The grand duchy’s financial regulator has told securities issuers that it will be taking a closer look at climate- and macroeconomic-related disclosures in 2023 annual reports.
Published financial and non-financial information, for issuers of securities subject to article 22 of the transparency law of 11 January 2008, will be monitored by to assure that information is in compliance with the applicable reporting frameworks, the Luxembourg Financial Sector Supervisory Commission (CSSF) said in a recent update.
In a statement, the CSSF underlined themes for monitoring in its planned 2024 enforcement campaign, which was developed in collaboration with the European Securities and Markets Authority (Esma) and other European national enforcement bodies. According to the CSSF update, for IFRS financial statements, issuers were urged to assess the impact of climate and the macroeconomic environment. Regarding non-financial statements, the CSSF highlighted the significance of disclosures related to article 8 of the EU Taxonomy regulation, focusing on the impact of climate. In cases of alternative performance measures reporting, issuers are advised to consider the impact of article 8 of the EU’s taxonomy regulation. Additional details about the CSSF’s transparency enforcement priorities for the 2023 financial information publication, released on 8 January 2024, can be found .
Here are four points from Delano’s recent conversation with Jeremy Pages, partner at Deloitte in charge of accounting and reporting advisory services and the IFRS Centre of Excellence in Luxembourg.
Who is concerned with CSSF monitoring themes?
“In fact, all the actors which are [subject to] the transparency law in Luxembourg, all the issuers of securities in a regulated market of companies where Luxembourg is the home state for this company/issuer.”
Pages also pointed out that the target audience for these reports is evolving. Increasingly, organisations and companies using IFRS are leveraging reports published by the CSSF and Esma to understand the regulator’s priorities and focus. Even if issuers aren’t directly within the transparency law’s scope, they take steps to enhance their financial statements based on the regulator’s annual priorities. The CSSF’s checks extend not only to entities under the transparency law but also to all other entities generally supervised by the CSSF.
The CSSF is a pragmatic regulator.
How can businesses stay abreast of CSSF updates on financial disclosures and transparency law? How can they ensure they will not miss any crucial update? What is the secret to staying on top of these updates?
“It’s a good question.” Indeed, any stakeholder can subscribe to the , ensuring they receive timely updates on the regulator’s regular communications. Specifically, regarding enforcement priorities and collaborative efforts between the CSSF and Esma, one can also subscribe to the for comprehensive information, said Pages.
“If you are specifically more interested in this specific point on enforcement priority, then we have to say that the CSSF is a pragmatic regulator, totally involved with the actors of the industry, meaning the CSSF is involved in various working groups, where they are presenting or co-presenting some topic within that working group. Working groups, very often are composed of a member of audit firm, accounting firm and law firm, [and, for example], if it is a banking working group, you will have the main banks. And that’s important because like that, they are informed as well as of the bigger challenges and of the major expectation by the regulator.”
“Also, it is an opportunity for the regulator to [receive] industry feedback. And either, you are part of that working group or not, maybe you are part of another network, where the information will be spread and will come to you.”
“Informed of the bigger challenges”: so you think of these regulations as a big challenge for the industry players?
“If I take the regulation related to the financial statement, and so here, what is the target by the CSSF enforcement, IFRS for the financial statements. Okay, that is always difficult to stay ahead of everything that is happening with the IFRS. Why? Because the IFRS is an evolving standard, evolving based on the needs to adapt the accounting standards to the current economic situation.”
“You have the possibility as well to subscribe to the International Accounting Standards Board working plan, produced on a yearly basis. You have the possibility as well to stay informed with that institution [which has] responsibility to publish the IFRS standard and the interpretation of the IFRS. And then once they published then that needs to be approved and validated the by the European Financial Reporting Advisory Group (EFRAG) at European level.”
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Pages emphasised that EFRAG provides monthly publications, offering insights into what has been validated and applied in IFRS across Europe. Despite the availability of the process online, it can be complex for those not well-versed in the field. Recognising this, IASB and EFRAG simplify information on their websites for easy understanding. Subscribing provides notifications, making it more accessible. In addition to new accounting standards, amendments, and interpretations, adapting to the changing economic landscape poses challenges in applying the accounting framework.
“If you look at the enforcement priorities defined by the CSSF, in fact it’s just a bit more [stressed] than the priorities identified by Esma, when the CSSF says ‘climate related matter’. So, clearly not a new topic that is here now, but that was not a priority five years ago--meaning pay particular attention to climate-related risks [factored in the financial statements]. On the macro economy environment, the increasing interest rate: same, it is something new, a hot topic this year, which created huge accounting impact on valuation of assets.”
Can you share an example of administrative sanctions that were decided and their implications?
Pages clarified the review process, starting with the CSSF’s examination of financial statements. Initially, the CSSF conducts an overview based on filings to the companies and trade register and the CSSF. Subsequently, they compile a list of queries, seeking additional information or documentation from the issuer. Upon receiving the issuer’s responses, the regulator may find some answers unsatisfactory, leading to further exchanges. Depending on the significance, the CSSF can either acknowledge the issuer’s explanation but disagree, or, for non-material issues, request correction in the subsequent year’s financial statements.
“It can be, for instance, the cash flow statements. You need to disclose certain information in line with IAS 7. It can happen that the issuer did not include all the information, because it will not have affected the way the investor will read the financial statement, [like] performance… basically, the CSSF will say, we acknowledge and we understand your point however, you need to have the disclosure for the next financial statements.” In other cases, the “CSSF can say ‘here, it is very significant’. The CSSF in this case, because it is significant, will ask you to re-issue your financial statements, but it’s rare to happen.”
Adherence by issuers of 2023 financial reports to these priorities helps avoid CSSF actions for non-compliance, ranging from observation letters to administrative sanctions (fines) in serious finding cases, the CSSF said.
According to the CSSF’s website, in 2023 two administrative sanctions were carried out compared to four sanctions issued in 2022.
This article was published for the Delano Finance newsletter, the weekly source for financial news in Luxembourg. .