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Brussels, 18th April 2002

Financial services: Commission services publish analysis of repercussions of Enron collapse

The European Commission's services have published online an initial analysis of the repercussions for the EU of the collapse of Enron. The paper, entitled "A first response to Enron related policy issues" outlines steps that need to be taken to guard against similar events in Europe. It was presented by Internal Market Commissioner Frits Bolkestein to the informal meeting of Economics and Finance Ministers in Oviedo on 12-14 April (see also MEMO/02/72). Ministers welcomed the paper and endorsed the Commission's proposal to ask its High Level Group of Company Law Experts to review further corporate governance and auditing issues in the light of the Enron case. The paper emphasises that the EU is already working on most Enron-related regulatory issues through the Financial Services Action Plan, which aims to establish an efficient and competitive capital market that deserves investors' trust. It highlights policy initiatives in five priority areas: financial reporting, statutory audit, corporate governance, transparency and finally the regulation of financial analysts and credit rating agencies. The full text of the paper can be found on the Commission's Europa site at:

The main elements of the paper are as follows:

Financial reporting

Early adoption and strong enforcement of the proposed EU Regulation on International Accounting Standards is of particular importance, so that International Accounting Standards will be used throughout the EU for all listed companies from 2005 (with some exceptions allowed until 2007). The Regulation has been endorsed by the European Parliament and the Council is now expected to adopt it in a single reading (IP/02/417, IP/01/200 and MEMO/01/40).

The Commission paper suggests that the EU should make a concerted political effort to persuade the US authorities to accept IAS financial statements prepared by EU companies seeking a securities market listing in the US.

Statutory Audit

The Commission will shortly issue a Recommendation on auditor independence. Its main thrust will be that, within a framework of safeguards, the auditor has to demonstrate (and document) that none of his actions or relationships has compromised his independence. The Commission will also present to the European Parliament and the Council later this year a Communication on future priorities for auditing strategy.

Since 1998, the EU has been developing a three pronged strategy on auditing, covering external quality assurance, auditor independence and auditing standards.

However, supervision of the audit profession must be enhanced. There are currently no agreed auditing standards in the EU and no EU mechanism to deal with such supervision.

Corporate Governance

The mandate of the High Level Group of Company Law Experts (see IP/01/1237) will be expanded to review further corporate governance and auditing issues. These will include the role of non-executive directors and of supervisory boards; management remuneration; and the responsibility of management for the preparation of financial information.

Ministers decided in Oviedo that the Group's preliminary conclusions and proposals for reform would be discussed at the June Council of Finance Ministers and subsequently at the Seville European Council in June. The final conclusions will be presented to the informal meeting of EU Finance Ministers in September.


The Enron affair has demonstrated a lack of transparency in the international financial system. The Commission's intends to invite the Committee of European Securities Regulators (CESR see IP/01/792 and MEMO/01/213) to report on supervisory issues related to derivatives and derivative trading. Complex derivative instruments can escape proper supervision, in particular when the trading takes place on non-regulated markets.

Financial analysts and rating agencies

The Commission will also assess, notably within the consultation process on the Investment Services Directive (see IP/02/464), possible measures to ensure that the market does not receive false or misleading signals from financial analysts' general recommendations or from stock valuations by credit rating agencies.

The proposed Directive on Market Abuse (see IP/02/417 and MEMO 01/439) will introduce a requirement that Member States ensure that financial analysts take reasonable care to ensure that general recommendations are fairly presented.

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