Insights Blog

The European Securities and Markets Authority (ESMA) has recommended that the European Commission consider a number of amendments to the EU Transparency Directive to improve cooperation between national competent authorities and enhance and harmonise the enforcement powers in respect of financial reporting across the EU. 

The recommendations come amidst the continuing fallout from the collapse of Wirecard in June 2020. In November 2020, ESMA published a detailed report on the events leading up to the collapse of Wirecard and the German supervisory response in the area of financial reporting which identified a number of deficiencies, inefficiencies and impediments to the effective supervision of financial reporting. 

ESMA’s recommendations, which are intended to enhance investor protection and confidence in capital markets, address a number of findings in the November report, including potential issues relating to the independence of national competent authorities from Governments, legal impediments to the exchange of information between competent authorities (e.g. where confidentiality obligations apply) and potential inefficiencies where supervisory responsibility is shared by multiple authorities. 

ESMA’s key recommendations are set out below: 

1. Enhancing cooperation between authorities across the EU 

  • Eliminating confidentiality impediments that prevent an efficient and effective exchange of information between competent authorities under different EU regulatory regimes (e.g. the EU Transparency, Prospectus and Market Abuse regimes)
  • Developing additional standards on cooperation and exchange of information between accounting enforcers, audit oversight bodies and other supervisory authorities

2. Enhancing coordination and governance on a national level 

  • Requiring that national transposition measures to clarify the responsibilities, reporting obligations and roles of supervisory authorities in circumstances where multiple authorities share and/or delegate competence for supervision of financial reporting 
  • Including regular review clauses to ensure that shared competence and delegation models are fit for purpose

3. Strengthening independence of national competent authorities

  • Not allowing the outsourcing of the task of regular examinations of financial information to audit firms
  • Ensuring that supervisory authorities and their staff are independent from market participants and from Governments

4. Strengthening harmonised supervision of information across the EU

  • Ensuring that the powers of accounting enforcers are harmonised across the EU (including having binding power to request information and to require corrective information to be published)
  • Supplementing the powers of national competent authorities, including to require an independent second audit or forensic examination and carry out joint on-site inspections or investigations
  • Reinforcing ESMA’s role in financial reporting
  • Strengthening consistent application and enforcement of disclosures related to Alternative Performance Measures

In its recommendations, ESMA also stated that it supports the European Commission’s current initiatives to enhance EU requirements in the areas of corporate governance and audit with a particular emphasis on strengthening and clarifying the role of audit committees and their supervision and on enhancing the assurance on, and disclosure requirements regarding, effectiveness of issuers’ internal controls.

ESMA considers that the Wirecard case has shown, once again, that timely and effective enforcement of financial information is paramount to ensure investor protection and confidence in capital markets