Now, however, the European Commission has embarked on its own pilot project to explore the feasibility of a single European Electronic Access Point using the distributed ledger technology blockchain. Funding for the project is being provided by the European Parliament. This access point, the EFTG, is a layer of back-end technology that creates a blockchain from the databases that are maintained by the national OAMs. It thus delivers a consistent experience for users looking to access statutory information about listed companies in the EU, no matter where the user or the company is based. Blockchain was chosen for the pilot because the technology has the potential to work with different databases while also offering immutability, security and timeliness of information.
The man in charge of the pilot is Alain Deckers, Head of Unit, Corporate Reporting, Audit and Credit Rating Agencies at the Directorate-General for Financial Stability, Financial Services and Capital Markets Union at the European Commission. “The objective is not to create a centralized database,” he explains. “Instead, we want to see if we can link all the different national repositories in which statutory information is already disclosed. From a user’s point of view, it would look like a single database, though, because it would provide a single point of entry to the information.”
Pilot in progress
At present, a small number of national OAMs are working with the Commission on the pilot, which is intended to establish whether the EFTG is actually feasible as a single point to access information from across the EU. Whether the pilot proceeds to full-scale implementation will depend not only on its success, but also on political decisions that need to be made at a later date. If full implementation does go ahead, it is unlikely to materialize until after 2019, due to the European Parliament elections taking place this year and the renewal of the European College of Commissioners.
“The technical development of the EFTG pilot will be completed in the second quarter of 2019,” Deckers explains. “At this stage, we cannot prejudge the outcome of the pilot, nor speculate on the solution that will eventually be chosen to implement the European Electronic Access Point as it was envisioned in the Transparency Directive.”
He acknowledges that technology has presented some challenges. Nevertheless, he says that “you can always find a technical solution to what you’re trying to achieve.” If the project progresses to full-scale implementation, however, business models and governance could become bigger issues than technology. This is because the OAMs in some countries are private, profit-making entities while the EFTG, as a network-based system, will require an effective governance structure if it is to operate effectively.
In the long term, Deckers believes the EFTG could potentially have uses that extend beyond allowing investors and other interested parties to access statutory information. For example, it may be helpful to statistical authorities or central banks.
Kyle Lamb, Global XBRL Technical Lead at EY, says that if the EFTG is fully implemented across the EU in the future, it will bring significant benefits to investors.
“It’s an incredibly powerful concept,” he explains, “because it would be a single and transparent gateway that would allow everyone to compare entities across the European market, from armchair analysts and small investors all the way up to retail investors and major institutions. They could potentially also compare entities across the wider capital markets, including foreign private issuers in the US for which comparable XBRL reports are published too.”
One format fits all
The EFTG reflects the broader trend within the EU for company information to be made more easily available through digital means. Another significant development is the European Single Electronic Format (ESEF) – the electronic reporting format that issuers on EU regulated markets must use for preparing their annual financial reports from 1 January 2020.
Today, annual reports tend to be produced in printed and pdf formats. With the onset of the ESEF, however, listed companies will have to prepare their annual reports in XHTML, a computer markup language that can be opened with standard web browsers. Furthermore, where presented, the IFRS consolidated financial statements, and potentially other content required by national OAMs within annual financial reports, will need to be marked up with XBRL tags in the Inline XBRL (iXBRL) format that makes the labeled disclosures structured and machine-readable. This will allow large amounts of financial information to be analyzed more easily with software.
Toomse-Smith points out that the EFTG and the ESEF logically fit together. “Around 7,000 companies across Europe are going to have to start using the ESEF from 2020,” he says. “For that to bring any real benefits, the data will need to be accessed from one place.”
Lamb also believes there’s a natural linkage between the two initiatives. “While OAMs predominantly collect annual financial reports from issuers in pdf format, they make them available publicly through different interfaces,” he says. “Each report is also laid out and presented slightly differently, which makes the task of using software tools to extract useful and comparable data for analysis more complex, burdensome and, ultimately, costly. Now, with the introduction of the ESEF, the outputs will become more standardized, as well as computer-accessible and comparable.”
