Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Wednesday, August 15, 2007

Still more changes for issuers: a summer update from the EU and the US.

Back from the beach (and jolly nice it was too, thanks for asking). Meanwhile regulators have continued to be busy on both sides of the Atlantic, proposing and finalising changes to the way in which companies report and to the markets.

There is considerable frustration among regulators that the Transparency Directive, law since the 20th January, has still not been implemented in some countries in Europe. Some of the laggards are now making progress. The Italian government passed the laws needed to create a compliance regime for Italian companies this month, but Spain and some others are still not compliant.

A second aspect is the differences in implementation; requirements for quarterly reporting (Interim Management statements), for disclosure of shareholdings, and the means by which news is disseminated, continue to vary widely. In fact the Committee of European Securities Regulators is consulting at the moment on whether to get involved. It proposes to start working directly with national regulators to create so-called “Level 3 standards”, to ensure coherence between the member states.

A hot topic - of concern to many IRO’s in the US Europe – is the disclosure obligations of CFD’s and other cash settled derivatives. At the moment, this disclosure is outside the scope of the rules; holders do NOT have disclose their positions. The causes problems for issuers, where as much as 30% of their holders remain invisible.

So CESR and individual regulators such as Consob are examining urgently how to treat CFD’s for disclosure purposes. Should ‘materiality’ include derivatives such as CFD’s?

Meanwhile, in the US, the SEC has been very active. The requirement for foreign companies to reconcile their IFRS numbers to US GAAP is on the way out, triggering US companies to ask why they can’t use IFRS as well.

This together with content, frequency and timing of corporate reporting, as well delivery, are the basis for the new committee formed by the SEC, which met for the first time 2 weeks ago. The panel members Advisory Committee on Improvements to Financial Reporting and its terms of reference suggest that this is a root and branch re-examination of how investors (of all kinds) receive and use fundamental data from companies.

Meanwhile, Sarbanes Oxley is starting win better press. Costs of compliance are less than expected, and research from the University of Texas has concluded that SOX has improved both the quantity and quality of corporate disclosure. This in turn encouraged the SEC to say that implementation of auditing requirements for smaller and foreign firms will NOT be delayed.

A fast update on key issues – ho hum, heads down for the autumn.


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