EU Finance Minister Support Trustees’ Long-term Financing Plan 

The Economic and Financial Affairs Council of the  European Union (ECOFIN), the committee of EU Finance Ministers, voiced their support for Trustees’ plans for a sustainable, broad-based funding system when current financing commitments for the IASC Foundation expire at the end of 2007.  A provisional version of the ECOFIN conclusions is found here on the Council of the European Union website (the part of this document specific to the IASCF starts on page 15).

Principles for a new funding system

(as approved at the March 2006 Trustees’ meeting)

1. To date, the IASC Foundation has successfully financed its operations largely through voluntary contributions from a relatively small number of private companies, accounting firms, international organisations and central banks.  Original commitments were made for the period 2001-2005.  The graph and table below shows the breakdown of the distribution of funding sources in 2005.
                                                                                  
2. Recognising that those initial pledges would expire in due course, the Trustees—as early as 2002—explored other financing arrangements for 2006.  However, discussions with the relevant parties (including the European Commission and the US Securities and Exchange Commission) revealed a desire to await the completion of the Constitution Review and the first round of IFRS implementation before reaching conclusions on long-term financing.  Therefore, the Trustees decided to extend existing funding commitments for an additional two years to permit time for consideration and implementation of a new financing system.  The financing for 2006 and 2007 is largely in place.  Any new system, therefore, is for 2008 and beyond.
   
3. In considering long-term alternatives, the Trustees concluded that the current system of funding, relying on a small number of voluntary contributions, would not be sustainable on a global basis.  The Trustees also considered an internationally-applied mandatory levy system.  Such a system would require a regulatory act or legislative act in the relevant jurisdictions before implementation.  The Trustees doubted the feasibility of creating a mandatory system on an international basis in time for 2008.
4. Taking into account the conclusions above, the Trustees agreed on four key elements that should govern the establishment of a funding scheme.  It was agreed that such a system must enable the IASC Foundation to remain an independent, private sector organisation with the necessary resources to conduct its work in a timely fashion.  Characteristics of the new scheme for 2008 would be:
   
• Broad-based:  Fewer than 200 companies and organisations participate in the current financing system.  A sustainable long-term financing system must expand the base of support to include major participants in the world’s capital markets, including official institutions, in order to ensure diversification of sources.
• Compelling:  As recognised, it is unlikely that in most jurisdictions the relevant authorities could implement the necessary legislation or regulations to impose a mandatory financing system.  Therefore, any system must carry with it enough pressure to make free riding very difficult.  This could be accomplished through a variety of means, including official support from the relevant regulatory authorities and formal approval by the collecting organisations. 
• Open-ended:  The financial commitments should be open-ended and not contingent on any particular action that would infringe on the independence of the IASC Foundation and the International Accounting Standards Board.  This should include sustained support from official international organisations, central banks and the major accounting firms.
• Country-specific:  The funding burden should be shared by the major economies of the world on a proportionate basis, using Gross Domestic Product as the key determining factor of measurement.  Each country should meet its designated target in a manner consistent with the principles above.  Trustees should be assigned to specific countries to assist in the development of the funding scheme.
5. Assuming regular growth in other areas of the budgets, the Trustees are planning for a budget of £16 million in 2008.

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In his capacity as Chairman of the Trustees before being named Italian Finance Minister, Tommaso-Padoa-Schioppa gave a speech on the Trustees’ proposed funding plan at a conference held in Frankfurt on 30 March 2006.  Click here  for the full text of the speech.