12 January 2017

Investment & Pensions Europe: LAPFF moves against EC with IFRS 9 'maladministration' claim

The Local Authority Pension Fund Forum has demanded that the European Commission demonstrate that it has followed a lawful procedure in endorsing International Financial Reporting Standard 9, Financial Instruments.

In a strongly worded letter to the Commission, the LAPFF writes: “Unless the Commission can demonstrate transparently and objectively that the endorsement of IFRS 9 has properly taken account of member and creditor protection (including the relevant parts of the Capital Maintenance Directive), we believe there will be a very clear case of maladministration.”

The LAPFF has requested that the Commission present hard evidence to back its assertions within 30 days. The LAPFF first contacted the EU’s so-called three presidents on 7 October last year, alleging that the EU had followed a “defective” endorsement process.

Former EU commissioner Jonathan Hill rehearsed the EU’s IFRS endorsement criteria in a response to a question tabled by Syed Kamall MEP last year.

In summary, the LAPFF claims that neither the European Financial Reporting Advisory Group nor the Accounting Regulatory Committee has applied those criteria.

It also believes that both the European Council and the Parliament have been given a defective position concerning IFRS 9 endorsement.

At the heart of the long-running spat over IFRS 9 is the view that IFRSs generally fail to deliver adequate cross-border member and creditor protection in the EU.

Long-term investors such as that LAPFF argue that defective IFRS standards, such as those used by major banks, overstate balance sheets and result in fantasy dividends being paid from what are ultimately shareholder funds.

Key to the LAPFF view is the notion that an investor is not necessarily interested in a dividend payment but also in protecting its long-term capital stake in an investment target.

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