European stakeholders come strongly down in favour of the current endorsement process

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22 May 2017

On 21 March 2017, the European Commission launched a public consultation on the operation of the European Supervisory Authorities (ESAs), one of which is the European Securities and Markets Authority (ESMA). The consultation document suggested that the review of the ESAs' operation might also be used to "streamline" the endorsement process in the EU by giving ESMA an "advisory role".

The publicly available reactions to the consultation across standard-setters, trade associations, banking and insurance federations as well as accounting and auditing associations all seem to be asking the same question: How does the presumption come about that the current endorsement process needs to be improved after the European Commission has just conducted a comprehensive review of the functioning of the IAS Regulation with a favourable result and after the recent reform of European Financial Reporting Advisory Group (EFRAG) was welcomed as a success by all stakeholders?

Below is an overview of the publicly available comments that illustrate the reactions across Europe. All links are external links to the submissions on the websites of the organisations cited.

Among the large standard-setters, Germany's ASCG notes: "[W]e are taken by surprise seeing the Commission re-opening the chapter and raising the questions – noting that less than two years ago the Commission finished a comprehensive review of the functioning of the IAS Regulation (including the endorsement process)." The French ANC adds: "In terms of reform momentum, it is worth noting that EFRAG’s reform has been implemented a little more than two years ago following extensive dialogue with all stakeholders and reflects a carefully considered balance of responsibilities." And the UK FRC notes that the ESAs declined an offer of EFRAG membership that had been made as part of the EFRAG reform: "We would welcome them becoming more active in this process by, for example, taking up the previous offer of EFRAG Board membership."

The smaller standard-setters, including the ones from Austria, Croatia, Cyprus, Denmark, Estonia, Lithuania, the Netherlands, Norway, Portugal, Slovakia, Slovenia, and Sweden, worked together to develop and submit a response to the European Commission. The publicly available submission of the Dutch RJ notes: "The question appears to start from the presumption that the current endorsement process needs to be made more effective and efficient. We see no arguments being presented in the consultation that motivate why this process is currently not sufficiently effective and efficient." The point of the Danish FSR that "it is important for us that national Standard setters and institutes of auditors and accountants from small countries or with smaller resources are directly involved in EFRAG and may contribute to EFRAG’s due process" is also supported by the Danish Accounting Standards Committee and the Danish National Funding Mechanism who note: "We are convinced that the present model is working well in the public interest and it would not be appropriate to risk a good and tested process for a new and untested process. Do not change what is not broken."

Among the (pan-European) industry organisations, the French ACTEO & MEDEF stress: "We note that the possibility of transferring the responsibilities of EFRAG to ESMA was already assessed and dismissed in the Maystadt Report published in October 2013. This option encountered “a massive opposition” from stakeholders, for several reasons, all of which remain valid today." The European Banking Federation notes: "The EBF considers the current endorsement process of the international accounting standards into EU legislation to work effectively and efficiently. It is important to preserve the efficiency of the endorsement process to ensure all standards are endorsed before their mandatory effective date." Insurance Europe declares that it "does not see valid reasons for modifying the current endorsement of IFRS in Europe, the organisation or mandate of EFRAG", and the position of the German insurance industry is summed up quite bluntly by the GDV: "Involving ESMA in the endorsement process would be neither necessary nor helpful."

Accountancy Europe finally notes: "EFRAG plays a key role in the endorsement for use in the EU of the IFRS issued by the International Accounting Standards Board (IASB) and has a track record of high quality output in this area".

ESMA's Securities and Markets Stakeholder Group also responded to the consultation but notes "the limited time available to produce a response to this consultation", which meant that the group "has not prepared responses to all of the questions put forward in the consultation". Among the questions not answered is the one regarding the endorsement process.

Update: On 30 May, two weeks after the comment letter deadline, ESMA itself also responded to the consultation noting that the Commission should "increase ESMA's role in the endorsement process for IFRS by imposing a formal/mandatory requirement for ESMA to provide advice related to the European public good and financial stability". ESMA also noted that this way EFRAG's role could be reduced to providing purely technical advice.

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