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.
- 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
Previous ArticleOSFI to Communicate Next Steps on Climate Risk Policy in Early 2022
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.