The financial crisis in 2007 and 2008 exposed important shortcomings in financial supervision, both in particular cases and in relation to the financial system as a whole. Nationally based supervisory models have lagged behind financial globalisation and the integrated and interconnected reality of European financial markets, in which many financial institutions operate across borders. The crisis exposed shortcomings in the areas of cooperation, coordination, consistent application of Union law and trust between national competent authorities.
(2)
In a number of resolutions adopted before and during the financial crisis, the European Parliament called for a move towards more integrated European supervision in order to ensure a truly level playing field for all actors at Union level, and for such supervision to reflect the increasing integration of financial markets in the Union, in particular in its resolutions of 13 April 2000 on the Commission communication on implementing the framework for financial markets: Action Plan, of 21 November 2002 on prudential supervision rules in the European Union, of 11 July 2007 on financial services policy (2005-2010) — White Paper, of 23 September 2008 with recommendations to the Commission on hedge funds and private equity, of 9 October 2008 with recommendations to the Commission on Lamfalussy follow-up: future structure of supervision, and in its positions of 22 April 2009 on the amended proposal for a directive of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), and of 23 April 2009 on the proposal for a regulation of the European Parliament and of the Council on Credit Rating Agencies.
(3)
In November 2008 the Commission instructed a High-Level Group chaired by Jacques de Larosière to make recommendations on how to strengthen European supervisory arrangements with a view to better protecting Union citizens and rebuilding trust in the financial system. In its final report presented on 25 February 2009 (the ‘de Larosière Report’), the High-Level Group recommended that the supervisory framework be strengthened to reduce the risk and severity of future financial crises. It recommended far-reaching reforms to the supervisory structure of the financial sector within the Union. The de Larosière Report also recommended that a European system of financial supervision be created, comprising three European supervisory authorities — one for each of the banking, the securities and the insurance and the occupational pensions sectors — and a European systemic risk council.
(4)
Financial stability is a prerequisite for the real economy to provide jobs, credit and growth. The financial crisis has revealed serious shortcomings in financial supervision, which has failed to anticipate adverse macro-prudential developments or to prevent the accumulation of excessive risks within the financial system.
(5)
In the conclusions following its meeting of 18 and 19 June 2009, the European Council recommended that a European system of financial supervisors comprising three new European supervisory authorities be established. It also recommended that the system should aim to upgrade the quality and consistency of national supervision, strengthening the oversight of cross-border groups, establishing a single European rulebook applicable to all financial institutions in the internal market. It emphasised that the European supervisory authorities (the ‘ESAs’) should also enjoy supervisory powers in respect of credit rating agencies, and invited the Commission to prepare concrete proposals as to how the European System of Financial Supervision (‘ESFS’) could play a strong role in crisis situations.
(6)
In 2010, the European Parliament and the Council adopted three Regulations establishing the ESAs: Regulation (EU) No 1093/2010 of the European Parliament and of the Council (4) establishing the European Supervisory Authority (European Banking Authority), Regulation (EU) No 1094/2010 of the European Parliament and of the Council (5)establishing the European Supervisory Authority (European Insurance and Occupational Pensions Authority) (‘EIOPA’), and Regulation (EU) No 1095/2010 of the European Parliament and of the Council (6) establishing the European Supervisory Authority (European Securities and Markets Authority) (‘ESMA’) as part of the ESFS.
(7)
In order for the ESFS to work effectively, changes to the Union legislative acts in the field of operation of the three ESAs are necessary. Such changes concern the definition of the scope of certain powers of the ESAs, the integration of certain powers in existing processes established in relevant Union legislative acts and amendments to ensure a smooth and effective functioning of the ESAs in the context of the ESFS.
(8)
The establishment of the ESAs should therefore be accompanied by the development of a single rulebook to ensure consistent harmonisation and uniform application and thus contribute to the even more effective functioning of the internal market and the more effective implementation of micro-level supervision. The regulations establishing the ESFS provide that the ESAs may develop draft technical standards in the areas specifically set out in the relevant legislation, to be submitted to the Commission for adoption in accordance with Articles 290 and 291 of the Treaty on the Functioning of the European Union (TFEU) by means of delegated or implementing acts. Whereas Directive 2010/78/EU of the European Parliament and of the Council (7) has identified a first set of such areas, this Directive should identify a further set of areas, in particular for Directives 2003/71/EC and 2009/138/EC of the European Parliament and of the Council (8), for Regulation (EC) No 1060/2009 of the European Parliament and of the Council (9) and for Regulations (EU) No 1094/2010 and (EU) No 1095/2010.
(9)
The relevant legislative acts should establish areas in which the ESAs are empowered to develop draft technical standards and how such standards should be adopted. The relevant legislative acts should lay down the elements, conditions and specifications as detailed in Article 290 TFEU in the case of delegated acts.
(10)
The identification of areas in which technical standards should be adopted should strike an appropriate balance between building a single set of harmonised rules and avoiding unduly complicated regulation and enforcement. The areas selected should be only those in which consistent technical rules will contribute significantly and effectively to the achievement of the objectives of the relevant legislative acts, while ensuring that policy decisions are taken by the European Parliament, the Council and the Commission in accordance with their usual procedures.
(11)
Matters subject to technical standards should be genuinely technical, where their development requires the expertise of supervisory experts. Regulatory technical standards adopted as delegated acts pursuant to Article 290 TFEU should further develop, specify and determine the conditions for consistent harmonisation of the rules included in the legislative acts adopted by the European Parliament and the Council, supplementing or amending certain non-essential elements thereof. On the other hand, implementing technical standards adopted as implementing acts pursuant to Article 291 TFEU should establish conditions for the uniform application of legislative acts. Technical standards should not involve policy choices.
(12)
In the case of regulatory technical standards it is appropriate to apply the procedure provided for in Articles 10 to 14 of Regulation (EU) No 1093/2010, of Regulation (EU) No 1094/2010, and of Regulation (EU) No 1095/2010, as appropriate. Implementing technical standards should be adopted in accordance with the procedure provided for in Article 15 of Regulation (EU) No 1093/2010, of Regulation (EU) No 1094/2010, and of Regulation (EU) No 1095/2010, as appropriate.
(13)
Regulatory and implementing technical standards should contribute to a single rulebook for financial services law as endorsed by the European Council in its conclusions of June 2009. To the extent that certain requirements in Union legislative acts are not fully harmonised, and in accordance with the precautionary principle on supervision, regulatory and implementing technical standards developing, specifying or determining the conditions of application for those requirements should not prevent Member States from requiring additional information or imposing more stringent requirements. Regulatory and implementing technical standards should therefore allow Member States to require additional information or impose more stringent requirements in specific areas, where those legislative acts provide for such discretion.
(14)
In accordance with Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010, before submitting regulatory or implementing technical standards to the Commission, the ESAs should, where appropriate, conduct open public consultations relating to them and analyse the potential related costs and benefits.
(15)
It should be possible for regulatory and implementing technical standards to provide for transitional measures subject to adequate deadlines, if the costs of immediate implementation would be excessive compared to the benefits involved.
(16)
At the moment of adoption of this Directive, the work relating to the preparation of, and the consultation relating to, the first set of measures to implement the framework rules under Directive 2009/138/EC is well underway. In the interests of an early finalisation of those measures, it is appropriate to allow the Commission, for a transitional period, to adopt the regulatory technical standards provided for in this Directive, in accordance with the procedure for the adoption of delegated acts. Any amendments to such delegated acts or, after the transitional period has expired, any regulatory technical standards to implement Directive 2009/138/EC, should be adopted in accordance with Articles 10 to 14 of Regulation (EU) No 1094/2010.
(17)
Furthermore, it is appropriate to allow EIOPA, after a transitional period of two years, to propose updates to a number of delegated acts in the form of regulatory technical standards. Those updates should be limited to technical aspects of the relevant delegated acts and should not imply strategic decisions or policy choices.
(18)
When EIOPA is preparing and drafting regulatory technical standards to adjust delegated acts to technical developments on financial markets, the Commission should ensure simultaneous, timely and appropriate transmission of information on the scope of those draft regulatory technical standards to the European Parliament and to the Council.
(19)
Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 provide for a mechanism to settle disagreements between national supervisory authorities. Where a national supervisory authority disagrees with the procedure or content of an action or inaction by another national supervisory authority in areas specified in Union legislative acts in accordance with those Regulations, and the relevant legislative act requires cooperation, coordination or joint decision-making by national supervisory authorities from more than one Member State, the ESA concerned, at the request of one of the national supervisory authorities concerned, should be able to assist the authorities in reaching an agreement within the time-limit set by the ESA which should take into account any relevant time-limits in the relevant legislation, and the urgency and complexity of the disagreement. In the event that such disagreement persists, the ESA should be able to settle the matter.
(20)
Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 require that the cases where the mechanism to settle disagreements between national supervisory authorities may be applied are to be specified in the sectoral legislation. This Directive should identify a first set of such cases in the insurance and reinsurance sector, without prejudice to adding further cases in the future. This Directive should not prevent the ESAs from acting in accordance with other powers or fulfilling tasks specified in Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010, including non-binding mediation and contributing to the consistent, efficient and effective application of Union law. Moreover, in those areas where some form of non-binding mediation is already established in the relevant law, or where there are time-limits for joint decisions to be taken by one or more national supervisory authorities, amendments are needed to ensure clarity and minimum disruption of the process for reaching a joint decision, but also to ensure that, where necessary, the ESAs should be able to resolve disagreements. The binding procedure for the settlement of disagreements is designed to solve situations where national supervisory authorities cannot resolve, among themselves, procedural or substantive issues relating to compliance with Union law.
(21)
This Directive should therefore identify situations where a procedural or a substantive issue of compliance with Union law may need to be resolved and the national supervisory authorities may not be able to resolve the matter on their own. In such a situation, one of the national supervisory authorities concerned should be able to raise the issue with the ESA concerned. That ESA should act in accordance with its establishing regulation and with this Directive. It should be able to require that the national supervisory authorities concerned take specific action or refrain from action in order to settle the matter and ensure compliance with Union law, with binding effects on the national supervisory authorities concerned. In cases where the relevant legislative act of the Union confers discretion on Member States, decisions taken by an ESA should not replace the exercise of discretion by the national supervisory authorities, where that exercise is in accordance with Union law.
(22)
Directive 2009/138/EC provides for joint decisions as regards the approval of applications to use an internal model at group and subsidiary levels, the approval of applications to make a subsidiary subject to Articles 238 and 239 of that Directive and the identification of the group supervisor on a different basis from the criteria set out in Article 247 thereof. In all of those areas, an amendment should clearly state that, in the event of disagreement, EIOPA may resolve the disagreement using the process laid down in Regulation (EU) No 1094/2010. That approach makes it clear that, while EIOPA should not replace the exercise of discretion by the national supervisory authorities, it should be possible for disagreements to be resolved and cooperation to be strengthened before a final decision is taken by the national supervisory authority or issued to an institution. EIOPA should resolve disagreements by mediating between the conflicting views of the national supervisory authorities.
(23)
The new supervisory architecture established by the ESFS will require national supervisory authorities to cooperate closely with the ESAs. Amendments to the relevant legislative acts should ensure that there are no legal obstacles to the information-sharing obligations included in Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 and that the provision of data does not give rise to an unnecessary administrative burden.
(24)
Insurance and reinsurance undertakings should be required only to provide such information to their national supervisory authorities that is relevant for the purposes of supervision, taking into account the objectives of supervision as laid down in Directive 2009/138/EC. Information on a full list of assets to be provided on an item-by-item basis and other information to be provided more frequently than annually should be required only where the additional knowledge obtained by the national supervisory authorities for the purpose of monitoring the financial health of the undertakings, or taking into account the potential impacts of their decisions on financial stability, outweighs the burden associated with the calculation and submission of that information. After assessing the nature, scale and complexity of the risks inherent in the business of the undertaking, national supervisory authorities should have the power to allow limitations on the frequency and the scope of information to be reported or to exempt from reporting on an item-by-item basis only where that undertaking does not exceed specific thresholds. It should be ensured that the smallest undertakings are eligible for limitations and exemption and that those undertakings do not represent more than 20 % of a Member State's life and non-life insurance or of its reinsurance market.
(25)
In order to ensure that the information reported by participating insurance and reinsurance undertakings or insurance holding companies at the level of the group is accurate and complete, national supervisory authorities should not allow limitations on the information to be reported or exempt from reporting on an item-by-item basis undertakings which belong to a group, unless the national supervisory authority is satisfied that reporting would be inappropriate given the nature, scale and complexity of the risks inherent in the business of the group.
(26)
In areas where the Commission is currently empowered by Directive 2009/138/EC to adopt implementing measures, where those measures are non-legislative acts of general application to supplement or amend certain non-essential elements of that Directive in the sense of Article 290 TFEU, the Commission should be empowered to adopt delegated acts in accordance with that Article or regulatory technical standards in accordance with Articles 10 to 14 of Regulation (EU) No 1094/2010.
(27)
In order to ensure that the same treatment is applied to all insurance and reinsurance undertakings calculating the Solvency Capital Requirement (SCR) pursuant to Directive 2009/138/EC on the basis of the standard formula, or to take account of market developments, the Commission should be empowered to adopt delegated acts in relation to the calculation of the SCR on the basis of the standard formula.
(28)
Where risks are not adequately covered by a sub-module, EIOPA should be empowered to develop draft regulatory technical standards in relation to quantitative limits and asset eligibility criteria for the SCR on the basis of the standard formula.
(29)
In order to allow for the consistent calculation of technical provisions by insurance and reinsurance undertakings under Directive 2009/138/EC, it is necessary for a central body to derive, publish, and update certain technical information relating to the relevant risk-free interest rate term structure on a regular basis, taking account of observations in the financial market. The manner in which the relevant risk-free interest rate term structure is derived should be transparent. Given the technical and insurance-related nature of those tasks, they should be carried out by EIOPA.
(30)
The relevant risk-free interest rate term structure should avoid artificial volatility of technical provisions and eligible own funds and provide an incentive for good risk management. The choice of the starting point of the extrapolation of risk-free interest rates should allow undertakings to match with bonds the cash flows which are discounted with non-extrapolated interest rates in the calculation of the best estimate. Under market conditions similar to those at the date of entry into force of this Directive, the starting point for the extrapolation of risk-free interest rates, in particular for the euro, should be at a maturity of 20 years. Under market conditions similar to those at the date of entry into force of this Directive, the extrapolated part of the relevant risk-free interest rate term structure, in particular for the euro, should converge in such a way to the ultimate forward rate that for maturities 40 years past the starting point of the extrapolation the extrapolated forward rates do not differ more than three basis points from the ultimate forward rate. For currencies other than the euro, the characteristics of the local bond and swap markets should be taken into account when determining the starting point for the extrapolation of risk-free interest rates and the appropriate convergence period to the ultimate forward rate.
(31)
Where insurance and reinsurance undertakings hold bonds or other assets with similar cash flow characteristics to maturity, they are not exposed to the risk of changing spreads on those assets. In order to avoid changes of asset spreads from impacting on the amount of own funds of those undertakings, they should be allowed to adjust the relevant risk-free interest rate term structure for the calculation of the best estimate in line with the spread movements of their assets. The application of such a matching adjustment should be subject to supervisory approval and strict requirements on the assets and liabilities should ensure that the insurance and reinsurance undertakings can hold their assets to maturity. In particular the cash flows of assets and liabilities should be matched and the assets should be replaced for the purpose of retaining the matching only where the expected cash flows have materially changed such as in the case of the downgrade or default of a bond. Insurance and reinsurance undertakings should publicly disclose the impact of the matching adjustment on their financial position to ensure adequate transparency.
(32)
In order to prevent pro-cyclical investment behaviour, insurance and reinsurance undertakings should be allowed to adjust the relevant risk-free interest rate term structure for the calculation of the best estimate of technical provisions to mitigate the effect of exaggerations of bond spreads. Such a volatility adjustment should be based on reference portfolios for the relevant currencies of those undertakings and, where necessary to ensure representativeness, on reference portfolios for national insurance markets. Insurance and reinsurance undertakings should publicly disclose the impact of the volatility adjustment on their financial position to ensure adequate transparency.
(33)
In view of the importance of discounting for the calculation of technical provisions, Directive 2009/138/EC should ensure uniform conditions for the choice of discount rates by insurance and reinsurance undertakings. In order to ensure such uniform conditions, implementing powers should be conferred on the Commission to lay down relevant risk-free interest rate term structures to calculate the best estimate, fundamental spreads for the calculation of the matching adjustment and of the volatility adjustments. Those powers should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council (10). Those implementing acts should make use of technical information derived from and published by EIOPA. The advisory procedure should be used for the adoption of those implementing acts.
(34)
The Commission should adopt immediately applicable implementing acts where, in duly justified cases relating to the relevant risk-free interest rate term structure, imperative grounds of urgency so require.
(35)
In order to mitigate undue potential pro-cyclical effects, the period for restoring compliance with the SCR should be extended in exceptional adverse situations, including in the case of steep falls in financial markets, persistent low interest rate environments and high-impact catastrophic events, affecting insurance and reinsurance undertakings representing a significant share of the market or affected lines of business. EIOPA should be responsible for declaring the existence of exceptional adverse situations and the Commission should be empowered to adopt measures by means of delegated and implementing acts specifying the criteria and the relevant procedures.
(36)
In the context of the matching adjustment to the relevant risk-free interest rate term structure provided for pursuant to this Directive, the requirement that the portfolio of insurance or reinsurance obligations to which the matching adjustment is applied and the assigned portfolio of assets are identified, organised and managed separately from other activities of the undertakings and that those assets cannot be used to cover losses arising from other activities of the undertakings should be understood in an economic sense. It should not imply a requirement on Member States to have a legal concept of a ring-fenced fund in national legislation. Undertakings that use the matching adjustment should identify, organise and manage the portfolio of assets and obligations separately from other parts of the business and should not therefore be permitted to meet risks arising elsewhere in the business using the assigned portfolio of assets. While this allows efficient portfolio management, the reduced transferability and scope for diversification between the assigned portfolio and the remainder of the undertaking need, for the purposes of the matching adjustment, to be reflected in adjustments to own funds and the SCR.
(37)
The spread on the reference portfolio referred to in this Directive should be determined in a transparent manner using relevant indices where available.
(38)
In order to ensure the transparent application of the volatility adjustment, the matching adjustment and the transitional measures on risk-free interest rates and on technical provisions provided for pursuant to this Directive, insurance and reinsurance undertakings should publicly disclose the impact of not applying these measures on their financial positions, including on the amount of technical provisions, the SCR, the Minimum Capital Requirement (MCR) pursuant to Directive 2009/138/EC, the basic own funds and the amounts of own funds eligible to cover the MCR and the SCR.
(39)
Member States should be able in their national legislation to grant their national supervisory authorities the power to allow, and, in exceptional circumstances, to reject, the use of the volatility adjustment.
(40)
In order to ensure that certain technical inputs to the SCR using the standard formula are provided on a harmonised basis, for instance to allow for harmonised approaches to the use of ratings, specific tasks should be assigned to EIOPA. Recognition of credit rating agencies should be aligned and made consistent with Regulation (EC) No 1060/2009, Regulation (EU) No 575/2013 of the European Parliament and of the Council (11) and Directive 2013/36/EU of the European Parliament and of the Council (12). Overlap with Regulation (EC) No 1060/2009 should be avoided and to that end a role for the Joint Committee of European Supervisory Authorities established by Regulations (EU) No 1093/2010, (EU) No 1094/2010 and (EU) No 1095/2010 is justified. EIOPA should make optimal use of ESMA's competence and experience. The detailed manner in which such tasks are to be performed should be further specified in measures to be adopted by delegated or implementing acts.
(41)
Lists of regional governments and local authorities published by EIOPA should not be more detailed than is necessary to ensure that such governments or authorities are granted the same treatment only where the risks of the exposure are the same as for central governments.
(42)
In order to ensure a harmonised approach under Directive 2009/138/EC for determining when an extension of the recovery period in cases of breaches of the SCR is permitted, the conditions which constitute an exceptional adverse situation should be specified. EIOPA should be responsible for declaring the existence of such exceptional adverse situations and the Commission should be empowered to adopt measures by means of delegated and implementing acts specifying the criteria and the relevant procedures in the case of such exceptional adverse situations.
(43)
In order to ensure cross-sectoral consistency and to remove the misalignment between the interests of undertakings that ‘repackage’ loans into tradable securities and other financial instruments (originators or sponsors) and the interests of insurance or reinsurance undertakings that invest in such securities or instruments, the Commission should be empowered to adopt measures by means of delegated acts in the context of investments in repackaged loans under Directive 2009/138/EC, specifying not only the requirements but also the consequences of breaching those requirements.
(44)
In order to allow for greater convergence of procedures for supervisory approvals provided for in Directive 2009/138/EC 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 the relevant procedure in those areas.
(45)
The development by the International Association of Insurance Supervisors of a global, risk-based solvency standard is ongoing and continues to foster greater supervisory coordination and cooperation internationally. The provisions in Directive 2009/138/EC relating to Commission delegated acts determining the equivalence of third-country solvency and prudential regimes are consistent with the objectives of encouraging international convergence towards the introduction of risk-based solvency and prudential regimes. In order to acknowledge that some third countries may need more time to adapt and implement solvency and prudential regimes that would fully satisfy the criteria for being recognised as equivalent, it is necessary to specify conditions in relation to the treatment of such third-country regimes in order for those third countries to be recognised temporarily as equivalent. Commission delegated acts determining temporary equivalence should, where appropriate, take into account international developments. Where the Commission determines that a third country's prudential regime for group supervision is temporarily equivalent, additional supervisory reporting should be allowed for in order to ensure the protection of policy holders and beneficiaries within the Union.
(46)
Given the particular nature of the insurance market, in order to ensure a level playing field for insurance and reinsurance undertakings established in third countries, whether their parent undertaking is established in the Union or not, the Commission should be able to determine that a third country is provisionally equivalent for the purposes of calculating the group solvency requirements and the eligible own funds to satisfy those requirements.
(47)
In order to ensure that interested stakeholders are properly informed about the structure of insurance and reinsurance groups, it is necessary that information on their legal structure and the governance and organisational structure is made available to the public. That information should include at least information on the legal name, type of business and country of establishment of subsidiaries, material related undertakings and significant branches.
(48)
Commission decisions to the effect that a third country's solvency or prudential regime is fully or temporarily equivalent should take into account, where relevant, the existence, duration and nature of transitional measures in those third-country regimes.
(49)
In order to enable the European Cooperative Society, established by Council Regulation (EC) No 1435/2003 (13), to provide insurance and reinsurance services, it is necessary to extend the list of permissible legal forms of insurance and reinsurance undertakings under Directive 2009/138/EC to include the European Cooperative Society.
(50)
The amounts in euro of the MCR floor for insurance and reinsurance undertakings should be adapted. Such an adaptation arises out of the periodic adjustment of the existing capital requirement floors for such undertakings to take account of inflation.
(51)
The calculation of the SCR for health insurance should reflect national equalisation systems and should also account for changes in the national health legislation, as they are a fundamental part of the insurance system within those national health markets.
(52)
Certain implementing powers established pursuant to Article 202 of the Treaty establishing the European Community (EC Treaty) should be replaced by appropriate provisions pursuant to Article 290 TFEU.
(53)
The alignment of comitology procedures to the TFEU and, in particular, to Article 290 thereof, should be effected on a case-by-case basis. In order to take account of the technical developments in the financial markets and to specify the requirements laid down in the directives amended by this Directive, the Commission should be empowered to adopt delegated acts in accordance with Article 290 TFEU. In particular, delegated acts should be adopted in respect of details concerning governance requirements, valuation, supervisory reporting and public disclosure, the determination and classification of own funds, the standard formula for the calculation of the SCR (including any consequential changes in the area of capital add-ons) and the choice of methods and assumptions for the calculation of technical provisions.
(54)
In Declaration No 39 on Article 290 of the Treaty on the Functioning of the European Union, annexed to the Final Act of the Intergovernmental Conference which adopted the Treaty of Lisbon, the Conference took note of the Commission's intention to continue to consult experts appointed by the Member States in the preparation of draft delegated acts in the financial services area in accordance with its established practice.
(55)
The European Parliament and the Council should have three months from the date of notification to object to a delegated act. At the initiative of the European Parliament or of the Council, it should be possible to prolong that period by three months with regard to significant areas of concern. It should also be possible for the European Parliament and the Council to inform the other institutions of their intention not to raise objections. Such early approval of delegated acts is particularly appropriate when deadlines need to be met, for example where there are timetables in the basic act for the Commission to adopt delegated acts.
(56)
In the light of the financial crisis and the pro-cyclical mechanisms that contributed to its origin and aggravated its effect, the Financial Stability Board, the Basel Committee on Banking Supervision, and the G20 made recommendations to mitigate the pro-cyclical effects of financial regulation. Those recommendations are of direct relevance to insurance and reinsurance undertakings as important components of the financial system.
(57)
In order to achieve coherent application of this Directive and to assure macro-prudential oversight across the Union, it is appropriate that the European Systemic Risk Board, established by Regulation (EU) No 1092/2010 of the European Parliament and of the Council (14), develop principles tailored for the Union economy.
(58)
The financial crisis highlighted the fact that financial institutions greatly underestimated the level of counterparty credit risk associated with over-the-counter (OTC) derivatives. This prompted the G20, in September 2009, to call for more OTC derivatives to be cleared through a central counterparty. Furthermore, they asked to subject those OTC derivatives that could not be cleared centrally to higher capital requirements in order to reflect properly the higher risks associated with them.
(59)
The calculation of the standard formula for the SCR should treat exposures to qualifying central counterparties consistently with the treatment of such exposures in the capital requirements for credit institutions and financial institutions, as defined in Article 4(1) of Regulation (EU) No 575/2013, specifically with regard to differences in the treatment between qualifying central counterparties and other counterparties.
(60)
In order to ensure that the Union's objective of long-term sustainable growth and the objectives of Directive 2009/138/EC of primarily protecting policy holders and also ensuring financial stability, continue to be met, the Commission should review the appropriateness of the methods, assumptions and standard parameters used when calculating the standard formula for the SCR within five years of the application of Directive 2009/138/EC. The review should, in particular, be based on the overall experience of insurance and reinsurance undertakings using the standard formula for the SCR during the transitional period. The review should also take into account the performance of any asset class and financial instruments, the behaviour of investors in those assets and financial instruments as well as developments in international standard setting in financial services. The review of the standard parameters for certain asset classes, such as fixed-income securities and long-term infrastructure, may need to be prioritised.
(61)
In order to allow for a smooth transition under Directive 2009/138/EC to a new regime, it is necessary to provide for phasing in and specific transitional measures. The transitional measures should aim to avoid market disruption and limiting interferences with existing products as well as ensuring the availability of insurance products. The transitional measures should encourage undertakings to move towards compliance with the particular requirements of the new regime as soon as possible.
(62)
It is necessary to provide for a transitional regime for occupational retirement business carried out by insurance undertakings pursuant to Article 4 of Directive 2003/41/EC of the European Parliament and of the Council (15) while the Commission conducts its review of that Directive. The transitional regime should lapse as soon as amendments to Directive 2003/41/EC enter into force.
(63)
Notwithstanding the anticipated application of Directive 2009/138/EC, particularly for the purposes of assessments relating to the approval of internal models, ancillary own funds, classification of own funds, undertaking specific parameters, special purpose vehicles, the duration based equity risk sub-module, and the transitional provision on the calculation of the best estimate with respect to insurance or reinsurance obligations corresponding to paid-in premiums for existing contracts, Council Directives 64/225/EEC (16), 73/239/EEC (17), 73/240/EEC (18), 76/580/EEC (19), 78/473/EEC (20), 84/641/EEC (21), 87/344/EEC (22), 88/357/EEC (23) and 92/49/EEC (24), and Directives 98/78/EC (25), 2001/17/EC (26), 2002/83/EC (27) and 2005/68/EC (28) of the European Parliament and of the Council (collectively referred to as ‘Solvency I’), as amended by the acts listed in Part A of Annex VI of Directive 2009/138/EC, should continue to apply until the end of 2015.
(64)
In accordance with the Joint Political Declaration of Member States and the Commission on explanatory documents of 28 September 2011, Member States have undertaken to accompany, in justified cases, the notification of their transposition measures with one or more documents explaining the relationship between the components of a directive and the corresponding parts of national transposition instruments. With regard to this Directive and to Directive 2009/138/EC, the legislator considers the transmission of such documents to be justified.
(65)
Since the objectives of this Directive, namely improving the functioning of the internal market by means of ensuring a high, effective and consistent level of prudential regulation and supervision, protecting policy holders and beneficiaries and thereby businesses and consumers, protecting the integrity, efficiency and orderly functioning of financial markets, maintaining the stability of the financial system, and strengthening international supervisory coordination, cannot be sufficiently achieved by the Member States but can rather, by reason of its scale, be better achieved at Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. In accordance with the principle of proportionality, as set out in that Article, this Directive does not go beyond what is necessary in order to achieve those objectives.
(66)
Directives 2003/71/EC and 2009/138/EC and Regulations (EC) No 1060/2009, (EU) No 1094/2010 and (EU) No 1095/2010 should therefore be amended accordingly,
