Rather than having to file the same publicly available financial and non-financial information multiple times with national and European regulators, why not have a single, centralised repository for this data? That’s the idea behind the European Single Access Point (ESAP) which has just been given the go-ahead. ESMA is now working on the devilish detail, with a view to launch at the start of 2025.
The European asset management industry would be particularly affected by this innovation, and the proposal has received industry backing in principle. “The establishment of the ESAP is a unique opportunity for advancing the Capital Markets Union, centralising all publicly available ESG and financial information in one place,” said Tanguy van de Werve, Director General of the pan-European trade association EFAMA. A press release from ALFI said the system could: “increase the transparency and reduce asymmetry of information between company insiders and external investors.”
Multiple data entry
For example, business that must provide an annual financial report do so via registers, many of which are divided along national, sectoral and thematic lines. Other regulations that could be affected include the prospectus regulation, market abuse regulation, taxonomy regulation, transparency directive, takeovers directive, shareholder rights directive and statutory audit directive. EFAMA notes that the ESAP proposals relate to information disclosed to comply with 37 separate legislative frameworks, but that only about 5% of this data is in a machine-readable format.
Often this data is difficult to access, download and compare, with searches of databases hampered by the use of local languages. A lack of standardisation is a key bottleneck, as are the non-interoperable formats and unharmonised implementation of reporting obligations at national level. The introduction of the European Single Electronic Format for listed company financial reports is helping, but this is just a fraction of the information disclosed.
Why ESAP?
No doubt such a system would be useful if well designed and if the IT is robust and user friendly. At the moment much of the data that fund businesses and their regulators need is scattered across multiple often incompatible databases. ESAP could “save investors’ time and resources, notably by giving them free access to such data in a structured, comparable and machine-readable format,” van de Werve added.
This lack of information is a factor contributing to Europe’s fractured capital markets, which reduce transparency and liquidity. This situation hampers investment and is a particular disadvantage for businesses in EU member states with underdeveloped capital markets. Dealing with non-standardised data also stifles the innovative potential of financial technology companies. As well, sorting through this data is a major cost for the asset management industry, with these inefficiencies increasing costs for investors.
Some concerns
However, as ever with major IT projects, there can be a big gap between a great idea and having a useful, time-saving tool. Mindful of this, van de Werve noted that: “the platform has to reflect investor’s needs and should build on existing EU and national reporting infrastructures without duplicating existing reporting requirements.”
The hope is this reform would not only increase the availability and standardisation of this information, but also its quality and reliability. However, there is a concern about the potential for regulatory creep. “It will be important that the ESAP does not require the provision of information which is not subject to public distribution, such as information communicated confidentially to investors,” EFAMA said in a press release.
The European Commission has said that ESG information, such as that disclosed under the taxonomy regulation, the transparency directive and the prospectus regulation will be prioritised. The system will also allow for voluntary submissions by non-listed companies, SMEs, and non-EU companies. “This will attract capital to voluntarily filing entities and, if disclosed against the EU Taxonomy, also will enhance the investible universe and diversification of financial products targeting high alignment with the EU Taxonomy,” they said.
2025 launch
The goal will be to create a single access point for users and the embedding of a “file-only-once” principle for businesses that must upload data. This information would then be available in a structured, machine-readable and AI-compatible format. EFAMA is calling for a public-private partnership regarding governance of this utility. With launch in 2025 using 2024 data, ESAP would be phased in over a couple of years.
All funds and their management companies would be affected by this reform, so work needs to start now on understanding the outlines of this challenge. Systems need to be readied with a view to being able to supply data to this system as smoothly as possible.