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Europe's listed financial institutions face tougher demands on statements

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Europe’s listed financial institutions face tougher demands on the way they create financial statements, after the European Securities and Markets Authority (ESMA) found some statements were not structured well enough to allow for comparisons.

In a review of the comparability and quality of disclosures in 2012 IFRS financial statements of listed financial institutions, ESMA said it has made recommendations to improve the transparency of financial statements in certain key areas.

These areas are credit risk and impact of forbearance practices; liquidity and funding risk; asset encumbrance and fair value measurement of financial instruments.

Steven Maijoor, chair of ESMA, said: “ESMA has identified a number of areas where financial institutions can improve the information that they provide in their financial statements, particularly on issues such as credit risk and forbearance.”

The authority expected financial institutions and auditors to take its recommendations into account when preparing and auditing the IFRS financial statements for 2013, he said.

“ESMA believes accurate and comparable financial statements play a key role in maintaining both investor and market confidence, which in turn contributes to financial stability and promotes sound economic growth,” Maijoor said.

Although the review found institutions were generally observing the required disclosures under IFRS, it also came across broad variations in the quality of information provided, ESMA said.

In some cases, the quality was insufficient or insufficiently structured to allow comparability among financial institutions, it said.

Separately, ESMA has finalised clearing and risk -mitigation obligations for non-EU OTC derivatives.

The authority said it had issued final draft regulatory technical standards relating to derivative transactions by counterparties located outside the EU.

These new standards implement provisions of the regulation on OTC derivatives, central counterparties and trade repositories (EMIR).

EMIR aims to ensure risks posed to EU financial markets by non-EU deals are covered by regulation.

The draft standards make clear OTC derivatives contracts entered into by two counterparties established in one or more non-EU countries — for which a decision on the equivalence of the jurisdiction’s regulatory regime has not been adopted — will be subject to EMIR if one of two conditions are met.

The first condition is that one of the non-EU counterparties be guaranteed by an EU financial for at least €8bn, and for at least 5% of the derivatives exposures of the EU financial guarantor.

The second is that the two non-EU counterparties execute their deals via their EU branches, and qualify as a financial counterpart if established in the EU.

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