Topic Financial reporting enforcement Financial reporting enforcement
Article from BaFin's 2017 annual report
Monitoring of financial reporting
The number of companies subject to the two-tier enforcement procedure by BaFin and the German Financial Reporting Enforcement Panel (Deutsche Prüfstelle für Rechnungslegung – FREP) declined again in 2017 (see info box "ESMA peer review")1. As at 1 July 2017, 561 companies (previous year: 615) from 8 countries (previous year: 9) were affected.
Table 26 Enforcement procedures completed
Enforcement procedures completed
BaFin
The FREP completed a total of 99 examinations in 2017 (previous year: 96), of which 91 were sampling examinations. BaFin itself performed financial reporting enforcement procedures at 18 companies (previous year: 16) and ordered the publication of errors in 15 cases. The FREP had previously identified errors in agreement with the relevant companies in 13 of the 18 cases (see Table 26 "Enforcement procedures completed"). The remaining 5 cases were based on error identification procedures performed by BaFin. In 2 of these cases, the companies had not accepted the FREP's findings, and in 3 cases the companies had refused to cooperate with the FREP. A total of 2 of the 5 cases ended in error findings. For these 2 procedures, BaFin ordered the publication of the findings. The procedures related to various accounting issues, such as earnings per share, reported equity or deferred taxes. 8 cases were still pending at BaFin at the end of 2017.
Legal background:ESMA peer review
In 2017, the two-tier German financial reporting enforcement procedure was assessed as part of a peer review by ESMA, which did not find any violations of the "ESMA Guidelines on Enforcement of Financial Information".2 ESMA published the guidelines in 2014 to ensure the quality of the national enforcement systems. During the peer review, ESMA gained an overview of the resources available to the national competent authorities (Guideline 2). In addition, it assessed the methods applied in the selection of the issuers to be reviewed (Guideline 5). Finally, it also verified how effective the respective enforcement systems actually are (Guideline 6). All ESMA members were included in the peer review through a questionnaire. The peer review also involved a number of on-site visits in certain countries, including Germany. The European supervisory authority identified areas where the contents of the guidelines themselves could be improved. A new temporary working group has been set up to deal with this issue.
Publication of financial reports
In 2017, BaFin examined in approximately 930 cases whether the issuers had published their online annual and half-yearly financial reports on time (previous year: 940). In 16 cases – significantly fewer than in the previous year (27) – it found indications of violations, which it pursued further in administrative fine proceedings. The decline is mainly attributable to two factors: some of the issuers that had not met their obligations in 2016 did so in 2017, while others ceased to admit securities on the organised market.
As in the previous year, BaFin continued to focus on the publication of notifications, which are intended to provide information on when and where financial reports are published on the internet. In 31 cases, issuers whose registered office is in Germany failed to publish these notifications; BaFin pursued these cases in administrative offence proceedings.3 In 29 cases, this related to the publication of notifications on annual financial reports (previous year: 34); half-yearly reports were involved in 2 cases. In all 29 cases, the issuers had not only neglected to publish the notifications, but also failed to publish the financial reports themselves. The publication of annual reports by issuers whose registered office is in Germany is monitored by the Federal Office of Justice (Bundesamt für Justiz).
BaFin's examination again included verifying whether the published half-yearly financial reports contained the minimum components required by law. In 13 cases it found, for example, that there was no responsibility statement. In another case, the notes to the interim financial statements had not been included. BaFin pursued these 14 cases further in administrative fine proceedings.
BaFin launched 8 administrative procedures to enforce the financial reporting requirements (previous year: 13). A total of 14 proceedings were still pending from previous years, and 5 proceedings were concluded by BaFin in 2017. Most of the pending proceedings are at the enforcement stage. BaFin threatened coercive fines in 8 cases; it imposed coercive fines of up to €402,500 and initiated enforcement measures in 9 cases.
The German Act Implementing the Transparency Directive Amending Directive (Umsetzungsgesetz zur europäischen Transparenzrichtlinie-Änderungsrichtlinie) also resulted in changes to the way the publication of financial reports in accordance with section 37v et seq. of the German Securities Trading Act (Wertpapierhandelsgesetz), old version (sections 114 et seq. of the Securities Trading Act, new version) is monitored.
BaFin received a new supervisory tool in accordance with section 40c of the Securities Trading Act, old version (section 124 of the Securities Trading Act, new version): it now has to disclose, immediately on its website, the decisions on measures and sanctions it has taken in response to violations of the above-mentioned financial reporting obligations. BaFin also has to publish any additional information in relation to these decisions such as information as to whether the measures are enforceable, whether appeals have been lodged against the measures taken by BaFin and what the outcome of these appeal proceedings was.4
In 2017, BaFin published information on 11 companies (previous year: 7), detailing the measures taken and the associated comments. These publications make administrative actions much more transparent.
Footnotes:
- 1 ESMA press release of 18 July 2017.
- 2 See Administrative fines.
- 3 See Sanctions.
- 4 See Administrative fines and Sanctions.
