On 31 March 2021, the European Securities and Markets Authority ("ESMA") issued a public clarification statement relating to the publication of annual financial statements by issuers having their registered offices in the United Kingdom and which have issued securities that have been admitted to trading on a regulated market within the European Union (the "UK Issuers" and the "ESMA Clarification Statement", respectively).
Issuers of securities admitted to trading on a regulated market in the European Union are required to comply with specific disclosure obligations which, among others, consist of the publication of an annual financial report, as provided for in art. 4 of Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (the "Transparency Directive"). Such an annual financial report must comprise the audited financial statements of the issuer, its management report and statements made by the responsible officers of the issuer as to the veracity of the information included in the audited financial statements and the management report.
Differentiation between the preparation of consolidated and non-consolidated annual accounts
Whenever an issuer is required under its national laws to publish consolidated annual accounts, the Transparency Directive imposes an obligation to publish the consolidated accounts in accordance with Regulation (EC) No 1606/2002 (EU IFRS) together with the annual accounts of the issuer's parent company drawn up in accordance with the national law of the EU Member State in which the parent company is incorporated (National EU Member State GAAP).
Where an issuer is not required to prepare consolidated accounts the audited financial statements must include the accounts prepared in accordance with the national law of the EU Member State in which the issuer is incorporated.
Situation of UK Issuers as third country issuers after the end of the Brexit transition period
After the end of the Brexit transition period on 31 December 2020 UK Issuers qualify across the European Union as third country issuers.
With respect to third country issuers the Transparency Directive provides in its art. 23 (1) EU national supervisory authorities with the right to exempt such third country issuers from the obligations under article 4 of the Transparency Directive on the condition that the law of the third country in question lays down equivalent requirements or the third country issuer complies with the requirements of the law of a third country that the competent authority of such issuer's transparency Home Member State considers to be equivalent.
The purpose of the ESMA Clarification Statement is to provide guidance as to the requirements UK Issuers must meet in the context of both the preparation of consolidated and non-consolidated financial statements.
UK issuers required by UK law to prepare consolidated financial statements
A UK Issuer is to be considered to be exempted from its obligation to draw up its consolidated financial statements in accordance with Regulation (EC) 1606/2002 under article 23 (1) of the Transparency Directive provided that:
- the UK Issuer's consolidated financial statements have been drawn up in accordance with (1) EU IFRS, (2) IFRS as issued by the International Accounting Standards Board (IASB) or (3) any other third country national accounting standards deemed equivalent by the European Commission to EU IFRS (such accounting standards being US GAAP, Chinese GAAP, Canada GAAP, Japan GAAP and Republic of Korea GAAP); and
- the consolidated financial statements contain minimum information (1) on dividends computation and ability to pay dividends with respect to issuers of shares and (2) on minimum capital and equity requirements and liquidity issues with respect to all other issuers, such information being information to be included pursuant to article 17 of Commission Directive 2007/14/EC (the "Transparency Directive Implementation Commission Directive").
Furthermore, in this context ESMA encourages EU national supervisory authorities to request UK Issuers to also publish the annual accounts of the parent company. Both the minimum information referred to under the second bullet point above and the annual accounts of the issuer's parent company can be prepared in UK GAAP.
UK Issuers not required by UK Law to prepare consolidated financial statements
As for UK Issuers who are not required by UK Law to prepare consolidated financial statements, in order for them to benefit from the exemption under art. 23(1) of the Transparency Directive, the same requirement as the one referred to in the first bullet point of the preceding paragraph applies.
This means that the UK Issuer's non-consolidated financial statements must also have been drawn up in (1) EU IFRS, (2) IFRS as issued by the International Accounting Standards Board (IASB) or (3) any other third country national accounting standards deemed equivalent by the European Commission to EU IFRS (such accounting standards again being US GAAP, Chinese GAAP, Canada GAAP, Japan GAAP and Republic of Korea GAAP)
Summary
In the aftermath of Brexit, as UK GAAP is not deemed equivalent to EU IFRS, UK Issuers which are subject to the Transparency Directive due to having securities listed on an EU regulated market are obliged to prepare financial statements in IFRS (i.e. either EU IFRS or IASB IFRS).
For more information with respect to the situation of UK Issuers whose Transparency Home Member State is Luxembourg please contact Isabelle Lentz, Anna Kozakiewicz or Markus Waitschies in our Luxembourg office.
Authors: Isabelle Lentz, Anna Kozakiewicz and Markus Waitschies.
