Financial Services Regulation and Compliance - Insurance Aug 2021
DOMESTIC
Central Bank of Ireland publishes Regulatory Service Standards Performance Report
On 30 July 2021, the Central Bank of Ireland (CBI) published its Regulatory Service Standards Performance Report (the Report) for the period January - June 2021. The Report sets out the CBI's performance against service standards in respect of (i) the authorisation of Investment Funds and Financial Service Providers, (ii) processing Pre-Approval Controlled Function Individual Questionnaire applications and (iii) contact management (including responsiveness to telephone queries). The Report confirms that service standards for all applications received in respect of (re)insurance undertakings were met during this time.
Central Bank of Ireland publishes Consultation Paper and Guidance on the Use of Service Companies for Staffing Purposes in the Insurance Sector
On 6 August 2021, the CBI published a Consultation Paper seeking stakeholders’ views on its proposed Guidance on the Use of Services Companies for Staffing Purposes in the Insurance Sector (the Guidance). The Guidance sets out the CBI's expectations of Irish (re)insurance undertakings that have entered or propose to enter into arrangements with separate legal entities for the provision of extensive staffing. Further, the Guidance outlines the CBI's expectations in relation to the substance of such arrangements, conflicts of interest and reporting to the CBI. The closing date for submissions from interested stakeholders is 6 November 2021.
Public Consultation on the Development of a National Resolution Framework for (Re)Insurers published
The Department of Finance in collaboration with the CBI launched a public consultation in relation to the development and scope of a possible domestic resolution framework for insurance undertakings to include the creation of a resolution authority (the CBI). The resolution authority would have various powers to intervene in a resolution process, including:
- powers to reduce the amount payable under debt instruments;
- creating a bridging insurer with a temporary licence to receive selected portfolios of business from the failing insurer;
- providing for the transfer of certain assets and liabilities from the failing insurance undertaking to an asset management vehicle could be controlled by the resolution authority; and
- directing the failing insurance undertaking to sell its business in whole or in part.
The effect of these provisions is to take control of the resolution process away from the insurance undertaking/its group.
The objective of the potential domestic framework is to ensure that policyholders, public funds, and critical insurance services are protected and financial stability is maintained in failure scenarios. The Department of Finance is seeking submissions from interested stakeholders until 30 November 2021.
EUROPEAN
Legislation forming part of the European Commission's work on sustainable finance published in the Official Journal of the European Union
On 2 August 2021, Commission Delegated Regulation (EU) 2021/1257 of 21 April 2021 (CDR April 2021) was published in the Official Journal of the European Union. CDR April 2021 integrates sustainability factors, risks and preferences into product oversight and governance requirements generally and into the rules on conduct of business and investment advice for insurance-based investment products.
In addition, on 2 August 2021 Commission Delegated Regulation (EU) 2021/1256 amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings (CDR August 2021) was published. CDR August 2021 provides that (re)insurance undertakings must consider sustainability risks, together with the potential long-term impact of their investment strategy and decisions on sustainability factors.
CDR April 2021 and CDR August 2021 will apply from 2 August 2022.
European Commission issued a call for advice to the European Insurance and Occupational Pensions Authority (EIOPA) regarding certain aspects relating to retail investor protection
The European Commission (the EC) has requested that EIOPA provide advice to assist in the preparation of legislative proposals implementing the EC's retail investment strategy (intended to be published in the first half of 2022).
Advice has been requested on number of focused areas including:
- Assessing the impact of complexity in the retail investment product market: including an analysis of potential measures to facilitate the access of retail investors to simpler, cost efficient, insurance-based investment products; and
- Assessing the risks and opportunities presented by new digital tools & channels: including exploring whether and how far value chains should be ‘opened’ up by the sharing of specific investor data amongst insurance and non-insurance firms and how far new markets for services, such as advice via platforms, might be expected to develop.
EIOPA has been requested to deliver the report to the EC by 30 April 2022.
EIOPA published annual report on supervisory activities in 2020
On 4 August 2021, EIOPA published its annual report on supervisory activities in 2020 (the Report). The Report outlines how EIOPA contributed to ensuring a high, effective and consistent level of supervision across Europe and enhanced the common European supervisory culture.
It was noted that during 2020, EIOPA had to adapt its priorities and strategies in response to the COVID-19 pandemic to support both the industry and national competent authorities (NCAs). While, this lead to EIOPA re-prioritising some planned work it still covered a variety of areas including Solvency II related issues and the development of supervisory activities in the area of conduct risks and analysis of innovative technologies. EIOPA also continued its prudential oversight work during 2020 and strengthened its oversight activities on conduct of business and increasing the level of supervisory convergence in the area of internal models. For 2021, EIOPA aims to complete the priorities stemming from previous Supervisory Convergence Plans, while also continuing to monitor and mitigate the impact of COVID-19.
EIOPA publishes monthly technical information
On 4 August 2021, EIOPA published the following monthly information:
- technical information on the relevant risk free interest rate term structures with reference to the end of July 2021
- technical information on the symmetric adjustment of the equity capital charge for Solvency II with reference to the end of July 2021
- updated representative portfolios for the calculation of the volatility adjustments to the relevant risk-free interest rate term structures for Solvency II
EIOPA published follow-up report to peer review regarding the supervision of key functions
On 11 August 2021, EIOPA published a follow-up report to its 2018 peer review on the supervisory practices for the application of proportionality principle in government requirements regarding key functions. The follow-up report assesses how national competent authorities (NCAs) have implemented the actions recommended by EIOPA in the original peer review. EIOPA found that the supervision of key function holders has improved during the last two years, however, in a small number of member states the development of supervisory practices are still in progress.
EIOPA provided examples of the best practices that have been adopted by NCAs, including (i) the adoption of a structured proportionate supervisory approach and the application of the principle of proportionality in a coherent way, (ii) the application of certain supervisory measures on a case-by-case approach and (iii) meeting with key function holders on a regular basis.
Letter from EIOPA to ECOFIN: Implications of insurers' failures to the protection of European policyholders
On 24 August 2021, EIOPA published its letter to the Economic and Financial Affairs Council (ECOFIN) addressing EIOPA's proposals to introduce a European wide network of national Insurance Guarantee Schemes (IGS) or an alternative mechanism with minimum harmonised standards to ensure the continuance of compensation payments and/ or operation of insurance policies.
EIOPA notes that currently Member States have divergent approaches to schemes for policyholder protection and that recent experience evidences that divergent approaches can negatively impact policyholders. EIOPA requests the Commission to urgently consider the need for harmonisation of national IGSs at European level under the current review of the Solvency II framework.
For more information on these topics please contact any member of A&L Goodbody's Insurance & Reinsurance team.
Date published: 7 September 2021