Explanatory Memorandum to COM(2011)8 - Powers of the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2011)8 - Powers of the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority. |
|---|---|
| source | COM(2011)8  |
| date | 19-01-2011 |
Experience of the financial crisis has exposed important failures in financial supervision. President Barroso therefore requested a group of high level experts, chaired by Mr Jacques de Larosière, to make proposals to strengthen European supervisory arrangements. 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 i into a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a 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.
The Communication also concluded that in order for the ESFS to work effectively, changes to the financial services legislation would be necessary, in particular to provide an appropriate scope to the more general powers provided for in the individual regulations establishing the authorities, ensuring a more harmonised set of financial rules through the possibility to develop draft technical standards and facilitate the sharing, where necessary, of micro-prudential information.
Two open consultations were conducted in the development of these proposals. Firstly, following the report of the high-level group chaired by Jacques de Larosière and the publication of the 4 March 2009 Commission Communication, the Commission organised a first 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 at:
ec.europa.eu/internal_market/consultations/docs
Secondly, from 27 May to 15 July 2009, the Commission organised another consultation, inviting all interested parties to comment on the more detailed reforms presented in the Communication on Financial Supervision in Europe of 27 May 2009. 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 at:
ec.europa.eu/internal_market/consultations/docs
Additionally, a Commission Services Staff Working Paper was published on 23 September 2009 to preview the possible areas where amendments to sectoral legislation may be necessary. The working paper can be found at:
ec.europa.eu/internal_market/finances/docs
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 accompanied the legislative proposals, examining the options in more detail. The second impact assessment analysed the options for the appropriate powers for the authorities to work towards achieving a single set of harmonised rules and concluded that this capacity would be rightly limited to those areas to be defined in forthcoming sectoral legislation, and identified such potential areas. Additionally, in developing the draft technical standards themselves, the authorities should undertake appropriate analysis of potential related costs and benefits and consult stakeholders before submitting them to the Commission.
The second impact assessment report is available at:
ec.europa.eu/internal_market/finances/committees
Contents
- LEGAL ELEMENTS OF THE PROPOSAL
- Budgetary implications
- 2. Consultation of the interested parties
- 3. IMPACT ASSESSMENT
- 6. Detailed explanation of the proposal
- 6.1 Further amendments to the Solvency II Directive
- Transitional Requirements
- Amending level 2 empowerments
- To include the European Cooperative Society (SCE) in the list of permissible forms of insurance and reinsurance undertakings
- Euro amount of the absolute floor of the MCR
- Extension of two months to implementation date
Given that changes need to be introduced into existing Directives to ensure the development of a single rule book, an amending Directive is the most appropriate instrument. This amending Directive should have the same legal basis as the Directives it amends.
The proposal has no implication for the EU budget.
On 23 September 2009, the Commission adopted proposals for Regulations establishing EBA, EIOPA, and ESMA.[2] 'In this respect the Commission wishes to recall the Statements in relation to Articles 290 and 291 TFEU it made at the adoption of the Regulations establishing the European Supervisory Authorities according to which: 'As regards the process for the adoption of regulatory standards, the Commission emphasises the unique character of the financial services sector, following from the Lamfalussy structure and explicitly recognised in Declaration 39 to the TFEU. However, the Commission has serious doubts whether the restrictions on its role when adopting delegated acts and implementing measures are in line with Articles 290 and 291 TFEU."
Along with those Regulations and in order for the ESFS to work effectively, changes to the sectoral legislation are necessary. The areas in which amendments are proposed fall broadly into the following categories:
- Definition of the appropriate scope of technical standards as an additional tool for supervisory convergence and with a view of developing a single rule book;
- To appropriately integrate the possibility for the authorities to settle disagreements in a balanced way to those areas where common decision making processes already exist in sectoral legislation;
- General amendments which are common to most sectoral legislation and necessary for the directives to operate in the context of new authorities for example, renaming the level 3 committees to the new authorities and ensuring the appropriate gateways for the exchange of information are present; and
- Additional amendments to the Solvency II Directive.
This amending directive is proposed to amend the following legislation:
- Directive 2003/71/EC: Prospectus Directive
- Directive 2009/138/EC: Solvency II Directive
For detailed explanations of the categories of amendments see the Explanatory Memorandum to Commission proposal COM(2009) 576 final of 26 September 2009.
To adjust existing level 2 empowerments to the Lisbon Treaty
Given the recent entry into force of the Lisbon Treaty, the Solvency II directive needs to be adjusted to take account of the new Treaty. Existing level 2 empowerments which qualify as delegated acts according to Article 290 TFEU should therefore be transformed into empowerments for delegated acts. Appropriate control procedures should be foreseen.
It is necessary to provide for the specification of transitional requirements for a number of reasons. There should be a smooth transition to the new regime, market disruption should be avoided, and impacts on the range of important insurance products should be able to taken into account. It should also be possible for proper consideration to be given to significant and valuable industry-wide information to be obtained from the quantitative impact study (QIS5). Transitional requirements should therefore be possible in relation to valuation, governance, supervisory reporting and public disclosure, the determination and classification of own funds, the standard formula for the calculation of the Solvency Capital Requirement and the choice of methods and assumptions for the calculation of technical provisions, including the determination of the relevant risk-free interest rate term structure. It is also necessary to enable level 2 measures to specify transitional arrangements in relation to the treatment of third country regimes in order to acknowledge that some third countries may need more time to adapt and implement a solvency regime that would fully satisfy the criteria for being recognised as equivalent. It should be possible for the transitional requirements set out in Directive 2009/138/EC, as amended by this Directive, to have their non essential elements further specified in delegated acts. While the maximum periods for the transitional requirements are to be set out in Directive 2009/138/EC, the actual time period selected in any delegated act may be for a lesser period and should be proportionate to the particular basis upon which the transitional requirements is demonstrated to be necessary in order to facilitate the application of the new regime. The transitional requirements should be at least equivalent, in effect, to the existing framework on insurance and reinsurance directives and should not result in more favourable treatment for insurance and reinsurance undertakings, or lower protection for policy holders, than currently exists. The transitional requirements should encourage undertakings to move towards compliance with the particular requirements of the new regime as soon as possible.
In order to allow for greater convergence on procedures for supervisory approvals already provided for in Solvency II of undertaking specific parameters, model change policies, special purpose vehicles and the setting and removal of capital add-ons, the Commission should be empowered to adopt measures by means of delegated acts specifying procedure in these areas.
It is also necessary to ensure cross-sectoral consistency to enable level 2 measures in the context of investments in repackaged loans to not only specify requirements but also specify the consequences of breaching those requirements.
To include the European Cooperative Society (SCE) in the list of permissible forms of insurance and reinsurance undertakings
In order to enable European cooperatives to provide insurance and reinsurance services, it is necessary to extend the list of permissible legal forms of insurance and reinsurance undertakings to include the European Cooperative Society (SCE) as defined in Regulation (EC) No.1435/2003 i.
An amendment is necessary to reflect the adaptation to the Euro amount of the MCR floor for captive reinsurance undertakings. This arises out of the periodic adjustment of the existing capital requirement floors for such undertakings to take account of inflation.[4]
In order to better align the start of the various new reporting, calculation and other obligations of the Solvency II regime with the date (31 December) which marks the end of the financial year of the majority of insurance undertakings, amendments which extend the relevant transposition, repeal and application dates by 2 months are necessary.