Transparency of publicly traded companies’ activities is essential for the proper functioning of capital markets. Investors need reliable and timely information about the business performance and assets of the companies they invest in.

The EU has special reporting rules for issuers with securities admitted to trading on regulated markets.

Transparency Directive

The Transparency Directive (2004/109/EC) requires issuers of securities traded on regulated markets within the EU to make their activities transparent, by regularly publishing certain information.

The information to be published includes

  • yearly and half-yearly financial reports
  • major changes in the holding of voting rights
  • ad hoc inside information which could affect the price of securities

This information must be released in a manner that benefits all investors equally across Europe.

The Transparency Directive was amended in 2013 by Directive 2013/50/EU to

  • reduce the administrative burden on smaller issuers, particularly by abolishing the requirement to publish quarterly financial reports
  • make the transparency system more efficient, in particular as regards the publication of information on voting rights held through derivatives

Access to information

The Transparency Directive requires each EU country to establish a storage mechanism (Officially Appointed Mechanism, OAM) to ensure the public can access the information disclosed by listed companies. However, access to such information on a pan-European basis is currently complicated and involves using different national databases that are not sufficiently interconnected.

In 2007, the Commission adopted a recommendation to encourage EU countries to take steps to interconnect their storage mechanisms.

Under the revised Transparency Directive, a central European electronic access point (EEAP) providing access to the different storage mechanisms must be created. The EEAP, developed by the European Securities and Markets Authority (ESMA), has not become operational.

The Commission has recently adopted a harmonised electronic format for annual financial reports developed by ESMA (the European Single Electronic Format, ESEF). The ESEF has been applicable since 1 January 2021, unless a Member State has opted for a 1-year postponement. It makes reporting easier and facilitates accessibility, analysis and comparability of reports.

The European financial transparency gateway (EFTG)

The Commission launched a pilot project to assess the added value of using distributed ledger technologies as a back-end solution to implement the EU central access point (EEAP). The European financial transparency gateway (EFTG) web portal gives an overview (demo) of the functionalities that could be offered.

Initiated by Directorate General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA), the project is sponsored by the European Parliament and developed at a technical level by the Commission’s IT services. Most of the OAMs joined the project either as observers or as active players. The EFTG relies on the Steem blockchain technologies and open source communities.

The European single electronic format (ESEF)

The ESEF regulation introduced a single electronic reporting format for the annual financial reports of issuers with securities listed on EU regulated markets. It sets out general rules on the format of the annual financial reports as defined in Article 4(2) of the Transparency Directive, and more specific rules on the marking-up of the financial statements included therein. It does not apply to the half-yearly financial reports as defined in Article 5 of the Transparency Directive.

The regulation stipulates that all issuers must draw up and disclose their annual financial reports using the eXtensible HyperText Markup Language (XHTML) format. In addition, issuers that draw up their consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) have to mark up those consolidated financial statements using inline eXtensible Business Reporting Language (iXBRL) and block-tag the notes to the financial statements. The ESEF regulation contains the relevant taxonomy to be used. It is based on the IFRS taxonomy published by the IFRS Foundation.

The combination of the XHTML format with the iXBRL markups makes the annual financial reports readable both by machines and humans. This improves accessibility, analysis and comparability of the information included in the annual financial reports.