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

Role of CESR and the Lamfalussy Process 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

What is CESR? Committee of European Securities Regulators: 27 members (EU+EEA). 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.

Role of CESR and the Lamfalussy Process (1) THE FOUR LEVEL PROCESS Enforcement LEVEL 4 LEVEL 3 Increasing Supervisory Convergence Guidelines and Standards Implementing Measures LEVEL 2 EU Directives and Regulations LEVEL 1

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

Role of CESR and the Lamfalussy Process (3) LEVEL 2 Commission Mandate to CESR CESR‘s 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

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 CESR’s advices for Level 2 implementing measures in the area of financial reporting Prospectus regulation (historical and prospective financial information, pro forma information, auditor’s involvement, MD&A…) Technical measures for ongoing financial reporting by listed companies (Transparency Directive) Assessment of Equivalence between Canadian, Japanese and US GAAP and IFRS.

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

CESR‘s Inter-Institutional Relationships

CESR‘s 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).

CESR‘s 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 CESR’s offices located in Paris (Avenue de Friedland 11-13, 75008 Paris. Website: www.cesr-eu.org.

CESR‘s working methods (3) Transparency is an integral part of CESR‘s 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

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

CESR-Fin - Organisation ARC CESR-Fin SAC SISE ATF SCE EFRAG EECS

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.

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)

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

CESR-Fin subcommittees (3) Enforcement of IFRS (will be further developed by M. Østergaard and M. Suurväli) -> SCE (Sub-Committee on Enforcement) Develops standards and guidance for harmonizing enforcement methodology in the EU -> 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

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