Verbatim report of proceedings

Monday, 23 October 2006 - Strasbourg

19. Implementing measures (level 2) of the "Transparency" and "Prospectus" directives (debate)

  President. The next item is the Commission statement on the Implementing measures (level 2) for the ‘Transparency’ and ‘Prospectus’ directives.

  Charlie McCreevy, Member of the Commission. Mr President, allow me to address two measures proposed by the Commission on which Parliament will vote tomorrow. They concern the postponement of the decision on the equivalence of third country accounting standards – we aim to reach that decision by July 2008 – and the general implementation measures for the Transparency Directive.

I would first like to thank the rapporteurs for their efficient and helpful work on these important and sensitive matters. Along with the Committee on Economic and Monetary Affairs, they have worked very constructively with the Commission and all parties concerned. The careful work of Parliament has demonstrably improved the legal texts. I would also like to thank the Committee of European Securities Regulators for its excellent work. The draft measures now represent a balanced and efficient solution.

Firstly, on equivalence: postponing our decision on equivalence will not only ensure that EU markets remain open while work on convergence is ongoing, but will also allow us to work actively with United States and other third country authorities towards the elimination of reconciliation requirements for EU issuers abroad. This is and will remain our number one objective.

The additional two years will enable us to align the equivalence decision with the Securities and Exchange Commission's timeline in its roadmap towards eliminating the need for reconciliation between IFRS and US GAAP. The United States authorities are committed to working towards the recognition of equivalence of IFRS and US GAAP. With the new timing of the equivalence decisions, we will be able to work in parallel towards common agreed objectives.

In this context, it is important to emphasise that nothing is predetermined. We will decide on equivalence by mid-2008, in the light of progress in convergence, and it is certainly not a foregone conclusion that any specific GAAP will 'pass the test'. It has always been our priority to keep our options open. I know that Parliament shares that objective. Before 1 January 2008, we will have decided on both a definition of equivalence and the equivalence mechanism. This will be done by way of comitology, with the full involvement of Parliament.

Exemption for issuers of professional securities from the need to provide narrative description of differences between third country GAAPs and IFRS remains an issue of concern. We know that Parliament has doubts about this amendment. Its aim is strictly to remove the ambiguity in the existing Prospectus Regulation. We regret that we were alerted about this ambiguity only a few weeks ago, but we are convinced that this amendment is necessary to ensure legal certainty.

Secondly, on the transparency measures: the Transparency Directive is a major step towards integrated European financial markets that investors and the public can trust. To achieve this, it is important to complete the transparency obligations by adopting the Commission implementing measures today under your consideration.

Parliament has made several proposals to the Commission for improving this text, which I appreciate. The Commission is ready to accept the substance of most of them, unless this is not possible for technical reasons. In particular, Parliament raised questions on the notification to be made by market makers indicating their intention to make use of one of the exceptions to the Directive. The Commission prefers a solution that limits the administrative burden, and therefore the cost, for market makers. This is why the Commission is in favour of market makers filing this notification with their own competent authority only, instead of with potentially 25 authorities. I believe this solution fits perfectly with the simplification agenda that the Commission supports.

  John Purvis, on behalf of the PPE-DE Group. – Mr President, in this era of globalisation we often bemoan Europe’s laggardness in setting global standards. However, International Financial Reporting Standards (IFRS) are essentially a European project incorporating a principles-based system of accounting. Much of the world will adopt that European accountancy standard. It is appropriate that we allow third countries the time to adapt, but 1 January 2009 is surely long enough a delay for that purpose.

Until now our European companies have had to adapt to US general accounting principles while we accepted US Generally Accepted Accounting Principles (GAAP) in Europe. With IFRS there is no reason for that discrimination to continue. I am glad that the American authorities are intent on meeting the deadline for agreeing equivalence. They even seem increasingly persuaded of the advantages of principles-based accounting.

Nevertheless, finding commonality between a strict rules-based system and a more flexible principles-based system is not simple. Both sides of the Atlantic agree that equivalence, rather than strict convergence, will be a suitable outcome. That is why we call upon the Commission to stick to the January 2008 deadline to define what equivalence will be, so as to make the ultimate time limit of 1 January 2009 a strict time limit.

Any third-country companies reporting in the European Union from that date on will have to report either in IFRS or an accounting system that is agreed to be equivalent, and that agreement will be reciprocal.

European accounts, in accordance with IFRS, will be accepted without adjustment in the US and other consenting third countries. That will help European companies to cut costs and compete for capital in a globalised marketplace.

My group looks to the Commission to pay due attention to the proposals in our joint resolution and to achieve a successful outcome of these important negotiations before 2009.

  Peter Skinner, on behalf of the PSE Group. – Mr President, I welcome the Commissioner and thank him for his words about the report. I believe it is the close working relationship that has developed between Parliament, its various groups and the Commission that has helped to steady the rudder on this one. Quite clearly we are entering a very dangerous time: we have two years in which to get this right, to measure the value of equivalence and reach convergence with countries around the world. So the Commissioner is absolutely right to point this out not only to the USA but also to other third countries. However, the USA is certainly the big project that we all know about. That is going to be the tough one, and we are quite clearly afraid that the billions of dollars and euros between our two capital markets at the transatlantic level will be put in jeopardy if we do not get this right.

I am very positive that we are on the right route and I believe that what Parliament has put forward has helped to strengthen the methodology, also scrutinising the approach which will be involved in this particular battle.

Looking at the bulk of this directive and the amendments from the supervisors and others in this House – and I am very grateful to colleagues who have assisted on this issue – I believe that we have not overburdened the business community. That is and has always been vital. You cannot use the term ‘light touch’ all the time and then overburden business. This is an important cross-border capital market issue and we need greater coherence and communication between the various operators within that market.

We also need to ensure that investors are protected and that the right information is communicated to them in a relevant and timely manner. These are issues which, of course, are now left to the Member State. I think the Commissioner might agree with me that we should be using the most modern methods to communicate to investors.

I do not have much time, so I shall not pursue all the issues of this particular directive. However, I should like to turn to one recital in the original directive and bend the Commissioner’s ear. That recital concerns the voluntary initiatives to help companies report what they pay governments around the world in the extractive industries. As the Commissioner might remember – and I am sure his departments will – this was an initiative which was to help end corrupt practices. It was aimed not only at places as far-flung as Africa, but also within our own borders. Companies were meant to volunteer information about what they pay governments so that we in turn would know, and investors would know, just what money changed hands between governments and companies. It was aimed at the extractive industries because it was clear that this was an area in which an awful lot of money was going abroad, away from the countries where it should have been used.

My final question to the Commissioner is to ask what he and his services might do to support that initiative. I think this House would enjoy hearing again what your predecessor gave as a promise some years ago.

  Wolf Klinz, on behalf of the ALDE Group. – (DE) Mr President, ladies and gentlemen, I would like to say something about the implementing provisions of the transparency directive, which Parliament, since they are what are termed Level 2 measures, is capable of influencing only to a limited extent. That makes it all the more important that the Committee on Economic and Monetary Affairs adopted, unanimously, a draft report on the basis of which the plenary will now adopt a resolution of its own.

By presenting a united front, the committee has succeeded, even before tomorrow’s vote, in getting the Commission to accept some of its core demands. The first is that market makers cannot be compelled to invest the financial instruments that they keep for market-making activities in a separate account, although the supervisory authority can require a separate account if the market maker is unable to identify, at any given time, the relevant financial instruments when asked to do so.

Secondly, fair competition requires that the same conditions should apply to parent companies of management companies and investment firms from third countries as do to those from the European Union.

Finally, a distinction is to be drawn between transactions on stock exchanges and outside them, for, while, in the former, ownership is transferred when the contract is concluded and immediate notification is thus made not only possible but also necessary, the conclusion of the contract and the transfer of ownership may be separate when transactions are concluded off-market, and it would be wrong to require notification as soon as a contract was concluded, since a report at this juncture could, unlike in the former instance, have the effect of distorting the market.

Despite Parliament’s success on this negotiating front, there are still areas – and Commissioner McCreevy has indeed referred to them – where the Commission has not yet done as Parliament would wish, including, for example, such questions as, firstly, to which authority a market maker must apply for an exemption from the notification requirement when he reaches a specific threshold value; secondly, what is the minimum content required of non-consolidated half-year accounts not drawn up in accordance with international financial reporting standards, and, thirdly, how it can be guaranteed that accountants will proceed in the same way when auditing half-yearly reports.

I appeal to the Members of this House to vote ‘yes’ tomorrow, in order that we may seize our opportunity to get the Commission and the Member States to carefully examine Parliament’s demands on these outstanding items and, in due course, accede to them.

  Thomas Mann, on behalf of the PPE-DE Group. – (DE) Mr President, as I did in the Committee on Economic and Monetary Affairs, I am today standing in for my colleague Professor Lauk, the shadow rapporteur of the Group of the European People’s Party (Christian Democrats) and European Democrats, to whom we all wish a good recovery following the operation on his shoulder.

It is on his behalf that I would like to thank not only the rapporteur, Mr Skinner of the Socialist Group in the European Parliament, but also the shadow rapporteur of the Group of the Alliance of Liberals and Democrats for Europe, Mr Klinz – who, like me, hails from Hessen – for their constructive cooperation. It was the compromise reached by these three that made it possible for us, in the committee, to adopt the draft resolution unanimously.

Even the Commission has been efficient. Commissioner McCreevy has incorporated the essential points in his draft of the implementing Directive and, following consultations, made further modifications. This solution makes for more transparent information on securities authorised on the regulated market.

There are three points that the PPE-DE Group saw as particularly important. The first had to do with the need for the requirements applicable to half-yearly audits not to be excessively bureaucratic, the consequence of which was that the figures for comparison purposes do not need to be submitted immediately upon the entry into force of the directive; a more reasonable transitional period was decided upon. Secondly, where voting rights were concerned, our intention was that subsidiaries would be listed both as part of their parent companies and as independent entities, and we managed that too. Thirdly, where publication, of necessity, has to be accomplished rapidly, it should be laid down in detail which media are to be used. That was agreed to as well.

These productive changes have prompted my group to endorse Mr Skinner’s report. Both Mr Lauk and I look forward to it receiving broad support in this House tomorrow.

  Harald Ettl (PSE). – (DE) Mr President, Commissioner, the number of globally-active enterprises is on the increase; their need for comparable and globally recognised group accounts in order to gain access to international capital markets has been an agent of change in accountancy at the international level, and the headlong progress of globalisation is making the harmonisation of accounting procedures across borders a matter of positive necessity. The adoption of the International Accounting Standards Regulation was an important milestone in the creation of an integrated single financial market and in the harmonisation of accountancy in Europe.

A developed capital market puts national economies in a better competitive position, and studies have demonstrated that Member States with a high degree of share capitalisation and high stock exchange turnovers relative to their gross domestic product also achieve more growth and create more jobs. That being so, it is certainly desirable that the IFRS and American GAAP accounting regulations, together with the accounting principles generally accepted in third countries, should be made more closely approximate as an essential contribution to the development of standardised and internationally recognised accounting standards and hence to the integration of capital markets.

Rather than aiming simply to do away with the existing difference in the accounting systems of the United States, Canada or Japan, the primary object of convergence must be the creation of high-quality accounting standards, which alone will be of lasting value and meet with unconditional acceptance. It is of vital importance to European businesses that the SEC, the USA’s stock exchange supervisory body, should recognise year-end accounts prepared in accordance with IFRS.

The one-sidedness in the recognition of accounting standards should become a thing of the past by January 2009 at the latest; that is the only way in which European businesses will become more competitive.

  Margarita Starkevičiūtė (ALDE). – (LT) The document being discussed is technically concise and clear – we are speaking here about accounting standards. Yet, as we emphasised in our draft resolution, in economic and political terms this issue is very significant and complex, since in essence it concerns the role of the European Union in the global financial market.

International financial accounting standards based on principles form a constituent part of our European financial model, which will be adopted by developing countries as well. Therefore, the European Commission must take action in support of the application of such standards in developing countries, promote their quality and European nature and in this way develop an image of the European financial market and offer various solutions (not only in a technical sense).

We should not forget that the United States also has a perfectly functional system of accounting standards. Therefore, whether we like it or not, international and American accounting standards are presently competing in the market of the European Union; that is, we, the legislators, are competing.

I believe that the European Parliament is ready for this competition, but for businesses it is too costly to adhere to more than one standard, and the developing markets feel confused. They do not know which standards are to be implemented. Consequently, the European Commission should look for ways to harmonise the standards or encourage harmonisation of the standards at the level of appropriate bodies.

We should not forget that it is not only a technical issue that we are discussing, but rather the development of the global financial market, and for harmonisation of the standards we need two things: clear guidelines for implementation of harmonisation and a clear definition of what harmonisation really means.

Some of us think that informal negotiations are more effective, since no one needs to voice their positions in advance. Different methods and tactics in negotiations are possible, but I do not think the European Parliament would agree that decisions to be made in harmonising accounting standards should infringe on key IFRS principles, their high quality and reputation. It is out of the question for the European Parliament to make decisions without consulting Parliament and the players in financial markets.

  Alexander Radwan (PPE-DE). – (DE) Mr President, I would like to use this opportunity to highlight two crucial points in both these reports. The first is that, formally speaking, and as far as I am aware, the new comitology procedure is not yet applicable in this area, but I take it as read that the Commission will take due account of how this House votes, since it will be applicable to new amendments in the future.

The second has to do with the question as to how we should apply the IFRS standards in future, an aspect that will become more and more important. What I can say on behalf of our own group is that we, in principle, welcome IFRS standards as an international rule for European businesses, but it has to be said that there are conditions attached to that. Convergence must be achieved, but that must also involve the European outlook and European priorities prevailing in future discussions on this subject. It is for that reason that I am annoyed when I hear, emanating from the Board of Trustees, signals to the effect that a thoroughly critical view is being taken of the discussion as to whether, and if so when, convergence is achievable.

The main question, though, has to do with how, in future, we are to devise further standards. It is no secret that we have now had a debate on what are termed ‘IFRS for SMEs’. The wheels are very definitely turning, and discussions are in progress in the relevant bodies; all of this has become quite separate from any political process, and so I would like not only to encourage the Commission but also to urge them to monitor this process very rigorously in the interests of its being subject to political and democratic constraints, and ensure that this House is involved.

I am this House’s rapporteur on this subject area, and I also have experience of Basel. You can take it as read that this process will not work on the basis of an agreement being reached at international level and Parliament being left with no option but to adopt it; that is why there needs to be close dialogue between Commission and Parliament. The Commission is not merely encouraged, but also urged, to take active account of European interests and not to allow the Board to present it with faits accomplis in the way it has done before on other issues.

  Pervenche Berès (PSE). – (FR) Mr President, on the occasion of this debate on the adaptation of the Prospectus and Transparency directives regarding the road map negotiated by Mr McCreevy with the US authorities, we are in a position to review the way in which the IFRS have been implemented. The greatest caution must be exercised in relation to this matter. One of the great contributions, I believe, of this Parliament is the way in which it ensured, during the equivalence negotiations, that there was genuine equivalence and not just a deadline that would elapse before it was finally pointed out that, where there were once differences, there would now be equivalence.

As you know only too well, Commissioner, this issue is all about negotiation. You have succeeded in getting the Americans to commit themselves to reconciliation at the end of the time period and, when that time period expires, you will remain empty-handed if, in the meantime, this Parliament has not helped to consolidate the matter so that, in the end, we secure an acceptable recognition of equivalence.

I very much regret the fact that we were unable, before this plenary session, to organise with our colleagues from the US Congress the videoconference that I proposed, that my fellow coordinators accepted and that would have enabled us, together with the US political authorities, to hold the necessary debate on the latter’s ability to comply with this road map that you have made your own, Commissioner.

  Piia-Noora Kauppi (PPE-DE). – Mr President, I wish to begin by thanking my colleagues who have worked on these very difficult dossiers. I welcome the spirit in which the implementing measures for the ‘Transparency’ and ‘Prospectus’ directives were formulated, after the very tough MiFID procedure for which I was the rapporteur before the spring break.

It is extremely important for the European Parliament to be able to have confidence in comitology, especially now, after the July decision. We are delegating a large part of our decision-making powers to the Commission and we want to ensure that the legislation enacted in the Lamfalussy process gives the best possible technical quality, as well as democratic legitimacy.

However, for Parliament to get rid of, for example, the sunset clauses – which is the wish of the Commission –we still need more guarantees on the improved procedure of the comitology decision and on Parliament having full influence on the second-level measures.

For the record, MiFID is a very important process and will certainly do far more than many people think for the financial services sector. It is also a good example of the influence Parliament can have. Industry and the market participants want us to use our powers more and people really respected the changes Parliament was making with that report. I think the same thing will happen with the ‘Transparency’ and ‘Prospectus’ directives.

It is very important that the European Parliament strengthens its powers in those areas. Through this we will be able to give more support to the Community. Sometimes there is unnecessary gold-plating by the Council. It has put forward proposals which are placing the single market at risk and I think that the Community’s soldiers – the Commission and the European Parliament – should march together on these issues, as it would benefit the single market.

  Charlie McCreevy, Member of the Commission. Mr President, I shall briefly touch on the two topics.

As regards the equivalence decision, it is right to postpone it. It is the most efficient way to promote the use of IFRS. It gives us leverage in our efforts to obtain the removal of reconciliation requirements for EU issuers abroad, as it ensures that EU markets remain attractive to foreign issuers. It will benefit EU investors and issuers alike.

I am aware of the concerns of Members of the European Parliament and others regarding many of these issues, but a clear roadmap has been set out. If there is goodwill on all sides we will reach a satisfactory end, but in any event if we do not reach a satisfactory outcome then, as we say in my country, nothing is lost. So I think that the prolongation of the time period is the correct decision for many reasons. First, so that we give ourselves here in Europe an opportunity to see how IFRS has been implemented in the various Member States – and we will be learning in that process as well. We have a clear commitment from our colleagues in the United States as to the roadmap and the time lines there and, all things being equal, we should reach a satisfactory conclusion. But if we do not and if we are not satisfied, then, as I say, nothing is lost. Worldwide more people are moving to the IFRS accounting standards which Europe adopted as from last year, so therefore it will be to our benefit.

Concerning the great question posed by Mr Radwan and others about this question of convergence and equivalence, let us see where we are in the few short years hence.

On the transparency directive, I shall deal with the point raised by Mr Skinner. His point relates to a provision in the recital of the level 1 directive, and this recital stipulates that payments by the extractive industries should be reported. This as such is not the subject of today’s debate, but I can confirm that the Commission will monitor this issue.

Concerning the implementing measures to the transparency directive, I should also add that I understand some of the concerns expressed in relation to future developments. In this regard, the Commission commits itself to making a declaration that will be added to the minutes of the European Securities Committee on the date of the vote on the draft implementing measures. It should state that the Commission undertakes to re-examine the issue of the auditors’ review of half-yearly financial statements once the work in relation to the international standards on auditing, currently under development, is sufficiently advanced.

The Commission will also re-examine, within two years of the final deadline for transposition, the question of the minimum content of the condensed set of half-yearly financial statements that are not prepared in accordance with international accounting standards.

The Commission also undertakes to conduct a review of how the regulated information is disseminated in practice pursuant to the obligations of the transparency directive and the future implementing directive. This could be undertaken two years after the end of the transposition period for the implementing directive. In this way we will ensure that the transparency directive tools are adapted to improvements in the market.

  President. Pursuant to Rule 103(2) of the Rules of Procedure, I have received two motions for resolution⁽¹⁾.

The debate is closed.

The vote will take place on Tuesday at 12 noon.

(1) See Minutes.