ESMA Seeks Input on DLT Uses, Responds to Draft on IFRS Disclosures
The European Securities and Markets Authority (ESMA) is seeking input from stakeholders on the use of distributed ledger technology, or DLT, for trading and settlement and on the need for amending the regulatory technical standards on regulatory reporting and transparency requirements. The feedback period ends on March 04, 2022. Other developments concern the issuance of a letter in response to the exposure draft of the International Accounting Standards Board (IASB) on disclosure requirements in IFRS standards and a letter in response to the due process of the European Financial Reporting Advisory Group (EFRAG) regarding the IASB exposure draft on disclosure requirements in IFRS standards. Appendices to the letters set out detailed comments on the exposure draft of IASB.
Request for Input on Distributed Ledger Technology
The Regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT Pilot) requires ESMA to assess whether the technical standards developed under the Markets in Financial Instruments Regulation, or MiFIR, relative to certain pre-and post-trade transparency and data reporting requirements need to be amended for effective application to the securities issued, traded, and recorded using the distributed ledger technology. ESMA is seeking input from stakeholders with respect to technical standards on equity and non-equity transparency, double volume cap and provision of data, and data reporting requirements. In addition, in relation to the transaction reporting exemption, ESMA seeks stakeholder views on possible effective ways to allow regulators access to information on transactions, financial instrument reference data, and transparency data. Based on the feedback received, ESMA will consider whether amendments to the technical standards are necessary. If amendments are deemed necessary, ESMA will consult on the proposal before submitting the final draft technical standards to the European Commission for adoption. The DLT Pilot is expected to apply in early 2023.
Response Letter on IASB Draft on IFRS Disclosures
ESMA supports the ambition of IASB to improve the quality of the disclosures provided by preparers of IFRS financial statements. ESMA welcomes the development of general and detailed disclosure objectives as well as the development of additional examples that provide helpful indications of how entities can achieve these objectives. However, ESMA does not believe that the approach proposed by the exposure draft of IASB strikes the right balance between disclosure objectives and detailed disclosure requirements. Indeed, ESMA strongly believes that the disclosure requirements proposed in the exposure draft should contain more mandatory disclosure items. For such disclosures, the general materiality principle of IAS 1 on presentation of financial statements would be applicable and information would only need to be disclosed if material to the entity. Introducing “non mandatory” disclosure items may prompt reporting entities to limit the amount of information. ESMA is very concerned that, should the IASB proceed with the approach proposed in the exposure draft, the hurdle for auditors and enforcers to challenge issuers that are not willing to be transparent by providing relevant disclosures in financial statements to inform investors would be too high. In the absence of specific disclosure requirements, it is likely to be difficult to conclude that the judgment made by the preparer is not reasonable and that specific information is needed to fulfill a certain objective. Moreover, the proposed approach may hinder achieving comparability between companies for which similar information is material and ultimately the quality of financial reporting and its usefulness for investors.
Related Links
- Press Release on Call for Evidence
- Call for Evidence (PDF)
- ESMA Letter to IASB (PDF)
- ESM Letter to EFRAG (PDF)
Comment Due Date: March 04, 2022 (DLT Input)
Keywords: Europe, EU, Banking, Securities, Distributed Ledger Technology, Call for Evidence, Disclosures, IFRS Standards, Reporting, IASB, EFRAG, Regtech, Suptech, ESMA
Featured Experts
David Fihrer
Skilled life insurance actuary; subject matter expert on IFRS 17 and source of earnings
Salman Siddiqui
ESG and climate expert for P&C insurance; IFRS 17 specialist and chartered accountant; extensive experience in both life and non-life insurance, with focus on capital management, financial performance, and financial reporting.
Previous Article
French Financial Markets Authority Sets Out Priorities for 2022Related Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.