The Reserve Bank has released a consultation document entitled Review of Disclosure Requirements for Registered Banks (the Review) outlining options to change the disclosure requirements for registered banks. The Review asks questions, with submissions due by 24 September 2010. The results of the Review are to be published in November 2010, with the new disclosure regime expected to come into effect on 31 March 2011.
The Review aims to reduce compliance costs as well as making disclosure more meaningful. It notes that New Zealand has more disclosure onerous obligations than the UK and Australia (they have no off-quarter reporting and less detail in their half year reporting). Its starting point is that there is some overlap between the Reserve Bank’s disclosure requirements and those required under the Financial Reporting Act and the Basel Committee on Banking Supervision. The Review contains an ‘acid test’, which asks ‘what extra benefit do the Reserve Bank’s disclosure requirements give on top of what is already disclosed?’
The Review discusses several options, but details two ‘preferred options’. These are:
|||Option A||Option B|
|Annual||New Key Investment Summary, modified General Disclosure Statement||Modified General Disclosure Statement|
|Half yearly||New Key Investment Summary, streamlined General Disclosure Statement||Streamlined General Disclosure Statement|
|Off quarters||New Key Investment Summary||Brief General Disclosure Statement (a variation is to dispense with this altogether)|
Disclosure reports are relevant to a number of parties, including banks themselves, auditors, consumer groups, the Securities Commission and MED, ratings agencies and financial commentators. These parties have disparate interests. The crux of the preferred options is to have a disclosure regime that is useful to all and cost effective to the banks. To this end, both preferred options change the status quo in the following ways:
- both seek to modify the General Disclosure Summary (GDS) to make it consistent with NZ IFRS
- both options would streamline the half year GDS, removing some of the full year NZ IFRS requirements that are not necessary half yearly. These include full disclosure of accounting policies, risk management policies, detailed notes on tax expense, deferred tax, bonds and notes etc. This would reduce compliance cost, result in a less voluminous disclosure and align it with international practice, and
- both options entail cutting the Supplemental Disclosure Document (SDS), a document reserved for legal documents such as guarantees.
The primary difference between the options is that Option A still envisages retail customers’ scrutiny through the Key Investment Summary (KIS). However, the Review recognises that retail customers are far more likely to respond to commentary or to use a financial website to find information than to seek out a KIS (and as a consequence there is the impression that no-one uses a KIS), and that an off-quarter document that tries to be accessible enough for general as well as providing enough information for experts is likely to end up achieving neither. As such, the Reserve Bank prefers Option B.
Other changes the Review proposes:
- a reduction in the period in which to issue the half yearly GDS to two months after the end of the half year (to bring it into line with the off quarters GDS time frame) – currently it is three months (as per the annual GDS time frame) – on the basis that there will be reduced disclosure requirements, and
- improved accessibility to the GDSs on Banks’ websites – there are concerns that they are not as accessible as they could be. The requirement for hard copies of the GDS to be in branches would be dropped – hard copies would need to be available on request from the head office only.
The RBNZ is giving further consideration to the level of private reporting to RBNZ by Banks in light of the changes to the public disclosure requirements.
The remainder of the Review asks a number of technical questions around accounting treatment and disclosure arising out of a line by line review of the current GDS disclosure requirements.