Public disclosure and transparency

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Public disclosure and transparency
Yerevan, May 2006
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Goals and structure ofthe presentation

• The goal of this presentation
• To discuss the main problems related to
  information disclosure.
• Presentation structure
• Main principles and definitions.
• Why is transparency important?
• Types and forms of information disclosure.
• Confidentiality.
• Information policy.
• Listing Requirements Compared.

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• Main principles and definitions

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Definition of transparency
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• Transparency is public disclosure of reliable
  and timely information that enables users of that
  information to make an accurate assessment of a
  banks financial condition and performance, its
  business activities, and the risk related to
  those activities.
• Basel Committee
• on Banking Supervision

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Principles of disclosure
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• Best practices. Good disclosure should be
• Provided on a regular and timely basis.
• Easily and broadly available.
• Correct and complete
• Consistent, relevant and documented.

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• Why is transparency important?

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Why is transparency important?
Timely and accurate information disclosure
Sound economic decisions
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Why is transparency important?
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Advantages of good disclosure
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Enhances accountability

• Enhances transparency

Creates an incentive to improve governance
structure
Stimulates observance of the best CG practice
Is a necessary element to assess a companys
position
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Why is transparency important?
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• Basel Committee on Banking Supervision highlights
  that high-quality public disclosure improves
  capability of market participants to make
  informed decisions by
• Allowing them to more accurately assess a banks
  financial strength and performance
• Increasing the credibility of information
  disclosed by a bank
• Demonstrating a bank ability to monitor and
  manage its risk exposures, e.g. by the disclosure
  of quantitative and qualitative information about
  its risk measurement methodologies and
• Reducing market uncertainty.

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Regression of Mid Spread for Eurobondon TD
Score 14 Russian Banks(Standard Poors, 2005)
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?????-????
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Regression of Mid Spread for Eurobondon TD
Score 9 Non-Russian Banks(Standard Poors,
2005)
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? ? ? ? ?
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Some mispersuasion
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• It is enough to just observe legislation to
  achieve transparency.

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Some mispersuasion
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• Interpretation of confidential information is too
  wide.

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Some mispersuasion
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• Disclosure is sometimes confused with
  transparency.

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• Types and forms of
  information disclosure

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OECD Principles
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Material ForeseeableRisk Factors
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• Basel Committee recommends to inform market
  participants about
• Overall risk management philosophy
• Overall policies and methodologies
• How risks arise
• How risks are managed and controlled
• Management structure and risk measurement and
  monitoring
• Review of risk exposures.

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Forms of information disclosure
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Level of details
Periodicity
Stakeholders
Tools
Annual and quarterly report, information letters,
general meeting of shareholders
Shareholders
High
Regularly
Revisions, inspections, reports
Very high
Regulator
On going
Analytics
High
Regularly
Briefings
Rating Agencies
From low ?? high
Upon request
Surveys and Analysis
The press, Internet, annual and quarterly reports
From low ?? high
Upon request
General Public
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Comparative Table on Disclosure Components
(Standard Poors, 2005)
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• 1 shareholder capital and structure 2
  shareholder rights 3 financial information 4
  operational information 5 Board and
  management structure and process 6 Board and
  management remuneration.

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Sources of Disclosure (Standard Poors, 2005)
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Annual report,
Regulatory fillings,
Web-site,
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46
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Russian banks
86
85
82
Non-Russian peers
36
60
43
Russian corporations
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• Confidentiality

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Advantages and disadvantages oftransparency
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• ..................................................
  ..............................????
• ..................................................
  ......................................???

• Observation of law
• Effective cooperation with interested parties
• Capitalization growth

The balance between transparency and disclosure
is needed
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Confidential information
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Confidential information should
be documented
be official
not be public
be a commercial secret
be commercially valuable
give owners economic preferences
be a banks secret
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• Information policy

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Objectives of information policy
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• Respond to market expectations.
• Comply with requirements of a regulator.
• Increase trust of shareholders and other
  stakeholders.

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Content of information policy
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• Objectives and principles of disclosure.
• Persons authorized to make disclosure on behalf
  of a bank.
• Rules for disclosure of information.
• Public information.
• Information provided to shareholders.
• Confidential information.
• Insider information.

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• Listing Requirements Compared

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Listing Requirements Compared Disclosure
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Annual report with a section on how the
company implements recommendations of the
Combined Code Semi-annual report Disclosure of
price-sensitive information Notification of
directors interests and transactions with the
companys shares
LSE
Annual report Interim earnings statement
(quarterly or semi-annual) Material information
disclosure Disclosure in the MDA of material
off-balance sheet arrangements. Disclosure of
corporate governance guidelines Foreign issuers
must disclose how their (home-country) corporate
governance practices differ from NYSE listing
standards for US firms
NYSE
Annual report with audited financial statements
to be provided to shareholders Quarterly reports
must be provided to shareholders Disclosure in
the MDA of material off-balance sheet
arrangements Material information disclosure
NASDAQ
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Listing Requirements Compared Transparency
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LSE
IFRS Annual review of internal controls system
with reporting to shareholders
US GAAP Management's report on internal control
over financial reporting and certification of
disclosure Non-audit services and audit partner
rotation Certification by the CEO and CFO of
annual and quarterly reports Internal audit
function
NYSE
US GAAP Management's report on internal control
over financial reporting and certification of
disclosure Non-audit services and audit partner
rotation Certification by the CEO and CFO of
annual and quarterly reports
NASDAQ
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Conclusion

• Good disclosure
• Enhances accountability and transparency
• Creates an incentive to improve governance
  structure
• Is a necessary element to assess a companys
  position.

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Contact details
IFC Yerevan 9 V. Sargssyan str. Yerevan 375010,
Armenia Tel [phone], 545242 Fax (37410)
545245