Many European banks and insurance companies are failing to comply with mandatory disclosure rules relating to financial instruments, according to the Committee of European Securities Regulators (CESR).

CESR, which advises the European Commission on securities regulation, analyzed compliance with the disclosure rules in IFRS 7 – Financial Instruments: Disclosures. It found that a significant minority of listed banks and insurers, including some of Europe's biggest players, were not releasing information that it said was “key to understanding a company's financial position and performance.”

Around 20 percent of companies failed to disclose how they had worked out fair values for certain classes of financial assets or liability, CESR said, and 40 percent did not reveal how sensitive the fair values recognized in the financial statements were to changes in valuation assumptions.

CESR also found that 80 percent of the companies it looked at had reported impairment losses on financial instruments, but 5 percent of them did not disclose the required summary of how they determined that there was enough objective evidence to conclude that an impairment loss had occurred.

Its analysis also showed that 20 percent of companies with off-balance sheet Special Purpose Entities (SPEs) did not disclose the required details of how the entity was controlled. Moreover, 20 percent of those with SPEs did not reveal how they had decided that all the significant risks and rewards of ownership of financial assets had been transferred to other entities.

CESR reviewed the 2008 year-end financial statements of 96 listed banks and/or insurers, including 22 companies from the FTSE Eurotop 100 index, which represents Europe's 100 most highly capitalized companies.

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