WORLD BANK conference - 8 November 2005

1
Committee of European Securities Regulators

• WORLD BANK conference - 8 November 2005
• Advanced Program in Accounting and Auditing
  Regulation
• CESR
• An Introduction
• Michel Colinet
• Director for Financial Information, CESR

2
Overview

• What is CESR?
• Role of CESR and the Lamfalussy Process
• CESR inter-institutional relationship
• CESR working methods and organisation
• CESR-Fin organisation, key objectives and
  sub-committees
• Concluding remarks

3
What is CESR?

• Committee of European Securities Regulators 27
  members (EUEEA).
• Officially established in June 2001 by European
  Commission Decision
• background Lamfalussy Report presented by a
  Committee of Wise Men on the Regulation of
  European Securities Markets
• Introduced a 4 level approach to the development
  of EU securities legislation now extended to
  banking and insurance
• Role for CESR at Level 2 and 3 of Lamfalussy
  process
• Independent Committee regrouping senior
  representatives (Chairs and Senior Officer) from
  national public authorities competent in the
  field of securities regulation
• Operational arrangements of CESR set out in a
  Charter. Exchange of confidential information
  among Members under signed MOU.

4
Role of CESR and the Lamfalussy Process (1)
THE FOUR LEVEL PROCESS

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Role of CESR and the Lamfalussy Process (2)

• LEVEL 1 general measures high level
  objectives ( Directives)
• LEVEL 2 sets out technical requirements
  necessary to achieve objectives of Level 1
  (Directives or Regulations)
• LEVEL 3 measures intended to foster consistent
  and uniform implementation (developed by CESR for
  use by its members )
• LEVEL 4 European Commission (EC) checks Member
  States compliance with EU legislation and may
  take action against Member States in case of
  breach of Community Law.
• CESR may contribute at level 4 by supplying
  information to the EC

6
Role of CESR and the Lamfalussy Process (3)
LEVEL 2
Commission Mandate to CESR
CESRs Final Advice sent to EU Commission
Proposal for Implementing Measures presented to
ESC
Vote by ESC within 3 months
Adoption of Implementing Measures by EU Commission
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Role of CESR and the Lamfalussy Process (4)
Level 2

• Preparation of Level 2 advices to the European
  Commission represented the largest part of CESR's
  activities until June 2004
• Areas covered by CESR at Level 2 Prospectus and
  Transparency Directives, MiFid, Investment
  Management
• Examples of CESRs advices for Level 2
  implementing measures in the area of financial
  reporting
• Prospectus regulation (historical and prospective
  financial information, pro forma information,
  auditors involvement, MDA)
• Technical measures for ongoing financial
  reporting by listed companies (Transparency
  Directive)
• Assessment of Equivalence between Canadian,
  Japanese and US GAAP and IFRS.

8
Role of CESR and the Lamfalussy Process (5)
Level 3

• Foster consistent and uniform transposition and
  day to day implementation of Level 1 2
  legislation
• Active role for CESR at Level 3
• Convergence in supervision practice
• Administrative guidelines, interpretations,
  recommendations, common standards, peer reviews
  and comparison of regulatory practices
• Examples in the area of financial reporting CESR
  Recommendations on
• Transition to IFRS enhanced disclosures and
  explanations on impact of the transition from old
  GAAP to IFRS
• Presentation and audit of historical financial
  information in prospectus (IPO and SPO)
• Alternative Performance Measures presentation
  of non GAAP performance indicators
• Standards on Enforcement of Financial Information
• Significant shift towards greater emphasis on
  Level 3 work which has gained pace over 2004 and
  will continue to be the focus

9
CESRs Inter-Institutional Relationships
10
CESRs working methods (1)

• CESR Chair and Vice-Chair elected for a period of
  two years.  The Committee of Chairs (of national
  authorities) meets at least four times a year. 
• Each Expert Group is Chaired by the Head of a
  CESR member (Chair or Commissioner) and experts
  from all the members participate
• CESR works with the support of a Secretariat
• A representative of the European Commission
  participates as observer in all debates (except
  in discussions related to individual and/or
  firms).

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CESRs working methods (2)

• CESR issues an Annual and Half-Yearly Report
  (submitted to the European Commission and
  presented to the European Parliament and the
  Council) which provides extensive information on
  CESR
• CESR reports regularly to the European Parliament
  and maintains strong links with the European
  Securities Committee
• CESRs offices located in Paris (Avenue de
  Friedland 11-13, 75008 Paris.
• Website www.cesr-eu.org.

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CESRs working methods (3)

Transparency is an integral part of CESRs
working practices

• CESR Public Statement on Consultation Practices
• High level Market Participants Consultative Panel
• Consultation procedure includes (mainly for Level
  2 work)
• Call for evidence at reception of a new mandate
  from the EC
• Consultative Working Groups (market experts) set
  up to advise the CESR Expert Groups
• Public consultations on draft papers (sometimes
  re-consulting if necessary).
• Public hearings for interested parties to voice
  their concerns and to make suggestions (held in
  Paris)
• Responses to consultations are published on the
  CESR website
• The final advice is issued with a feedback
  statement

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CESR organisation (post June 2004)
CESR Chairs Plenary meeting 4 x year
Market Participants Consultative Panel

Expert Groups
Permanent Operational Groups

• Level 2
• MiFID
• Intermediaries
• Cooperation and Enforcement
• Markets
• Transparency
• Investment Management

Mediation Task Force
CESR-Pol
CESR-Fin
Level 3

• Level 3
• Investment Management
• Clearing and Settlement
• Prospectus

Review Panel
14
CESR-Fin - Organisation
ARC
CESR-Fin
SAC
SCE
ATF
SISE
EFRAG
EECS
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CESR Fin Key objectives

• IFRS
• Monitor pro-actively the development and EU
  adoption (endorsement) of international
  accounting standards (IAS/IFRS)
• Level 2 and 3 regulatory work
• Enforcement of compliance with IFRS foster a
  proper and consistent application of IAS/IFRS by
  EU listed companies, through coordination of
  national supervision activities and exchange of
  information
• Audit Monitor developments in Europe in the
  field of auditing.

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CESR-Fin subcommittees(1)

• SISE (Subcommittee on Endorsement of
  International Standards)
• Monitors development and UE endorsement of
  IAS/IFRS (comment letters)
• Permanent Observer to Accounting Regulatory
  Committee (ARC), European Financial Reporting
  Advisory Group (EFRAG) and IASB Standards
  Advisory Committee (SAC)
• Level 2 advice to the EC on Equivalence of
  Canadian, Japanese and US GAAP with IFRS (June
  2004)
• Level 3
• Recommendation on Transition to IFRS (Dec 2003)
• Recommendation on Alternative Performance
  Measures (May Oct 2005)

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CESR-Fin subcommittees(2)

• ATF (Audit Task Force)
• Monitoring of EU regulatory developments focus
  on audit of publicly accountable companies
• 8th Directive on Company Law EU endorsement of
  auditing standards
• Oversight of audit profession Consideration of
  independence requirements

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CESR-Fin subcommittees(3)

• Enforcement of IFRS (will be further developed by
  M. Østergaard and M. Suurväli)
• -gt SCE (Sub-Committee on Enforcement)
• Develops standards and guidance for harmonizing
  enforcement methodology in the EU
• -gt EECS (European Enforcers Coordination
  Sessions)
• Forum of EU National Enforcers discussion of
  enforcement decisions and practical issues in
  relation to financial reporting under IFRS
• Database of national enforcement decisions

19
Concluding remarks

• Markets are beginning to integrate at differing
  speeds, and this looks set to be encouraged
  further by the FSAP
• CESR has had, and continues to have, a very
  ambitious workload. The emphasis of CESR work is
  shifting significantly from providing Level 2
  advice, to an increasing emphasis on supervisory
  convergence i.e. Level 3
• CESR is actively working on developing all the
  tools available in the new legislative framework
  to deliver Level 3 convergence
• IFRS continuation of monitoring work on new or
  revised standards/interpretations and importance
  to deepen coordination of enforcement for
  fostering consistent application of standards
  thoughout the EU