The European Insurance and Occupational
Pensions Authority (EIOPA)
from the Solvency ii
Association, the larger association of Solvency ii professionals in
the world
Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE
COUNCIL establishing a European Insurance and Occupational
Pensions Authority - Brussels, 23.9.2009
EXPLANATORY MEMORANDUM
1. CONTEXT OF THE PROPOSAL
Experience of the financial crisis has exposed
important failures in financial supervision, both in particular
cases and in relation to the financial system as a whole.
President Barroso therefore requested a group of high level
experts, chaired by Mr Jacques de
Larosière, to make proposals to strengthen European
supervisory arrangements, with the objective of establishing a
more efficient, integrated and sustainable European system of
supervision.
The Group presented its report on 25
February 2009.
Building on its
recommendations, the Commission set out proposals for a
new European financial supervisory architecture in its
Communication to the Spring European Council of March 2009.
The Commission presented its ideas in more detail in its
Communication of May 2009 which proposed:
– Establishing
a European System of Financial Supervisors
(ESFS), consisting of a network of national financial
supervisors working in tandem with new
European Supervisory Authorities (ESAs), created by
transforming the existing European supervisory committees into
the:
1. European Banking Authority
(EBA)
2. European Insurance and
Occupational Pensions Authority (EIOPA)
3. European Securities and
Markets Authority (ESMA),
thereby combining the advantages of an overarching
European framework for financial supervision with the expertise
of local micro-prudential supervisory bodies that are closest to
the institutions operating in their jurisdictions; and
–
Establishing a European Systemic Risk
Board (ESRB), to monitor and assess potential threats to
financial stability that arise from macro-economic developments
and from developments within the financial system as a whole.
To this end, the ESRB would provide an early warning of
system-wide risks that may be building up and, where necessary,
issue recommendations for action to deal with these risks.
2. CONSULTATION OF THE INTERESTED PARTIES
Two open consultations were conducted in the development of
these proposals.
Firstly,
following the report of the high-level group chaired by Mr
Jacques de Larosière and the publication of the 4 March 2009
Commission Communication, the Commission organised a
consultation from 10 March to 10 April 2009 as input to its
Communication on Financial Supervision in Europe published on 27
May 2009.
A summary of the public submissions received
can be found on:
http://ec.europa.eu/internal_market/consultations/docs/2009/fin_supervision/summary_en.pdf
Secondly, from 27 May to 15
July 2009, the Commission organised another consultation round,
inviting all interested parties to comment on the more detailed
reforms presented in the May Communication on Financial
Supervision in Europe.
The responses received were for
the greater part supportive of the suggested reforms, with
comments on detailed aspects of the proposed ESRB and ESFS.
A summary of the public submissions received can be found
on:
http://ec.europa.eu/internal_market/consultations/docs/2009/fin_supervision_may/replies_su
mmary_en.pdf
3. IMPACT ASSESSMENT
The May Commission Communication on Financial
Supervision in Europe was accompanied by an impact assessment
analysing the main policy options for establishing the ESFS and
ESRB.
A second impact assessment accompanies these
proposals, examining the options in more detail.
The
second impact assessment report is available on the Commission
website.
4. LEGAL ELEMENTS OF THE PROPOSAL
The Court of Justice has
acknowledged that Article 95 of the Treaty relating to the
adoption of measures for the approximation of legislation for
the establishment and functioning of the internal market
provides an appropriate legal basis for setting up a
"Community body responsible for
contributing to the implementation of a process of
harmonisation", when the tasks conferred on such a body
are closely related to the subject-matter of the acts
approximating the national legislations.
The financial
and economic crisis has created real and serious risks to the
stability of the internal market.
Restoring and
maintaining a stable and reliable financial system is an
absolute prerequisite to preserving trust and coherence in the
internal market, and hence to preserve and improve the
conditions for the establishment of a fully integrated and
functioning internal market in the field of financial services.
Moreover, deeper and more integrated financial markets
offer better opportunities for financing and risk
diversification, and thus help to improve the capacity of the
economies to absorb shocks.
Financial integration and
stability are therefore mutually reinforcing.
The
establishment of the ESFS will be accompanied by the development
of a single rule book which will
ensure uniform application of rules in the EU and thus
contribute to the functioning of the internal market.
The task of the ESAs will be to assist the national authorities
in the consistent interpretation and application of the
Community rules.
As the tasks to be conferred on the
Authorities are closely linked to the measures put in place as a
response to the financial crisis and to those announced in the
Commission Communications of 4 March and 27 May 2009, they can,
in line with the Court's case law, be established on the basis
of Article 95 of the Treaty.
Community action can address
the weaknesses highlighted by the crisis and provide a system
that is in line with the objective of a stable and single EU
financial market for financial services – linking up national
supervisors into a strong Community network.
However,
the focal point for day-to-day supervision will remain at the
national level, with national supervisors remaining responsible
for the supervision of individual entities. In this way, the
provisions do not go beyond what is strictly necessary to
achieve the objectives pursued.
The proposals are
therefore in accordance with the principles of subsidiarity and
proportionality as set out in Article 5 of the Treaty.
5. BUDGETARY IMPLICATIONS
For the
transformation of the existing European supervisory committees
into effective ESAs, enhanced resources are needed - both
personnel and budgetary.
An overview of the budgetary
implications of these proposals is presented in the impact
assessment report and
accompanying legislative financial
statements (attached to this proposal).
6. DETAILED EXPLANATION OF THE PROPOSAL
In order to take account of sectoral specificities, three
separate Regulations are needed to establish the Authorities for
banking, insurance and occupational pensions, and securities.
The broad thrust of these proposals is however
identical.
This memorandum therefore first discusses the
common elements and briefly touches upon the differences between
the three Regulations.
6.1. Establishment of the ESAs and their legal status
The objective of the ESAs shall be to contribute to:
(i) improving the functioning of
the internal market, including in particular a high, effective
and consistent level of regulation and supervision,
(ii)
protecting depositors, investors, policyholders and other
beneficiaries,
(iii) ensuring the integrity, efficiency
and orderly functioning of financial markets,
(iv)
safeguarding the stability of the financial system, and
(v) strengthening international supervisory coordination.
For this purpose, each ESA shall contribute to ensuring
the coherent, efficient and effective application of the
relevant Community law.
The ESAs will be Community bodies
with a legal personality and a key element of the proposed ESFS.
The latter shall function as a network of supervisors
and comprise the national authorities in the Member States, a
Joint Committee of European Supervisory Authorities, to cover
cross-sectoral issues, and the European Commission.
While the ESAs should enjoy maximum independence to objectively
fulfil their mission, the Commission has to be involved where
institutional reasons and the responsibilities under the Treaty
so require.
The main decision-making body of each ESA
will be its Board of Supervisors, consisting of the heads of the
relevant national supervisors as well as the Chairperson of the
respective Authority.
The Chairperson will preside over
meetings of the Board of Supervisors and the Management Board,
and act as the head and representative of the Authority.
The day-to-day management of each Authority will be in the
hands of an Executive Director.
As for the location of
the new ESAs, it is proposed to maintain the present place of
residence of the existing European committees of supervisors, as
this allows for a fast and effective transition to the new
regime.
Section 6.3 discusses the internal organisation
of the ESAs in more detail.
6.2. Tasks and powers of the ESAs
The ESAs will take on all the tasks of the existing European
supervisory committees, but in addition have significantly
increased responsibilities, defined legal powers and greater
authority, as set-out in the Commission Communication of 27 May
2009 and agreed upon by the European Council of 18-19 June 2009.
6.2.1. Develop technical standards
The European Council endorsed the Commission's proposal that
a single EU rule book should be established, applicable to all
financial institutions in the Single Market.
To this
end, differences in the national
transposition of Community law stemming from exceptions,
derogations, additions or ambiguities must be identified and
removed, so that one harmonised core set of standards can be
defined and applied.
To contribute to this, the
Authorities will, in areas specified in the relevant sectoral
legislation, develop draft technical standards.
These
standards constitute an effective instrument to
strengthen Level 3 of the Lamfalussy
structure, which currently is limited to the adoption of
non-binding guidelines.
The areas where the Authority
may develop such draft standards concern issues of a highly
technical nature where
uniform conditions for the application
of Community legislation are needed.
These matters do
not involve policy decisions and their content is tightly framed
by the Community acts adopted at Level 1 (see the accompanying
Commission Staff Working Paper for a detailed discussion on the
necessary changes to the relevant Community legislation).
Development of the standards by the ESAs ensures that they
benefit in full from the specialised expertise of
national
supervisors.
The draft technical standards will be
adopted by the Authority on the basis of qualified majority of
the members of the Boards of Supervisors, as defined in Article
205 of the Treaty.
The Community legal order requires the
Commission to subsequently endorse these draft standards in the
form of regulations or decisions so as to give those direct
legal effects.
In very exceptional cases, and only for
reasons of Community interest, the Commission may decide to
endorse the standards in part, or with amendments, or not at
all, the reasons for which it has to make available to the
Authority.
The Commission's proposal is without
prejudice to discussions on future procedures in the context of
the transition to a new Treaty.
For the purpose of
consultation with stakeholders, a Stakeholder Group will be
established for each ESA, consisting of representatives of the
industry, financial sector employees and users of financial
services.
The relative proportions of each should be
balanced and no one group should dominate over the others. In
those areas not covered by the technical standards, the ESAs
shall, like the existing European supervisory committees, have
the possibility to issue non binding guidelines and
recommendations to national supervisory authorities and
financial institutions and market participants.
If in
any specific case authorities choose not to comply with the
guidelines and recommendations it should explain its decision to
the Authority.
6.2.2. Powers to ensure the consistent application of
Community rules
Even with a single set of
harmonised rules, the application of these rules may, in
occasional cases, lead to differences of
opinion on the application of Community legislation.
Without prejudice to the initiation of infringement
proceedings by the Commission against Member States, the ESAs
should therefore have a general power to contribute to ensuring
coherent application of Community legislation.
To this
end, a mechanism should be put in
place to address behaviour by national supervisory authorities
who are considered to be diverging from the existing Community
legislation (including the technical standards discussed in
6.2.1).
This mechanism consists of
three different steps:
First, the ESAs, on their own initiative or upon request
from one or more national supervisors or from the Commission,
would investigate these cases and, where necessary, adopt a
recommendation for action addressed to the supervisory
authority.
Within the general duty of compliance with
Community legislation the supervisory authority would be called
to comply with the recommendation within one month.
Second, if the recommendation is
not complied with, the European Commission
may, after being informed by the ESA or on its own initiative,
take a decision, requiring the national supervisory authority to
either take specific action or to refrain from an action.
The latter shall, within ten working days of receipt of the
decision, inform the Commission and the ESA of the steps it has
taken or intends to take to implement this decision.
Third, in the exceptional situation
that the supervisory authority does not comply with the latter,
the ESAs may as a last resort adopt a
decision addressed to financial institutions in respect to
Community law which is directly applicable to them (i.e.
Regulations).
This is without prejudice to the
Commission's powers to enforce its own decision.
6.2.3. Action in emergency situations
The ESAs shall fulfil an active
coordination role between national supervisory
authorities, in particular in case of adverse developments which
potentially jeopardise the orderly functioning and integrity of
the financial system in the EU.
However, in some
emergency situations, coordination may not be sufficient,
notably when national supervisors alone lack the tools to
respond rapidly to an emerging cross-border crisis.
The
ESAs should therefore, in such exceptional circumstances,
have the power to require national
supervisors to jointly take specific action.
The
determination of a cross-border emergency situation involves a
degree of appreciation, and should therefore be left to the
European Commission.
This is subject to the safeguard
clause (see 6.2.11).
In parallel, work should be
accelerated to build a comprehensive cross-border framework to
strengthen the European Union's financial crisis
management/resolution systems, including guarantee schemes and
burden sharing.
6.2.4. Settlement of disagreements between national
supervisory authorities
A mechanism is
proposed to ensure that relevant national supervisory
authorities take due account of the interests of other Member
States, including within colleges of supervisors.
If a
supervisory authority disagrees on the procedure or content of
an action or inaction by another supervisory authority where the
relevant legislation requires cooperation, coordination or joint
decision making, the Authority, at the request of the
supervisory authority concerned, may assist the authorities in
reaching a common approach or settle the matter.
This mechanism consists of
three possible steps:
First,
if one or more national supervisory authorities request the ESA
to assist in resolving such disagreements, it may first set a
phase of conciliation between the authorities to try to reach
agreement among themselves, with the involvement of the
Authority as necessary in a mediatory capacity.
Second, if, after a phase of
conciliation, they have not been able to reach such an
agreement, the ESAs may, through a decision, settle the matter.
However, this would clearly be exceptional as in most cases
the respective national authorities should be able to come to an
agreement in the preceding conciliation procedure.
Third, in case of non-compliance by
a supervisory authority with the previous decision, the
Authority may also decide to adopt decisions addressed to
financial institutions specifying their obligations in respect
of Community law which is directly applicable to financial
institutions.
It should be stressed that the dispute
settlement mechanism should only address material issues, e.g.
cases where action or inaction by a supervisory authority has a
serious detrimental impact on the ability of a supervisory
authority to protect the interest of depositors, policy holders,
investors, or persons to whom services are provided in one or
several other Member States, or on the financial stability of
these Member States.
The Authority reserves the right
not to launch a settlement procedure or adopt any decision where
such requirements are not fulfilled.
These arrangements
are subject to the safeguard clause (see 6.2.11).
6.2.5. Colleges of supervisors
Colleges of supervisors are central to the EU supervisory system
and play an important role in ensuring a balanced flow of
information between home and host authorities.
The ESAs
will contribute to promoting the efficient and consistent
functioning of colleges of supervisors and monitoring the
coherence of the implementation of Community legislation across
colleges.
Against this background, the ESAs may
participate as observers in colleges of supervisors and receive
all relevant information shared between the members of the
college.
6.2.6. Common supervisory culture, delegation of tasks
and responsibilities and peer reviews
The
ESAs shall play an active role in building a
common European supervisory culture
and ensuring uniform procedures and consistent supervisory
practices throughout the Community.
In combination with
the mechanism to settle disagreements between national
supervisory authorities, the common supervisory culture should
help build trust and cooperation, and may increasingly create
opportunities for supervisors to delegate certain tasks and
responsibilities to one another.
The ESAs shall
facilitate this by identifying tasks and responsibilities which
can be delegated or jointly exercised as well as by promoting
best practices. In this respect, the Authority shall encourage
and facilitate the set-up of joint supervisory teams.
Moreover, the ESAs shall periodically conduct peer review
analysis of national supervisory authorities.
6.2.7. Assessment of market developments
One of the new tasks assigned to the existing European
supervisory committees in the revised Commission Decisions
adopted on 23 January 2009 is the monitoring, assessing and
reporting on trends, potential risks and vulnerabilities in the
banking, insurance and securities sector.
Although the
proposed ESRB will be responsible for macro-prudential analysis
of the EU financial sector, the ESAs should continue the work of
the existing European supervisory committees in this area as:
(i) the focus of their analysis is different, i.e.,
micro-prudential analysis provides a bottom-up analysis, rather
than macro-prudential analysis which is topdown, and
(ii) their analysis may serve as helpful input into the work
carried-out by the ESRB
6.2.8. International and advisory role
Through these proposals the Commission is clearly
responding to the weaknesses identified
during the crisis as well as to the G20 call to take action to
build a stronger, more globally consistent, regulatory and
supervisory system for financial services.
The
ESAs could serve as helpful contact points for supervisory
authorities from third countries. In this context, they may,
without prejudice to the competences of the European
Institutions, enter into administrative arrangements with
international organisations and the administrations of third
countries.
The ESAs may also assist in preparing
equivalence decisions pertaining to supervisory regimes in third
countries. Moreover, the ESAs may, upon request or on their own
initiative, provide advice to the European Parliament, the
Council and the Commission or publish opinions, including with
respect to the prudential assessments of cross-border mergers
and acquisitions.
The latter should provide for
additional safeguards to ensure a sound and objective assessment
of future cross-border mergers or acquisitions.
6.2.9. Collection of information
At the request of the Authority, supervisory authorities and
other public authorities of the Member States shall provide the
Authority with all the necessary information to carry out the
duties assigned to it by this Regulation.
Moreover, the
Authority shall, in collaboration with the supervisors operating
in colleges of supervisors, define and collect as appropriate
all relevant information from supervisory authorities, in order
to facilitate the work of colleges of supervisors.
It
shall establish and manage a central system to make such
information accessible to the supervisory authorities in
colleges of supervisors. In principle, all information should be
transferred to the ESAs by the national supervisory authorities.
6.2.10. Relationship with the ESRB
The proposed framework for EU supervision can only work
if the ESRB and ESFS cooperate closely.
Indeed, the objective of the reform is to ensure a smoother
interaction of supervision at the macro-prudential and
micro-prudential levels.
In fulfilling its role as
macro-prudential supervisor, the ESRB would need a timely flow
of micro-prudential information, while microprudential
supervision by national authorities would benefit from the
ESRB’s insights on the macro-prudential environment.
The
Regulations also specify the procedures to be followed by the
ESAs to act upon recommendations by the ESRB and how the ESAs
should use their powers to ensure timely follow-up to
recommendations addressed to one or more national supervisory
authorities.
6.2.11. Safeguard
In line with
the Ecofin and European Council conclusions of June 2009, which
stress that, without prejudice to the application of Community
law and recognising the potential or contingent liabilities that
may be involved for Member States, decisions by the ESAs should
not impinge on the fiscal responsibilities of the Member States,
a safeguard clause is introduced.
This clause ensures
that, where a Member State considers that a decision taken under
Article 10 (i.e. emergency decisions) or 11 (i.e. settlement of
disagreements) of these Regulations impinges on its fiscal
responsibility, it may notify the Authority and the Commission
that the national supervisory authority does not intend to
implement the Authority's decision, clearly demonstrating how
the decision by the Authority impinges on its fiscal
responsibilities. Within a period of one month the Authority
shall inform the Member State as to whether it maintains its
decision or whether it amends or revokes it.
Where the
Authority maintains its decision, the Member State may refer the
matter to the Council and the decision of the Authority is
suspended.
The Council shall, within two months, decide
whether the decision should be maintained or revoked, acting by
qualified majority.
For Authority decisions adopted
under Article 10, an expedited procedure applies to take into
account the need for rapid decisions in emergency circumstances.
6.3. The internal organisation of the ESAs and the
ESFS
Each ESA shall comprise:
(i) a Board of
Supervisors;
(ii) a Management Board;
(iii) a
Chairperson; and
(iv) an Executive Director.
Moreover, a single Board of Appeal
should be established for all three ESAs.
6.3.1. Board of Supervisors
The
Board of Supervisors is the main decision making body of the
ESAs and will among other things be responsible for the adoption
of the draft technical standards, opinions, recommendations, and
decisions described in section 6.2 of this explanatory
memorandum.
The Board of Supervisors shall be composed
of:
– the Chairperson of the respective ESA, who will
chair the meetings of the Board, but shall be non-voting;
– the Head of the relevant national supervisory authority in
each Member State;
– one representative of the Commission
who shall be non-voting;
– one representative of the ESRB
who shall be non-voting;
– one representative of each of
the other two European Supervisory Authorities who shall be
non-voting, and
– where relevant, the Board may decide to
admit observers.
As a rule, decisions by the Board will
be taken by simple majority, except for those decisions
pertaining the setting of draft technical standards and
guidelines and decisions in relation to the articles on
financial provisions, for which qualified majority voting will
be used.
The Board may set up panels for dispute
settlement. However, the final decision is adopted by the Board
of Supervisors on proposal from this panel.
6.3.2. Management Board
The
Management Board shall ensure that the Authority carries out its
mission and performs the tasks assigned to it. In particular, it
should be responsible for preparing the Authority's work
programme, adopting the rules of procedure, and play a central
role in the adoption of its budget.
It will be composed
of the ESA's Chairperson, a representative of the Commission,
and four members elected by the Board of Supervisors among its
members, who shall act independently and objectively in the
Community interest.
The Executive Director may
participate in meetings of the Management Board without the
right to vote.
6.3.3. Chairperson and Executive Director
The ESA shall be represented by a full-time independent
Chairperson, who shall be responsible for preparing the work of
the Board of Supervisors as well as chairing both the meetings
of the Board of Supervisors and the Management Board.
The day-to-day activities of the ESAs shall however be managed
by an Executive Director, who, similarly to the
Chairperson,
shall be a full-time independent professional.
He or she
shall be responsible for the implementation of the annual work
programme and take the necessary measures to ensure the
functioning of the ESA.
Both persons shall be selected
by the Board of Supervisors on the basis of merit, skills,
knowledge of financial institutions and markets, and experience
relevant to financial supervision and regulation, following an
open selection procedure.
The candidate selected by the
Board of Supervisors for the position of Chairperson shall be
subject to confirmation by the European Parliament. The term of
both offices shall be five years and may be extended once.
Such extension would depend on the outcome of an evaluation
executed by the Board of Supervisors.
6.3.4. Joint Committee of European Supervisory
Authorities
Within the proposed structure,
cross-sectoral cooperation will be fundamental so as to reflect
the relevant market trends and realities.
A Joint
Committee of European Supervisory Authorities will ensure mutual
understanding, cooperation and consistent supervisory approaches
between the three new ESAs.
A Subcommittee to the Joint
Committee shall be established to specifically address
cross-sectoral issues, including financial conglomerates, and
ensuring a level playing field.
While the actual
decisions on, for example the Financial Conglomerates Directive,
are being taken by the individual ESAs, the Joint Committee
should ensure that common decisions are taken by the ESAs in
parallel.
6.3.5. Board of Appeal
An appeal
system will ensure that any natural or legal person, including
national supervisory authorities, may in first instance appeal
to a Board of appeal against a decision by the ESAs to ensure
the coherent application of Community rules (Article 9), action
in emergency situations (Article 10), and the settlement of
disagreements (Article 11).
The Board of Appeal shall be
a joint body of three ESAs, i.e., it will deal with issues
related to banking, insurance
and securities.
The
Board of Appeal will have six members and six alternates with
relevant knowledge and experience, excluding current staff of
the national supervisory authorities or other national or
Community institutions involved in the activities of the
Authority.
Two members of the Board of Appeal and two
alternates shall be appointed by the Management Board of each
ESA from a short-list proposed by the European Commission.
6.4. Financial provisions
These
provisions deal with the budgetary aspects of the ESAs and
stress that the revenues of the Authorities may stem from
different sources, e.g. obligatory contributions from the
national supervisory authorities, a subsidy from the Community
or fees paid by the industry to the Authority.
It also
specifies the procedures for the annual establishment, the
implementation and control of the budget.
The Framework
Financial Regulation for bodies established under Article 158 of
the Financial Regulation shall apply.
6.5. General and final provisions
The general provisions set out practical issues related to
staffing, liability of the ESAs, professional secrecy
obligations, data protection, access to documents, language
arrangements, headquarter agreements and participation of third
countries.
Within three years from the effective start
of operations and every three years thereafter, the Commission
shall publish a report on the functioning of the ESAs and the
procedures laid down in the Regulation.
This report will
also evaluate progress achieved towards regulatory and
supervisory convergence in the fields of crisis management and
resolution in the EU.
6.6. Key differences between the three Regulations
The main differences between the three proposed Regulations
concern the objectives of the Authorities, the scope of action,
and the definitions, which are adapted to the specificities of
the relevant sector and existing Community legislation.
Moreover, the European Council concluded that the ESAs should
also have supervisory powers for credit rating agencies. ESMA
would be responsible to register credit rating agencies. ESMA
would also be empowered to take supervisory measures such as
withdrawing the registration or suspending the use for
regulatory purposes of credit ratings.
Supervisory
powers could include the power to request information and to
conduct investigations or on-site inspections.
The
responsibilities and powers of ESMA with regard to credit rating
agencies will be defined in an amendment to the Regulation on
Credit Rating Agencies.
Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE
COUNCIL
establishing a European Insurance and Occupational
Pensions Authority - Part A
Part B
Part C
Part D
Solvency ii Training and Certification Programs
The Solvency ii Association develops and maintains a
compendium of Solvency ii related risk and compliance topics.
Subject matter experts review and update this body of knowledge.
The Solvency ii Association offers two Solvency ii
certification programs:
A. Certified Solvency ii Professional
(CSiiP) for professionals working in the EEA countries
B.
Certified Solvency ii Equivalence Professional (CSiiEP) for
professionals working in non-EEA countries
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