FSB criticises industry for lack of progress on risk disclosure

Financial Stability Board says more action needed on liquidity, counterparty, structured credit disclosure practices

Unhappy at the financial industry's failure to improve risk disclosure since the crisis, the Financial Stability Board has called a roundtable meeting later this year in the hope of prodding institutions and regulators into activity.

In a report released on Friday evening, the FSB said it had hoped its short-term improvements to disclosure rules would be followed by permanent changes on the part of the private sector – but has been disappointed. "Over the past two years there have not been significant private sector initiatives of the kind the FSB was expecting to see," the report reads.

In particular, the FSB highlighted shortfalls in disclosure of institutional exposure to renegotiated debt, sovereign and institutional counterparty risk and liquidity risk – three areas that were not critical in 2008, but have since become extremely important to risk managers.

Institutions should be prepared to reveal much more detail of renegotiated or extended loans, of the geographical spread – and interdependence – of sovereign and institutional exposures, and of liquidity measures such as the liquidity coverage ratio and net stable funding ratio introduced by the Basel Committee in December 2010. At present, the FSB complains, "many of the disclosures that have been provided in the past might not provide users with the information they need to understand a financial institution's exposure to liquidity risks. A rethink may be needed."

In early 2008, the FSB's predecessor, the Financial Stability Forum, issued a series of disclosure recommendations on exposures to securitised and structured products – which were then at the heart of the unfolding financial crisis. Compliance with these recommendations has been generally good, but banks still need to reveal more about off-balance-sheet vehicles used in securitisations, and should try to release the information in – or alongside – regular financial reports, the FSB says.