classification code for economic activities and clarify the repeal of previous guidelines on non-performing and forborne exposures, reflecting industry feedback and aiming for easier operationalization.
Balancing transparency and burden
This regulatory update marks a significant step in enhancing transparency across the EU banking sector, particularly for climate-related financial risks.
The EBA skillfully navigates the challenge of expanding disclosure requirements while simultaneously pursuing a simplification agenda.
The proportionate approach aims to mitigate undue burdens, making the framework more adaptable.