The latest developments on the transparency requirements in Capital Requirements Directive IV

Olivier Hermand 3 May 2013


This Newsflash reflects our current understanding of the issues at the time of writing. We expect our understanding to develop over time, and the Newsflash will be updated accordingly.

Recent event – Plenary sitting of the European Parliament – April 2013

On 16 April 2013 the European Parliament voted to adopt a directive requiring detailed country-by-country disclosure of certain information by credit institutions and some investment firms.

The commentary to the directive states:

“Increased transparency regarding the activities of institutions, and in particular regarding profits made, taxes paid and subsidies received, is essential for regaining the trust of EU citizens in the financial sector. Mandatory reporting in this area can therefore be seen as an important element of the corporate responsibility of institutions to stakeholders and society.”

Key disclosures required

The directive requires the annual disclosure of the following information by the specified EU institutions for each country in which they have an establishment. This will need to be provided on a consolidated basis for each financial year.

    1. Name(s), nature of activities and geographical location
    2. Turnover
    3. Number of employees (full time basis)
    4. Profit or loss before tax
    5. Tax on profit or loss
    6. Public subsidies received

The companies within the scope of these provisions

The institutions within the scope of these provisions are defined as:

    • an undertaking, the business of which is to receive deposits or other repayable funds from the public and to grant credits for its own account; or
    • an investment firm as defined in the Markets in Financial Instruments directive excluding, broadly, local firms and those firms not authorized to hold client assets.
  • The institutions include not only EU headquartered groups, but also the EU operations of groups headquartered outside the EU.

Timing of implementation

If these provisions are published in the Official Journal of the European Union before 30 June 2013 then initially two things will follow:

    1. All institutions will be required to publically disclose the information specified above in points a-c by 30 June 2014.
    2. All EU G-SIIs (Globally Significant Investment Institutions) will be required to disclose the information specified above in points d-e on a confidential basis to the EU Commission. Each Member State will decide which institutions are regarded as G-SIIs based on criteria included within the directive.

Our expectation is that the data required will need to relate to the most recent accounting period ended before 30 June 2014, although the wording in the directive is not clear on this.

The EU Commission will use the information provided by G-SIIs to assess the ‘potential negative consequences’ of the public disclosure of this type of information, and submit a report by 31 December 2014. They will then decide either to proceed with the full public disclosure requirements, or to defer implementation so that modifications to the requirements can be made.

If the decision of the EU Commission is to go ahead, then all EU institutions will be required to disclose publically the information specified above in points a–f from 1 January 2015.

The timing of the implementation of these provisions will, of course, be delayed if the provisions of this directive are not published in the Official Journal by 30 June 2013.

Other important points to note

There remains some uncertainty around which accounting periods will require the advanced reporting as noted above, around the definition of the taxes that need to be disclosed, and whether the disclosure is on an accruals or a paid basis.

The information will require statutory audit and will have to be published, where possible, as an annex to annual financial statements or consolidated financial statements.

There is a “sunset” clause within the directive which provides for the expiration of this provision if it is addressed in alternative legislation.

At the same time there is another directive progressing through the EU parliament which sets out country-by-country reporting requirements for companies in the extractive and logging industries.

There are also moves underway by the EU Commission to require enhanced transparency on social and environmental matters.