EIOPA

ESAs Publish 2016 Annual Reports

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On June 15, 2017, ESMA, EIOPA and the EBA (the European Supervisory Authorities (“ESAs“)) each published their annual reports outlining the relevant ESA’s objectives, activities and key achievements in 2016.

ESMA’s annual report summarizes the work carried out by ESMA in 2016 under each of the following activities:

  • Assessing risks to investors, markets and financial stability.
  • Creating a single rule book.
  • Promoting supervisory convergence.
  • Supervising credit rating agencies and trade repositories.

The EBA’s annual report outlines the EBA’s work in 2016, which included:

  • Completing the single rule book applicable to the EU banking sector.
  • Supporting the finalization of the Basel III package of measures and its implementation in the EU.
  • Enhancing its monitoring of different aspects of the single rule book, including on own funds, remuneration practices and significant risk transfers in securitizations.
  • Improving its role in monitoring and assessing key risks in the banking sector across the EU.
  • Monitoring financial innovation and contributing to secure and efficient retail payments in the EU.

EIOPA’s annual report outlines the EIOPA’s work associated with the implementation of the Solvency II Directive (2009/138/EC) on January 1, 2016, such as the secure collection and storage of data. Other areas of work included:

  • The calculation and publication of risk-free rates on a monthly basis.
  • An EU-wide insurance stress test.
  • The development of a macro-prudential approach to the low interest rate environment in Solvency II.

Advice to the European Commission on a number of issues, including the development of a pan-European personal pension product and, within the context of the Joint Committee of the ESAs, on the key information documents for packaged retail and insurance-based investment products.

EIOPA Publishes Final Report on Identification and Calibration of Infrastructure Corporates under Solvency II

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On June 30, 2016, The European Insurance and Occupational Pensions Authority (“EIOPA”) published a final report providing technical advice to the European Commission on the identification and calibration of other infrastructure investment risk categories (that is, infrastructure corporates) under the Solvency II Directive.  An infrastructure corporate is an entity or corporate group that carries out infrastructure activities (such as energy generation, social housing, healthcare or hospitals).

On October 14, 2015, EIOPA received a request from the European Commission for further technical advice on the issue of infrastructure corporates. In response, in November 2015, EIOPA published a call for evidence on the treatment of infrastructure corporates.  The final report follows EIOPA’s April 2016 consultation on the issues.

In the report, EIOPA recommends that the asset class is extended in two ways:

  1. To allow certain infrastructure corporates to qualify for the treatment for infrastructure projects provided that there is an equivalent level of risk.
  2. To create a separate differentiated treatment for equity investments in high-quality infrastructure corporates.

For those corporates that have a lower risk profile, EIOPA proposes reduction in the risk charges for equity investments.

EIOPA also recommends that insurers are required to conduct adequate due diligence, establish written procedures to monitor the performance of their exposures and perform stress testing on the cash flows and collateral values supporting their investment.

2015 Annual Reports

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The following bodies have released their 2015 annual reports in the past week:

  • EIOPA (European Insurance and Occupational Pensions Authority)
  • ESMA (European Securities and Markets Authority)
  • EBA (European Banking Authority)

Each report contains a review of achievements from 2015 as well as looking forward to the objectives and challenges which will be relevant in the coming year.

Commission Adopts Proposal to Incorporate ESAs into EEA Agreement

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On June 2, 2016, the European Commission published a press release announcing that it had adopted a proposal for a Council decision on the position to be taken by the EU on the incorporation of the Regulations on the European Supervisory Authorities (ESAs), and some of the related Regulations and Directives, into the Agreement on the European Economic Area (EEA).

The acts to be incorporated into the EEA Agreement include the ESAs Regulations (EBA, EIOPA and ESMA Regulations), the European Systemic Risk Board Regulation, the Alternative Investment Fund Managers Directive and related Delegated Acts, the Short Selling Regulation and related delegated acts, the European Markets Infrastructure Regulation (‘EMIR’) and the Credit Ratings Agency Regulations.

This is an important step towards the extension of the European System of Financial Supervision (ESFS) to the EEA EFTA countries: Norway, Iceland and Liechtenstein. The Commission explained that incorporating these acts into the EEA Agreement would ensure strong and co-ordinated financial supervision throughout the EEA.

ESAs Publish Final Draft Technical Standards on Margin Requirements for Non-Centrally Cleared Derivatives

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The Joint Committee of the European Supervisory Authorities (EBA, EIOPA, ESMA) (“ESAs“) has published final draft Regulatory Technical Standards (“RTS“) outlining the framework of the European Market Infrastructure Regulation (EMIR). The RTS cover the risk mitigation techniques related to the exchange of collateral to cover exposures arising from non-centrally cleared OTC derivatives. They also specify the criteria concerning intragroup exemptions and the definitions of practical and legal impediments to the prompt transfer of funds between counterparties.

The draft RTS prescribe that, for OTC derivatives not cleared by a Central Counterparty, counterparties have to exchange both initial and variation margins. This will reduce counterparty credit risk, mitigate any potential systemic risk and ensure alignment with international standards. The draft RTS outline the list of eligible collateral for the exchange of margins, the criteria to ensure the collateral is sufficiently diversified and not subject to wrong-way risk, as well as the methods to determine appropriate collateral haircuts. The draft RTS also lay down the operational procedures relating to documentation, legal assessments of the enforceability of the agreements and the timing of the collateral exchange, as well as the procedures for counterparties and competent authorities related to the treatment of intragroup derivative contracts.

EIOPA Publishes Consultation Paper on the Development of an EU Single Market for Person Pension Products

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On February 1, the European Insurance and Occupational Pensions Authority (“EIOPA“) published a consultation paper on its advice on the development of an EU Single Market for personal pension products (“PPP“). This consultation is in response to EIOPA’s 2014 preliminary report “Towards an EU-Single Market for personal pensions” and EIOPA’s 2015 consultation paper on the creation of a standardised Pan-European Personal Pension product.

EIOPA is asking:

  1. Would PPPs benefit from harmonisation of provider governance standards?
  2. Would PPPs benefit from harmonisation of product governance rules?
  3. Would PPPs benefit from harmonisation of distribution rules?
  4. Would PPPs benefit from harmonisation in disclosure rules?
  5. Are respondents aware of any differences in prudential regimes that would lead to an unlevel playing field amongst PPP providers?
  6. Are further supervisory powers necessary?
  7. Do respondents agree with EIOPA’s assessment of the policy options’ impacts?

The Consultation Paper is open for responses until April 26 and such responses will be published on EIOPA’s public website.  Consultation Paper.

European Supervisory Authorities Request Response from European Commissioner to Inconsistencies in Cross-Selling Legislation

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On 26 January 2016, the Chairpersons of the European Supervisory Authorities (ESAs) (i.e. EBA, EIOPA and ESMA) sent a letter to the European Commissioner for the Directorate General Financial Stability, Financial Services and Capital Markets Union.

The letter flags up that differences in primary legislation currently preclude the ESAs from developing consistent guidelines on cross selling across the investments, insurance and banking sectors in the EU and asks that the Commission look into the differences in financial services legislation and consider the steps required in order to guarantee that the ESAs are fully equipped to regulate these practices, to the benefit of consumers, financial institutions and supervisory authorities. The ESAs suggest that the Commission may have an opportunity to review these matters as part of its follow up to its September 2015 call for evidence on the EU framework for the regulation of financial services and its December 2015 green paper on retail financial services.

EIOPA Updates Risk Dashboard

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On December 18, the European Insurance and Occupational Pensions Authority (“EIOPA“) published an updated version of its risk dashboard (dated December 19), together with a background note (dated December 4).

EIOPA states that the risk environment facing the insurance sector remains challenging. Among others, the dashboard suggests that the overall outlooks for macroeconomic risks seems to be worsening, and that profitability challenges remain, due to low investment yields.

EIOPA Consults on Second Set of Solvency II Implementing Technical Standards and Guidelines

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The European Insurance and Occupational Pensions Authority (EIOPA) has, on December 2, published 16 consultations in respect of the second set of draft implementing technical standards (ITS) and guidelines required under the Solvency II Directive (2009/138/EC).

The 16 consultations have been grouped under the three Solvency II pillars. EIOPA has also published two additional consultations on: (i) the draft guidelines on the supervision of branches of third-country insurance undertakings; and (ii) technical advice on recovery plans, finance schemes and supervisory powers in deteriorating financial conditions.

Responses to the consultations are requested by March 2, 2015 with the exception of the technical advice consultation for which responses are requested by February 18, 2015.  Consultations.

EIOPA Publishes Concerns on Investment Insurance Products’ Inclusion under MiFID II

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A letter sent on September 19 from Gabriel Bernardino, the Chairman of the European Insurance and Occupational Pensions Authority (EIOPA), to the European Commission Director General of Internal Market and Services, Jonathan Fowl, was published by EIOPA on September 20.  The letter sets out EIOPA’s concerns around the selling of investment insurance products covered by the MiFID II.

In the letter, EIOPA states that such an inclusion could lead to regulatory inconsistency and have a negative impact on consumer protection, with the consequential risk that the products could be sold in accordance with sub-optimal requirements.  The letter goes on to list three reasons why rules governing the sale of investment insurance products should instead be included under the Insurance Mediation Directive (IMD) regime:

  • To keep the rules of the sale of insurance packaged retail investment products within legislation designed for diverse forms of insurance distribution;
  • To avoid MiFID-style client categorization; and
  • To maintain the “demands and needs” test.  Letter.