The three ESAs have issued their letter in the middle of the deliberations on the EFRAG reform, where EFRAG is currently discussing the implementation of the reform with the European national standard-setters, the EFRAG member organisations and the organisations funding EFRAG in order to propose the details of the reformed structure to the EU Commission.

In his final report Mr Maystadt proposed to replace the current Supervisory Board with a high-level Board, which would approve the comment letters addressed to the IASB and the endorsement advice letters to the Commission, relying on the work of a technical group. The Board would consist of 16 members: four European public institutions (including the ESAs), five stakeholders representing private interests and seven national standard-setters. The Board is expected to express a single view and individual members would only have the possibility of abstaining or remaining silent should they not agree with the majority view.

The ESAs are convinced that this voting model might lead to cases where the voting results do not reflect the public interest as the objectives of the private stakeholders or national standard-setters "are unlikely to be always aligned" to the objective of protecting the public interest. They therefore suggest that only the public authorities represented in the proposed board should decide on final endorsement advice to the European Commission. Input from the members representing private interests and the results of the public consultation process would be considered by the public authorities when coming to their final conclusion.

In the final paragraph of the letter, the ESAs declare that they will only join the new Board as observers and continue with their present way of acting should their concerns not be addressed.

Consequently, in the absence of any changes to the proposed voting model, the three ESAs will refrain from accepting membership but ask for an observer status in the new EFRAG SB. Furthermore, the three ESAs will reserve the right to submit their opinion on the endorsement advice on the use of existing, new and amended IFRS to the EC. In line with current practice the ESAs will also continue to submit their own comment letters to the IASB by bringing their own perspectives to the development of new financial reporting standards and thus fulfilling their obligations from their respective founding regulations.

Click to download the full letter from the ESMA website.