ESMA’s proposed changes to the Transparency Directive in light of Wirecard case

On 3 March 2021, ESMA issued a letter addressed to the European Commission proposing modifications to Directive 2004/109/EC of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (the “Transparency Directive”) in light of the Wirecard case.

Background

Following the collapse of Wirecard, the German Fintech giant formerly included in the DAX 30 index, ESMA was invited by the European Commission to carry out an analysis of the events and of the supervisory response of the German authorities. The insights gained through such analysis are reflected in the suggestions to the European Commission on improvements to the Transparency Directive relating to enforcement of financial information published by issuers in accordance with that directive. In ESMA’s view, the Wirecard case displayed the importance of timely and effective enforcement of financial information with a view to ensure investor protection and confidence in capital markets.

Proposed changes

ESMA recommends modifications to the Transparency Directive to meet four aims:

• Enhance cooperation between national competent authorities and other authorities by eliminating confidentiality impediments that prevent an effective and efficient exchange of information and by developing Regulatory Technical Standards on cooperation and exchange of information.
• Enhance coordination of enforcement of financial information at national level by requiring that national transposition measures clarify responsibilities, reporting obligations and roles when implementing delegation or designation models concerning enforcement of financial information. In addition, by including regular review clauses to ensure that such delegation and designation models are fit for purpose.
• Strengthen independence of the national competent authorities in charge of enforcement of financial information by not permitting the outsourcing of regular examinations of financial information to audit firms and by ensuring independence of competent authorities and/or delegated entities and their staff from market participants and Governments.
• Strengthen harmonised supervision of information across the EU by inter alia (i) ensuring that all accounting enforcers, including the delegated entities and designated authorities, have the binding powers to request information and to require corrective information; (ii) supplementing the powers of national competent authorities to (amongst others) require an independent second audit or forensic examination and carry out joint on-site inspections or investigations; (iii) reinforcing ESMA’s role in financial reporting; and (iv) strengthening consistent application and enforcement of disclosures related to Alternative Performance Measures.

Furthermore, ESMA highlights the importance of enhancing coordination, cooperation and communication between audit committees and financial reporting enforcers and applauds the European Commission’s initiatives to enhance EU requirements in the areas of corporate governance and audit, focusing 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. Finally, ESMA underlines the need for sufficient and professionally skilled personnel to carry out the task of supervision of information published by issuers in accordance with the Transparency Directive.