Member Article

While stock exchanges worldwide have experienced dramatic downturns and the economy is apparently heading for a global recession, supervisory organs are taking measures to respond to the situation by means of financial market regulation. In this regard, we consider the most important measure so far to be the shifting of financial reporting deadlines by the European Securities and Markets Authority (ESMA), however also significant are the recommendations of ESMA and the European Banking Authority (EBA) on the impact of the coronavirus epidemic on accounting, respectively its impact on the qualification of financial instruments, which is an issue that issuers of securities admitted to trading on regulated markets (as well as financial institutions) will have to deal with in preparing annual reports.

Recommendations to financial market participants

As early as 11 March 2020, ESMA published basic general recommendations to financial market participants concerning business continuity, market transparency, financial reporting and investment fund management. According to them, issuers should disclose as soon as possible any relevant information regarding the effects of the coronavirus epidemic on their underlying economic indicators, prospects or financial situation in accordance with their transparency obligations under the Market Abuse Regulation, i.e. as 'inside information'. Issuers should also ensure transparency of the actual and potential impacts of the coronavirus epidemic, if possible, based on a qualitative and quantitative assessment of their business activities, financial situation and economic performance in their 2019 financial report.

Rules for the classification of financial instruments

The issue of assessing financial assets in the context of a coronavirus epidemic is addressed in ESMA's statement of 25 March 2020, in which ESMA addresses the implications of the coronavirus epidemic for calculating expected credit losses under IFRS 9 (Financial Instruments). At the same time, the European Banking Authority (EBA) has issued a communication addressing in particular questions relating to the classification of banks' credit claims (including with regard to different types of debt moratoriums).

De facto extension of deadlines for publication of annual reports

According to the statement of the European Securities and Markets Authority (ESMA) of 27 March 2020, delays in the publication of annual and half-yearly reports by issuers whose securities are admitted to trading on a regulated market should be tolerated by the competent national supervisory authorities under the following conditions: (i) the annual financial reports shall be published no later than two (2) months after the deadline set by law, while the half-yearly financial reports shall be published no later than one (1) month after the applicable deadline; (ii) issuers expecting a delay shall inform their national supervisory authorities and markets in advance of the delay, the reasons for the delay and, if possible, the expected date of publication. In practice, the most significant impact is the factual extension of the deadline for publication of the annual report by two months, resp. by the end of June this year, provided that domestic issuers inform the Czech National Bank and the relevant market operator of the postponement of the publication of the annual report.