Speech of ESMA Chair on transparency touches on the valuation of sovereign debt

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30 Sep 2011

In a speech entitled Market Transparency – Does it prevent crisis? given at the Austrian Financial Market Authority Supervision Conference in Vienna, Steven Maijoor, Chairman of the European Securities and Markets Authority (ESMA), spoke about similarities between the credit crunch and the current European sovereign debt crisis and how transparency can be an answer to the lack of trust in banks and markets. .

"At the beginning of the crisis, in 2007 and 2008, a lack of transparency regarding exposures to subprime mortgages created a situation of uncertainty about the financial positions of banks," Maijoor says in his speech and continues "in the more recent months of the financial crisis a lack of transparency from banks on their exposures to sovereign debt and related instruments are generating new suspicions about the conditions of individual banks."

Transparency on financial performance and positions will restore trust into markets and banks, Maijoor claims, and IFRSs have contributed to both the quality and quantity of the information provided as part of the financial statements presented by listed companies. However, IFRSs need to be applied correctly to serve the end of transparency, and national supervisory authorities and ESMA have to and will ensure consistent enforcement across the EU.

As you will understand, we are currently looking at how banks are applying IFRS for the valuation of sovereign debt. It is very important for ESMA that financial institutions apply IFRS correctly, and are consistent in their valuations of sovereign debt exposures. This especially holds for the upcoming annual financial statements.

In July 2011, ESMA published a public statement on disclosures related to sovereign debt to be included in IFRS financial statements.

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