Implementation of Basel II Pillar 3 Disclosure Requirements for Remuneration

Document Properties

Type of Publication: Letter
Date: December 1, 2011
To:
- Banks,
- Bank Holding Companies,
- Federally Regulated Trust and Loan Companies

The Basel Committee on Banking Supervision (BCBS) published the Basel II Pillar 3 Disclosure Requirements for Remuneration^{Footnote 1} in July 2011 (remuneration disclosure requirements). Pillar 3 describes the disclosure requirements for institutions subject to the Basel Accord, which in Canada includes banks, bank holding companies and federally regulated trust and loan companies (institutions).

The remuneration disclosure requirements are intended to address the Financial Stability Board’s (FSB) Recommendation number 8 from its March 2010 Peer Review Report on Compensation^{Footnote 2}:

“The Basel Committee in consultation with the FSB should consider incorporating disclosure requirements for compensation into Pillar 3 of Basel II, to add greater specificity to the current requirements for compensation disclosure under Pillar 2, by the end of 2010.”

The additional qualitative and quantitative disclosure requirements on remuneration help support effective market discipline and allow market participants to assess the quality of compensation practices and the quality of support for an entity’s strategy and risk posture. These requirements are designed to be sufficiently granular to allow meaningful assessments by users, while at the same time, avoiding disclosure of sensitive or confidential information.

This letter provides additional clarification on the implementation of the remuneration disclosure requirements for all federally regulated deposit-taking institutions and builds on OSFI’s November 2007 Advisory^{Footnote 3} on Pillar 3 Disclosure Requirements.

1) Application

Exemption from Pillar 3 disclosures applies to institutions that continue to meet the exemption criteria outlined in Part 1 of OSFI’s November 2007 Advisory^{Footnote 3} on Pillar 3 Disclosure Requirements.

2) Timing and Frequency

Consistent with BCBS requirements, OSFI expects all institutions to implement the remuneration disclosure requirements starting with the 2012 fiscal year-end, except where institutions were previously directed to implement earlier to meet FSB requirements^{Footnote 4}. At a minimum, the frequency of remuneration disclosures should be made on an annual basis and published as soon as practicable.

3) Confidentiality

Certain types of disclosures may be exempted on the grounds that the information is proprietary or confidential. As an example, sensitive information that could potentially cause personal security concerns for an identifiable position is considered confidential and would be exempt from public disclosure.

Institutions, however, are required to maintain appropriate documentation in cases where such information is not disclosed. OSFI reserves the right to review such documentation.

4) Location of Disclosures and format

OSFI continues to encourage institutions to provide all related disclosures in one site or in one document to the extent possible. Institutions may choose the location and format for the disclosures. Further, institutions may refer to a different site or document if disclosures are already made for accounting or if further information is disclosed outside of Pillar 3 requirements.

5) Comparative prior year disclosures

Comparative prior year disclosures provide a historical baseline that aids interpretation for users and are required to be disclosed starting with the 2013 fiscal year-end. Institutions that have been previously directed to implement remuneration disclosure requirements earlier to meet FSB requirements will be required to provide comparative prior year disclosures starting with the 2012 fiscal year-end.

OSFI expects institutions to continue to comply with the original Pillar 3 requirements along with the Pillar 3 enhancements and revisions, and now with the enhanced remuneration requirements. Issues of non-compliance will continue to be addressed on a case-by-case basis through bilateral discussions with institutions.

Questions concerning the above should be addressed to Laural Ross, Director, Accounting Policy Division by email at laural.ross@osfi-bsif.gc.ca or by telephone at (613) 990-6972.