Office of the Superintendent of Financial Institutions
On June 26, 2012, the Basel Committee on Banking Supervision (BCBS) issued its final rules on the information banks must publicly disclose when detailing the composition of their capital. Entitled, Composition of capital disclosure requirements – Rules textFootnote 1 (the BCBS Disclosure Rules), the publication sets out a framework to ensure that the components of banks’ capital bases are publicly disclosed in standardised formats across and within jurisdictions for banks subject to Basel III. In Canada, this includes all banks, bank holding companies, federally regulated trust and loan companies, and cooperative retail associations (collectively institutionsFootnote 2) regardless of size or public listings.
This advisory provides clarification on the implementation of the BCBS Disclosure Rules for all institutions and builds on OSFI’s November 2007 AdvisoryFootnote 3 on Pillar 3 Disclosure Requirements.
This advisory has been revised to provide guidance on the disclosure modifications required as a result of OSFI’s guidance on Credit Valuation Adjustment (CVA) grandfatheringFootnote 4 and to provide minor clarification edits to address queries received since the initial issuance of this Advisory.
Given that all institutions are required to implement the Basel III framework, the new composition of capital disclosure requirements also apply to all institutions. Consistent with OSFI’s expectation that Domestic Systemically Important Banks (DSIBs) should have public information disclosure practices that are among the best of their international peers and to ensure comparability across jurisdictions, DSIBs are required to make disclosures as described in Part 4 of this Advisory. As per Chapter 1 of the Capital Adequacy Requirements (CAR) Guideline, DSIBs are Bank of Montreal, Bank of Nova Scotia, Canadian Imperial Bank of Commerce, National Bank of Canada, Royal Bank of Canada, and Toronto-Dominion Bank. All other institutions are required to make disclosures as described in Part 5 of this Advisory. Exemption from disclosures applies to institutions that continue to meet the exemption criteria outlined in Part 1 of OSFI’s November 2007 AdvisoryFootnote 3 on Pillar 3 Disclosure Requirements.
OSFI requires all institutions to fully implement the disclosures as described in the BCBS Disclosure Rules along with modifications described below starting in Q3 2013 (i.e., July 31, 2013 for institutions with October 31st year-ends and September 30, 2013 for institutions with December 31st year-ends). Institutions can disclose additional information at their discretion.
For additional clarity, where an institution provides Pillar 3 disclosures only on an annual basis (as provided in Part 2 of OSFI’s November 2007 Advisory), quarterly reporting will be required for 2013 reporting periods because no prior year Basel III annual information is available. After fiscal 2013, the frequency of disclosures can revert to an annual basis.
OSFI continues to strongly encourage institutions to make all Pillar 3 disclosures available on their websites (or their parent’s) to facilitate public access. As required in paragraph 7 of the BCBS Disclosure Rules, institutions’ disclosures must either be included in their published financial statements or, at a minimum, these statements must provide a direct link to the completed disclosures on their website. To address concerns that the benefit of Pillar 3 disclosures is severely diminished by the challenge of finding the disclosures, the BCBS Disclosure Rules additionally require that all institutions maintain a “Regulatory Disclosures” section of their public websites, where all of the information relating to disclosure of regulatory capital is made available to market participantsFootnote 5.
Apart from the Main Features Template (described below), institutions are required to ensure public access to previously issued Pillar 3 disclosures for a minimum of 12 months; where institutions make investor information available for longer periods, the same archive period should also be used for Pillar 3 disclosures. There is no requirement to include details of redeemed securities on the Main Features Template.
To ensure relevancy and usefulness, public Pillar 3 disclosures should be made available as soon as practicable but no later than OSFI reporting requirements.Footnote 6 However, where institutions make disclosures to meet securities laws, Pillar 3 disclosures should be made at the same time.
The BCBS Disclosure Rules consist of five main components summarized below and illustrated in the BCBS Disclosure Rules in annexes 1 to 4Footnote 7:
The All-in Capital Disclosure Template is to be completed and disclosed by all institutions beginning in the Q3 2013 reporting period. Institutions should clearly disclose that they are using this template because they are fully applying the Basel III deductions to calculate the all-in target ratios as per Chapter 1 of OSFI’s CAR Guideline. Institutions can also disclose, at their discretion, additional information to explain the differences in the all-in and transitional capital ratios (e.g. the institution has a large deduction from CET1 for goodwill; this deduction is phased-in during the transition period).
Section 2: Balance SheetFootnote 8 Reconciliation Requirements. This section sets out a 3-step approach to achieve a full reconciliation of all regulatory elements back to the institution’s audited balance sheetFootnote 9. This requirement aims to address a disconnect that exists between the numbers used for the calculation of regulatory capital and the numbers used in the published financial statements. As the BCBS disclosure rules do not prescribe a set template for this requirement, institutions are to complete the 3-step process using their own balance sheet. As each institution discloses different items on its balance sheet, OSFI has not developed a template. However, for illustrative purposes, an example of the reconciliation has been included in Annex 2. This reconciliation is to be completed and disclosed by all institutions in reporting periods starting in Q3 2013 and should be based on the quarter-end balance sheet. Note that for quarterly reporting purposes, institutions are required to reconcile their published financial statements for which an audit is not necessary.
In addition to completing the reconciliation, as per paragraph 16 of the BCBS Disclosure Rules, institutions are required to disclose a list of legal entities that are included within the accounting scope of consolidation but excluded from the regulatory scope of consolidation. Similarly, institutions are required to list the legal entities included in the regulatory consolidation that are not included in the accounting scope of consolidation. Further, if some entities are included in both the regulatory scope of consolidation and accounting scope of consolidation, but the method of consolidation differs between these two scopes, institutions are required to list these legal entities separately and explain the differences in the consolidation methods. Also, regarding each legal entity that is required to be disclosed in this paragraph, an institution must also disclose its total balance sheet assets and total balance sheet equity and a description of the principle activities of the entity. This information is to be disclosed by all institutions in reporting periods starting in Q3 2013.
Section 3: Main Features Template. Basel III requires that institutions provide qualitative disclosure that sets out “Summary information on the terms and conditions of the main features of all capital instruments, especially in the case of innovative, complex or hybrid capital instruments.” To address the lack of consistency in both the level of detail provided and the format of the disclosure which makes the analysis and monitoring of information difficult, Basel III requires the completion of a “Main Features Template” that provides a description of the main features of outstanding regulatory capital instruments. The Main Features Template, described in Section 3 and illustrated in Annex 3 of the BCBS Disclosure Rules (and replicated in Annex 3 of this Advisory), provides a description of the main features of outstanding regulatory capital instruments and should be disclosed by institutions for each outstanding instrument.
As noted in paragraph 30 of the BCBS Disclosure Rules, some key points to note about the template are:
This template is to be completed and disclosed by all institutions in reporting periods starting in Q3 2013 and provides additional clarity on the summary information in the Basel II Table 2(a)Footnote 10. Also, as indicated in the BCBS Disclosure Requirements, institutions are required to keep this template up-to-date, such that the report should be updated and made publicly available whenever an institution issues or repays a capital instrument and whenever there is a redemption, conversion/write-down or other material change in the nature of an existing capital instrument.
Section 4: Other Disclosure Requirements. This section requires institutions to make the full terms and conditions of all capital instruments available on their websites and also requires institutions that disclose ratios involving components of regulatory capital (i.e., ratios that are not defined in BCBS documents such as: “Equity Tier 1” or “Tangible Common Equity” ratios) to provide a comprehensive explanation of how these ratios are calculated.
Section 5: Transitional Capital Template. The Transitional Template, described in Section 5 and illustrated in Annex 4 of the BCBS Disclosure Rules, is a modified version of the All-in Template (i.e., above described Section 1) that discloses the components of capital that are benefiting from transitioning. This section aims to ensure that disclosure during the transitional period is consistent and comparable across institutions in different jurisdictions.Footnote 11 However, as institutions are required to disclose the All-in Template beginning in Q3 2013, it is not necessary for institutions to disclose the full Transitional Template. Instead OSFI has modified the Transitional Template to include only the CET1, Tier 1 and Total capital ratios, and their components. This abbreviated version of the Transitional Template (included in Annex 4 of this Advisory) is to be completed and disclosed by all institutions beginning in the Q3 2013 reporting period until the end of Q4 2017 reporting period.
To ensure comparability of the implementation of Basel III across jurisdictions, in addition to the above disclosure requirements, DSIBs are required to clearly describe in their shareholders’ reporting (e.g., Management Discussion and Analysis section of the annual report) OSFI’s “all-in” Common Equity Tier 1 capital target of 7% compared to the BCBS Basel III transitional requirementsFootnote 12. Starting on January 1, 2016, DSIBs are also required to describe OSFI’s additional 1% common equity surcharge.
Non-DSIBs are required to disclose a modified version of the Capital Disclosure Template as described in Annex 5 of this Advisory.
Key points to note about the template set out in this Annex areFootnote 14:
Directly issued qualifying common share capital (and equivalent for non-joint stock companies) plus related stock surplus
of which: significant investments in the common stock of financials
of which: mortgage servicing rights
of which: deferred tax assets arising from temporary differences
of which: classified as equity under applicable accounting standards
of which: classified as liabilities under applicable accounting standards
of which: instruments issued by subsidiaries subject to phase out
of which: capital conservation buffer requirement
of which: G-SIB buffer requirement
of which: DSIB buffer requirement
Note: Institutions are not required to disclose rows 70 and 71 in Q3 2013 and Q4 2013 as OSFI`s all-in target Tier 1 and Total capital ratios do not become effective until Q1 2014 as per Chapter 1 of OSFI`s CAR Guideline. From Q3 2014 to Q4 2018, institutions phasing in the CVA capital charge using Option 1 as per OSFI’s Capital Adequacy Requirements Guideline will be required to disclose rows 60a, 60b, and 60c, instead of row 60.
The following table sets out an explanation of each row of the All-in and Transitional disclosure templates with relevant references to OSFI’s CAR Guideline. Institutions are required to report deductions from capital as positive numbers and additions to capital as negative numbers. For example, goodwill (row 8) should be reported as a positive number, as should gains due to the change in own credit risk of the institution (row 14). However, losses due to the change in own credit risk of the institution should be reported as a negative numbers as these are added back in the calculation of Common Equity Tier 1.
Under Step 1 institutions are required to take their balance sheet in their published financial statements (numbers reported the middle column below, in a balance sheet that is provided for illustrative purposes) and report the numbers when the regulatory scope of consolidation is applied (numbers reported in the right hand column below of the illustrative balance sheet). If there are rows in the balance sheet under the regulatory scope of consolidation that are not present in the published financial statements, institutions are required to add these and give a value of zero in the middle column.
Assets of discontinued operations
Liabilities of discontinued operations
Under Step 2 institutions are required to expand the balance sheet under the regulatory scope of consolidation (revealed in Step 1) to identify all the elements that are used in the definition of capital disclosure template set out in Annex 1. The more complex the balance sheet of the institution, the more items will need to be disclosed. Each element must be given a reference number/letter that can be used in Step 3.
Under Step 3 institutions are required to complete a column added to All-in Capital Disclosure Template to show the source of every input.
of which: Reverse mortgages
Set out below is the template that institutions must use to ensure that the key features of all regulatory capital instruments are disclosed. Institutions should disclose the row numbers as indicated below to ensure market participants can easily compare banks both domestically and internationally. Where the cell is not applicable, institutions can either insert “NA” or not show the line item but maintain the row numbering of this template to ensure comparability across entities and jurisdictions. Additional information for completing this template is available in paragraph 47 of the BCBS Disclosure Rules. To facilitate completion, an Excel spreadsheet of this template is available on OSFI’s website.
Using the reference numbers in the left column of the table above, the following table provides a more detailed explanation of what institutions are required to report in each of the grey cells, including, where relevant, the list of options contained in the spreadsheet's drop down menu.
Identifies issuer legal entity.
Unique identifier (e.g. CUSIP, ISIN or Bloomberg identifier for private placement)
Specifies the governing law(s) of the instrument
Specifies the regulatory capital treatment during the Basel III transitional Basel III phase (i.e. the component of capital
that the instrument is being phased-out from).
Select from menu: [Common Equity Tier 1] [Additional Tier 1] [Tier 2]
Specifies regulatory capital treatment under Basel III rules not taking into account transitional treatment.
Select from menu: [Common Equity Tier 1] [Additional Tier 1] [Tier 2] [Ineligible]
Specifies the level(s) within the group at which the instrument is included in capital.
Select from menu: [Solo] [Group] [Solo and Group]
Specifies instrument type, varying by jurisdiction. Helps provide more granular understanding of features, particularly
Select from menu: [Common shares] [Preferred shares] [Innovative Tier 1] [Other Additional Tier 1] [Tier 2 subordinated debt] [Tier 2B Trust Subordinated Note] [Other Tier 2]
Specifies amount recognised in regulatory capital.
Par value of instrument
Specifies accounting classification. Helps to assess loss absorbency.
Select from menu: [Shareholders’ equity] [Liability – amortised cost] [Liability – fair value option] [Non-controlling interest
in consolidated subsidiary]
Specifies date of issuance.
Specifies whether dated or perpetual.
Select from menu: [Perpetual] [Dated]
For dated instrument, specifies original maturity date (day, month and year). For perpetual instrument put “no maturity”.
Specifies whether there is an issuer call option. Helps to assess permanence.
Select from menu: [Yes] [No]
For instrument with issuer call option, specifies first date of call if the instrument has a call option on a specific date
(day, month and year) and, in addition, specifies if the instrument has a tax and/or regulatory event call. Also specifies
the redemption price. Helps to assess permanence.
Specifies the existence and frequency of subsequent call dates, if applicable. Helps to assess permanence.
Specifies whether the coupon/dividend is fixed over the life of the instrument, floating over the life of the instrument,
currently fixed but will move to a floating rate in the future, currently floating but will move to a fixed rate in the future.
Select from menu: [Fixed] [Floating] [Fixed to floating] [Floating to fixed]
Specifies the coupon rate of the instrument and any related index that the coupon/dividend rate references.
Specifies whether the non payment of a coupon or dividend on the instrument prohibits the payment of dividends on
common shares (i.e. whether there is a dividend stopper).
Select from menu: [yes] [no]
Specifies whether the issuer has full discretion, partial discretion or no discretion over whether a coupon/dividend is
paid. If the institution has full discretion to cancel coupon/dividend payments under all circumstances it must select “fully
discretionary” (including when there is a dividend stopper that does not have the effect of preventing the institution from
cancelling payments on the instrument). If there are conditions that must be met before payment can be cancelled (e.g.
capital below a certain threshold), the institution must select “partially discretionary”. If the institution is unable to cancel
the payment outside of insolvency the institution must select “mandatory”.
Select from menu: [Fully discretionary] [Partially discretionary] [Mandatory]
Specifies whether there is a step-up or other incentive to redeem.
Specifies whether dividends / coupons are cumulative or noncumulative.
Select from menu: [Noncumulative] [Cumulative]
Specifies whether instrument is convertible or not. Helps to assess loss absorbency.
Select from menu: [Convertible] [Nonconvertible]
Specifies the conditions under which the instrument will convert, including point of non-viability. Where one or more authorities have the ability to trigger conversion, the authorities should be listed. For each of the authorities it should be stated whether it is the terms of the contract of the instrument that provide the legal basis for the authority to trigger conversion (a contractual approach) or whether the legal basis is provided by statutory means (a statutory approach).
For conversion trigger separately, specifies whether the instrument will: (i) always convert fully; (ii) may convert fully or partially; or (iii) will always convert partially
Free text referencing one of the options above
Specifies rate of conversion into the more loss absorbent instrument. Helps to assess the degree of loss absorbency.
For convertible instruments, specifies whether conversion is mandatory or optional. Helps to assess loss absorbency.
Select from menu: [Mandatory] [Optional] [NA]
For convertible instruments, specifies instrument type convertible into. Helps to assess loss absorbency.
Select from menu: [Common Equity Tier 1] [Additional Tier 1] [Tier 2] [Other]
If convertible, specify issuer of instrument into which it converts.
Specifies whether there is a write down feature. Helps to assess loss absorbency.
Select from menu: [Yes] [No]
Specifies the trigger at which write-down occurs, including point of non-viability. Where one or more authorities have the ability to trigger write-down, the authorities should be listed. For each of the authorities it should be stated whether it is the terms of the contract of the instrument that provide the legal basis for the authority to trigger write-down (a contractual approach) or whether the legal basis is provided by statutory means (a statutory approach).
For each write-down trigger separately, specifies whether the instrument will: (i) always be written down fully: (ii) may be written down partially; or (iii) will always be written down partially. Helps assess the level of loss absorbency at write-down.
For write down instrument, specifies whether write down is permanent or temporary. Helps to assess loss absorbency.
Select from menu: [Permanent] [Temporary] [NA]
For instrument that has a temporary write-down, description of write-up mechanism.
Specifies instrument to which it is most immediately subordinate. Helps to assess loss absorbency on gone-concern basis. Where applicable, institutions should specify the column numbers of the instruments in the completed main features template to which the instrument is most immediately subordinate.
Specifies whether there are non-compliant features.
If there are non-compliant features, asks institution to specify which ones. Helps to assess instrument loss absorbency.
The abbreviated version of the Transitional Template includes the components of the Common Equity Tier 1 (CET1), Tier 1 and Total capital ratios. These amounts should be calculated as per the transitional methodology specified in OSFI`s CAR Guideline. The explanatory table in Annex 1 includes descriptions of the individual line items.
* Note that the RWA amounts associated with the CVA capital charge are to be calculated as described in section 4.1.7 of Chapter 4 of the CAR Guideline, without the application of the scalars referenced in section 1.10 of Chapter 1 of the CAR Guideline.
Institutions should disclose the row numbers as indicated below to ensure that market participants can easily compare institutions. Where the cell is not applicable, institutions can either insert “NA” or not show the line item but maintain the row numbering of this template. Cells that are blacked out under the Transitional column are not required to be disclosed. The explanatory table in Annex 1 provides a description of each line item.
Note: From Q3 2014 to Q4 2018, institutions phasing in the CVA capital charge using Option #1 as per OSFI’s CAR GuidelineFootnote 15 will be required to disclose rows 60a, 60b, and 60c, instead of row 60.
BCBS June 26, 2012: Composition of capital disclosure requirements – Rules text http://www.bis.org/publ/bcbs221.pdf
Return to footnote 1 referrer
Banks and bank holding companies, to which the Bank Act applies; federally regulated trust or loan companies, to which the Trust and Loan Companies Act applies; and cooperative retail associations, to which the Cooperative Credit Associations Act applies; are collectively referred to as “institutions”.
Return to footnote 2 referrer
OSFI Advisory November 2007: http://www.osfi-bsif.gc.ca/eng/docs/pillar_adv.pdf
Return to footnote 3 referrer
Capital Adequacy Requirements guideline, chapter 1, section 1.10 - http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/CAR_chpt1.aspx
Return to footnote 4 referrer
BCBS June 26, 2012: Composition of capital disclosure requirements – Rules text http://www.bis.org/publ/bcbs221.pdf, paragraph 32. Also, as per paragraph 33, “Ideally much of the information that would be reported in the Regulatory Disclosures section of the website would also be included in the published financial reports of the institution. The Basel Committee has agreed that, at a minimum, the published financial reports must direct users to the relevant section of their websites where the full set of required regulatory disclosures is provided.”
Return to footnote 5 referrer
OSFI reporting requirements for deposit taking institutions : http://www.osfi-bsif.gc.ca/Eng/fi-if/rtn-rlv/fr-rf/Pages/dti_req.aspx
Return to footnote 6 referrer
The BCBS June 26, 2012: Composition of capital disclosure requirements – Rules text http://www.bis.org/publ/bcbs221.pdf, provides extensive discussion regarding these disclosures and should be read in conjunction with this Advisory
Return to footnote 7 referrer
Also referred to as “statement of financial position.”
Return to footnote 8 referrer
Paragraph 91 of the Basel III Rules Text states that banks should disclose “a full reconciliation of all regulatory capital elements back to the balance sheet in the audited financial statements”
Return to footnote 9 referrer
Included in OSFI’s November 2007 Pillar 3 Roadmap: http://www.osfi-bsif.gc.ca/eng/docs/pillar_adv.pdf
Return to footnote 10 referrer
BCBS June 26, 2012: Composition of capital disclosure requirements – Rules text http://www.bis.org/publ/bcbs221.pdf, paragraph 37
Return to footnote 11 referrer
OSFI December 10, 2012, Chapter 1, Capital Adequacy Requirements (CAR) guideline http://www.osfi-bsif.gc.ca/Eng/Docs/CAR_chpt1.pdf
Return to footnote 12 referrer
“All-in” basis is defined as capital calculated to include all of the regulatory adjustments that will be required by 2019 but retaining the phase-out rules for non-qualifying capital instruments.
Return to footnote 13 referrer
BCBS June 26, 2012: Composition of capital disclosure requirements – Rules text http://www.bis.org/publ/bcbs221.pdf, paragraph 39.
Return to footnote 14 referrer
Return to footnote 15 referrer
Cross-referenced to Consolidated Balance Sheet: Source of Definition of Capital Components
Return to Table footnote * referrer