ESMA Enforcement Focus Includes ECL, Climate Disclosure, COVID Impact
The European Securities and Markets Authority (ESMA) issued Annual Statement on the European common enforcement priorities for the 2021 annual financial reports. This year’s priorities cover the impact of COVID-19 and climate-related matters, provide guidance on the measurement of expected credit losses, and highlight disclosure obligations pursuant to Article 8 of the Taxonomy Regulation. In addition, issuers are reminded to make the necessary preparations to fulfill the disclosure requirements foreseen by Article 8 of the Taxonomy Regulation, which will come into force as of January 01, 2022.
The areas covered in the enforcement priorities will be considered by national enforcers when monitoring and assessing the 2021 annual financial reports of listed companies. The statement contains priorities linked to financial statements prepared in accordance with the International Financial Reporting Standards (IFRS) and priorities relating to non-financial statements and other considerations related to Alternative Performance Measures. The 2021 key enforcement priorities for financial statements prepared in accordance with IFRS are focused on:
- Careful assessment and transparency in accounting for longer-term impact of the COVID-19 pandemic and the recovery phase
- Consistency between the information disclosed within the IFRS financial statements and the non-financial information concerning climate-related matters, consideration of climate risks, disclosure of any significant judgements and estimation of uncertainty regarding climate risks while Clearly assessing materiality
- Enhanced transparency regarding the measurement of Expected Credit Loss (ECL), particularly in relation to management overlays, significant changes in credit risk, forward-looking information, changes in loss allowances, credit risk exposures and collateral, and the effect of climate-related risk on ECL measurement
The recommendations concerning non-financial information refer to climate-related policies and their outcomes, impact of COVID-19 on sustainability-related goals and non-financial key performance indicators, and information on any structural changes. ESMA and national enforcers will monitor and supervise the application of the recommendations for preparing IFRS financial statements and non-financial statements as well as any other relevant provisions outlined in the Statement, with national enforcers incorporating them into their reviews and taking corrective actions where appropriate. ESMA will collect data on how European listed entities have applied the recommendations in the Statement and will communicate its findings in its report on the enforcement activities of 2022, to be published in Spring 2023.
Related Links
Keywords: Europe, EU, Banking, Securities, Climate Change Risk, Taxonomy Regulation, ECL, Expected Credit Loss, Disclosures, COVID-19, IFRS 9, ESG, ESMA
Featured Experts
Metin Epözdemir
Metin Epözdemir helps European and African banks with design and implementation of credit risk, stress testing, capital management, and credit loss accounting solutions.
Masha Muzyka
CECL, IFRS 9, and IFRS 17 expert; credit risk and insurance risk specialist; strategic planning and credit analytics solutions consultant
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous Article
Chinese Authorities Set Out TLAC Requirements for G-SIBsRelated Articles
EC Consults on PSD2 and Open Finance; EU Reaches Agreement on DORA
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.
EC Mandates ESAs to Propose Amendments to SFDR Technical Standards
The European Commission (EC) has issued two letters mandating the European Supervisory Authorities (ESAs) to jointly propose amendments to the regulatory technical standards under Sustainable Finance Disclosure Regulation or SFDR.
EBA Examines Supervisory Practices, Issues Deposits Reporting Template
The European Banking Authority (EBA) published its annual report on convergence of supervisory practices for 2021. Additionally, following a request from the European Commission (EC),
US Agency Publications Address Basel, Reporting, and CECL Developments
The Farm Credit Administration published, in the Federal Register, the final rule on implementation of the Current Expected Credit Losses (CECL) methodology for allowances
SEC Extends Comment Period on Climate Risk Disclosures
The U.S. Securities and Exchange Commission (SEC) looks set to intensify focus on crypto-assets and cyber risk and extended the comment period on the proposed rules to enhance and standardize climate-related disclosures for investors.
APRA Reduces Committed Liquidity Facility, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) announced reduction in the aggregate Committed Liquidity Facility and issued an update on the operational preparedness for zero and negative market interest rates.
CMF Consults on Basel Rules, Presents Roadmap to Address Climate Risks
The Commission for the Financial Market (CMF) in Chile published capital adequacy ratios (as of February 2022, January 2022, and December 2021) for 17 banks and for the banking system.
PRA Issues Statement on NPEs and Policy on Trading Activity Wind-Down
The Prudential Regulation Authority (PRA) issued a statement on the European Banking Authority (EBA) guidelines on management of non-performing exposures (NPEs) and forborne exposures.
EBA Updates Standards for 2023 Benchmarking of Internal Approaches
The European Banking Authority (EBA) updated the implementing technical standards that specify the data collection for the 2023 supervisory benchmarking exercise in relation to the internal approaches used in market risk, credit risk, and IFRS 9 accounting.
EIOPA Responds to Stakeholder Views on Blockchain in Insurance
The European Insurance and Occupational Pensions Authority (EIOPA) published a feedback statement on the responses received to the consultation on blockchain and smart contracts in insurance.
