No 23 (October 2000/Octobre 2000/Oktober 2000)

The European Commission has issued a Recommendation designed to broaden the scope of financial information that should be disclosed in the annual and consolidated accounts of banks and other financial institutions. It is important for the market to be aware of a financial institution's exposure to loss and the basis on which these exposures are managed and calculated. The Recommendation therefore suggests that annual accounts of financial institutions should give greater qualitative and quantitative information on institutions' activities in financial instruments, including derivatives, and on the objectives and methods of risk measurement and management systems. Public disclosure of accurate, timely and reliable information will help people make a more accurate assessment of an institution's financial performance and state of health, leading to better market discipline and increased investor confidence. This measure is part of the Financial Services Action Plan designed to create an integrated market in financial services, for which the Lisbon European Council set an implementation deadline of 2005.

The Recommendation takes account of the positive influence of market discipline on banks and other financial institutions in terms of proper and prudent management. More disclosure requires greater internal discipline and greater attention to internal accounting and management systems. More detailed disclosure also has the potential to reduce the risk of aggressive behaviour as companies have to justify publicly their actions to their shareholders.
Disclosures under the Recommendation are in addition to the disclosures required under the Directive on annual accounts and consolidated accounts of banks and other financial institutions (86/635/EEC). In particular, the Recommendation aims to give greater transparency and clarity to balance sheet figures and to the annual report by suggesting that the information provided on financial derivative instruments and other items should include, amongst other things, disclosure of financial information on the basis of "fair value" (current market value in many cases) as opposed to historical cost or original purchase price.
However, because it concerns disclosure in the notes accompanying the accounts and/or in the annual report, the Recommendation will not affect the current basis of accounting and, consequently, the actual figures presented in the balance sheet.
This is an important difference compared with the Commission's proposals to amend the Fourth and Seventh Company Law Directives to allow for fair value accounting (see SMN 20).

Standardisation
The Commission's Recommendation coincides with similar moves by all the major setters of accounting standards (including the International Accounting Standards Committee and the US Financial Accounting Standards Board) aimed at developing and enhancing accounting practice as regards the measurement of financial instruments. Some projects are more far-reaching than others but all have a common thread: that some or all financial instruments should be valued in the balance sheet at "fair value". Moreover, the consultative papers on capital adequacy issued by the Commission's services and the Basel Committee on Banking Supervision both stress the need for banks to disclose more information on their accounting policies, including policies for valuation of assets and liabilities, risk management policies, their risk profile and capital components.
The Recommendation should be applied for accounting periods commencing within 12 months from publication of the Recommendation in the EU's Official Journal. Member States should notify the Commission of measures taken in compliance with the Recommendation. The Commission will monitor closely the effect of the Recommendation on current practice in the Member States and will later, if necessary, propose further actions to ensure sufficient harmonisation in this field.

The full text of the Recommendation is available on the Internet: http://ec.europa.eu/internal_market/en/finances/general/disclosure.htm

Die Kommission hat eine Empfehlung angenommen, die auf eine Erweiterung der im Jahresabschluß und im konsolidierten Abschluß von Banken und anderen Finanzinstituten offenzulegenden Finanzinformationen zielt. Für den Markt ist es wichtig, sich ein Bild vom Gesamtausfallrisiko eines Finanzinstituts machen zu können.
Deshalb wird vorgeschlagen, daß im Jahresabschluß von Finanzinstituten verstärkt qualitative und quantitative Informationen zu Finanzinstrumenten - zu denen auch die Derivate gehören - offengelegt werden; dies gilt auch für Ziele und Methoden von Risikobemessungs- und -managementsystemen. Die allgemeine Offenlegung korrekter, rechtzeitig vorliegender und verläßlicher Informationen dürfte zu besserer Marktdisziplin und verstärktem Anlegervertrauen führen. Die Maßnahme ist Bestandteil des Aktionsplans für Finanzdienstleistungen, mit dem bis zum Jahr 2005 ein integrierter Markt für Finanzdienstleistungen geschaffen werden soll.

La Commission européenne a publié une Recommandation pour étoffer l'information financière dans les comptes annuels et les comptes consolidés des banques et autres établissements financiers. Il est important que le marché soit informé des risques de pertes encourus par les établissements financiers et des bases sur lesquelles ces risques sont gérés et évalués. La Recommandation préconise que les comptes annuels de ces établissements fournissent de plus amples informations, qualitatives et quantitatives, sur les opérations relatives aux instruments financiers, y compris les instruments dérivés. Plus d'informations aussi sur les objectifs et méthodes des systèmes d'évaluation et de gestion des risques. La publication d'informations précises, récentes et fiables aidera les utilisateurs à mieux évaluer la santé financière d'un établissement donné, ce qui renforcera la discipline du marché et la confiance des investisseurs. La Recommandation s'inscrit dans le cadre du Plan d'action visant à créer un marché intégré des services financiers.

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