JULY 2015 – THIS MONTH'S NEWS
- CENTRAL BANK PUBLISHES SOLVENCY II NEWSLETTER
- CENTRAL BANK AND DEPARTMENT OF FINANCE PUBLISH JOINT CONSULTATION PAPER ON INDUSTRY FUNDING LEVY
- FSO PUBLISHES ANNUAL REPORT 2014
- CENTRAL BANK PUBLISHES FAQS ON THE FITNESS AND PROBITY REGIME
- CENTRAL BANK PUBLISHES Q3 QUARTERLY BULLETIN
- CENTRAL BANK PUBLISHES SERVICE STANDARDS PERFORMANCE REPORT
- AGREEMENT REACHED ON THE REVISED INSURANCE MEDIATION DIRECTIVE
- EIOPA DELIVERS TECHNICAL ADVICE ON PRODUCT INTERVENTION POWERS REGARDING INSURANCE – BASED INVESTMENT PRODUCTS
- EBA, EIOPA, AND ESMA CONSULT ON THE PRUDENTIAL ASSESSMENT OF ACQUISITIONS AND INCREASES OF QUALIFYING HOLDINGS
- EIOPA PUBLISHES SECOND SET OF SOLVENCY II TECHNICAL STANDARDS AND GUIDELINES
- EIOPA CALLS FOR HIGH QUALITY PUBLIC DISCLOSURE UNDER SOLVENCY II
- PRUDENTIAL REGULATION AUTHORITY ANNOUNCES CHANGES TO DEPOSITOR AND POLICYHOLDER PROTECTION
IN DOMESTIC NEWS...
CENTRAL BANK PUBLISHES SOLVENCY II NEWSLETTER
On 29 July, the Central Bank published Issue 20 of "Solvency II Matters." The newsletter reviews the industry's progress towards full implementation of Solvency II and provides a timeline of upcoming Solvency II milestones. Based on industry feedback, common themes re-emerging on Solvency II preparation are finalising capital plans, closing out gaps in governance framework, reporting, the FLAOR process and Internal Model progress. The newsletter notes that a small number of firms that were required to resubmit their 2014 Preparatory Annual Returns following queries from EIOPA had done so by 24 July. Attention is drawn to EIOPA's revised Filing Rules for Q3 submission of quarterly data by High/Medium High Impact undertakings. Firms are reminded to check EIOPA's website for the xBRL taxonomy.
Validation rules and completion instructions for Insurance National Specific Templates will be distributed by 31 August 2015. These are required in order to comply with Solvency II reporting requirements.
The newsletter also provides an update on the activities of EIOPA, noting the publication of the second set of draft ITS and Guidelines for Solvency II. The Central Bank is undertaking a review of existing prudential guidance and Conditions of Authorisation to see what may need to be transitioned to Solvency II. A useful checklist that can be used by firms to gauge their progress towards implementation of Solvency II is included for the period up to 1 January 2016.
A link to the newsletter is here.
CENTRAL BANK AND DEPARTMENT OF FINANCE PUBLISH JOINT CONSULTATION PAPER ON INDUSTRY FUNDING LEVY
On 3 July, the Central Bank and the Department of Finance published a joint consultation paper, CP95, entitled "Funding the Cost of Financial Regulation" (the Consultation). The aim of the Consultation is to canvas views on a move from the current approach of partial industry funding towards full industry funding for financial regulation. The Consultation notes that industry currently funds 50% of the costs incurred by the Central Bank for financial regulation (with certain exceptions). The Consultation includes a number of comparisons on the funding of other regulators on both a domestic and international basis. The general approach in Ireland for other regulators is that industry fully funds the cost of regulation. The most significant change outlined in the Consultation would be to align the funding levies paid by regulated entities to the costs of their supervision. A competitive financial services sector is a key objective for the Department of Finance and as such, the competitiveness of the Irish financial services sector is an important consideration in the context of the Consultation. The Consultation remains open until 25 September 2015.
A link to the Consultation is here.
FSO PUBLISHES ANNUAL REPORT 2014
The Financial Services Ombudsman (FSO) recently published its Annual Report for 2014. It provides interesting statistics on the nature and volume of complaints received by the FSO regarding regulated financial service providers. Payment Protection Insurance product issues still dominate the insurance sector complaints but have reduced by 61% since 2013. 1,955 complaints were received in respect of the insurance sector during 2014 (out of a total of 4,477 complaints received by the FSO). 5,872 cases were concluded during 2014, of which 2,238 findings were issued following a formal investigation. 29% of all complaints were closed to the complainant's satisfaction without having to go to formal findings. In respect of the closed complaints in 2014, a nearly equal number are closed prior to investigation (2,698) and closed by way of a finding of the FSO (2,238), whereas only 8 complaints were closed by way of mediation and only 928 were closed by way of settlement. The Report sets out detail on the unique legal jurisdiction of the FSO and explains how the findings of the FSO are subject to appeal and/ or judicial review to the High Court. The Report contains some statistics on the appeal/judicial review of the FSO decisions in 2014. The Report also expands on the relationships which the FSO has with other organisations and the manner of its funding.
A link to the full report is here.
CENTRAL BANK PUBLISHES FAQS ON THE FITNESS AND PROBITY REGIME
On 14 July the Central Bank published an updated version of the FAQs on the Fitness and Probity Regime (the FAQs). The FAQs have no binding legal status but provide a useful indication of how the Central Bank interprets the Fitness and Probity requirements, particularly in relation to Controlled Functions (CFs) and Pre-Approval Controlled Functions (PCFs). The updated FAQs reflect the Central Bank's introduction of 6 new PCF roles last December and confirm that individuals proposing for those roles must submit an Individual Questionnaire (IQ). The FAQs also stipulate that the Annual PCF Confirmation Return must be submitted via the Online Reporting System and must contain a complete list of all the firm's active PCF holders, together with a statement of their continuing compliance with the Fitness and Probity standards. The FAQs confirm that applicants seeking recognition of their approved status elsewhere in the EEA must now submit the entire IQ (they were previously entitled to omit section 5 which covers the applicant's reputation and character). However, the Central Bank will seek to expedite those applications and will aim to process them within 12 working days. Finally, the FAQs confirm that a sole trader must complete a Garda Vetting Application Form as part of the process of submitting an IQ.
A link to the FAQs is here.
CENTRAL BANK PUBLISHES Q3 QUARTERLY BULLETIN
The Bulletin provides updates and forecasts on both the Irish economy and the Eurozone economy. Interestingly, the Bulletin includes a report on the activities of special purpose vehicles (SPVs) in Ireland. The Central Bank notes that the role of shadow-banking and securitisation has gained increasing attention since the start of the global financial crisis in 2007, both in Ireland and internationally. Ireland has a sizeable non-banking financial sector. The report focusses on the activities of what the ECB refer to as "financial vehicle corporations" (FVCs) and SPVs. The report notes that since 2009, the Central Bank has collected data on Irish FVCs which it has fed back to the ECB. However, there has been no data collection on the activities of SPVs. In the report, the Central Bank tries to remedy that by examining the activities of Irish FVCs engaged in securitisation activities and the activities of other SPVs registered in Ireland. It examines the definitions of both types of entity, the FVC and SPV industry in Ireland, the development of the sector in Ireland and the manner in which FVCs and SPVs are regulated in Ireland. It also discusses potential financial stability issues.
A link to the report is here.
CENTRAL BANK PUBLISHES SERVICE STANDARDS PERFORMANCE REPORT
The Central Bank has published its "Regulatory Transactions Service Standards Performance Report" for January - June 2015. The Report outlines the Central Bank's effectiveness in meeting its performance targets for the processing of PCF IQ applications and the authorisation of Funds and Financial Service Providers.
The Central Bank achieved its performance target of processing complete applications for (re)insurance authorisations within 6 months. Further, it achieved 86% of its target of processing 75% of such applications within 3 months. 100% of incomplete applications were returned within 2 weeks of receipt.
The Central Bank also met its target in processing IQ applications. Almost 85% of standard IQ applications were processed within 15 business days (12 business days where the individual applying was previously approved by the Central Bank or another EEA regulator). Almost all incomplete IQs submitted were identified within 5 days. However the Central Bank cautions that these turnaround times do not apply where another regulator must be contacted or the applicant must be interviewed or the IQ is submitted in the context of an authorisation or an acquiring transaction. The Report also provides a helpful list of the main reasons why PCF IQs may be returned as incomplete.
A link to the Report is here.
IN EUROPEAN AND INTERNATIONAL NEWS...
AGREEMENT REACHED ON THE REVISED INSURANCE MEDIATION DIRECTIVE
On 22 July 2015, the EU Council announced that its Permanent Representatives Committee had approved the agreement reached with the Parliament on IMD2 (the proposed new Directive on insurance distribution which will amend and replace the existing Insurance Mediation Directive (Directive 2002/92/EC). IMD2 (or "IDD") will now be submitted to the Parliament for a vote, and to the EU Council for final adoption. IMD2 aims to increase policyholder protection generally, enhance the quality of information provided to consumers, establish improved conduct of business rules for distributors of insurance and much needed conditions for fair competition between insurance distributors. The IMD2 will also strengthen policyholder protection for life assurance.
A link to the text of the new Directive is here.
EIOPA DELIVERS TECHNICAL ADVICE ON PRODUCT INTERVENTION POWERS REGARDING INSURANCE – BASED INVESTMENT PRODUCTS
On 3 July, EIOPA published its technical advice to the European Commission on product intervention powers regarding insurance-based investment products. The PRIIPS Regulation provides that in the context of a significant investor protection concern or a threat to the orderly functioning of financial markets, national supervisors (and in some cases, EIOPA) have the power to prohibit or restrict the marketing of certain products and types of financial activity. The technical advice specifies the criteria and factors to be taken into account when assessing whether supervisory intervention is required.
A link to the technical advice is here.
EBA, EIOPA, AND ESMA CONSULT ON THE PRUDENTIAL ASSESSMENT OF ACQUISITIONS AND INCREASES OF QUALIFYING HOLDINGS
On 3 July, the European Banking Authority (the EBA), EIOPA, and the European Securities and Markets Authority (ESMA) (together, the ESAs) announced the launch of a public consultation on updated guidelines (the Guidelines) in respect of the prudential assessment of acquisitions and increases of qualifying holdings under Directive 2007/44/EC (the Acquisitions Directive). The purpose of the Guidelines is to set out a unified supervisory approach to the treatment of proposed acquirers throughout the financial sector in the EU and harmonise the approach to situations which will trigger a requirement for a proposed acquirer to notify its relevant competent authority of its proposed acquisition. The Guidelines will have a significant impact on EU financial sector M&A transactions.
The ESA reviewed and updated the 2008 non-binding Guidelines and addressed the key issues set out in the European Commission's recent report on the application of the Acquisitions Directive.
The Guidelines set out detailed requirements on the information required for notification and assessment of acquisitions of financial institutions in the EU. Of particular interest is the approach outlined in respect of the amount of indirect holdings through cascading holdings, the meaning of "acting in concert" and the factors to be taken into account when determining if a proposed acquirer will be exercising significant control.
As part of the consultation, the ESAs have asked for feedback in a number of areas including: (1) general comments on the draft Guidelines; (2) the level of detail contained in the draft Guidelines; and (3) the calculation method for the indirect acquisition of qualifying holdings.
All comments in respect of the consultation must be submitted by 2 October 2015.
A link to the consultation paper, which contains the draft Guidelines, is here.
EIOPA PUBLISHES SECOND SET OF SOLVENCY II TECHNICAL STANDARDS AND GUIDELINES
On 6 July, EIOPA published the second set of draft Implementing Technical Standards (the ITS) and guidelines in respect of Solvency II which it has submitted to the Commission for approval. The Solvency II architecture is now close to completion. The set is the result of a protracted public consultation where EIOPA received more than 4500 comments. It is comprised of 9 ITS papers and 8 guidelines, relating to areas from all three Solvency II pillars including: from Pillar 1 - guidelines on valuation assets and liabilities (other than technical provisions) and the implementation of measures for long term guarantees; from Pillar 2 - procedures on the extension of the recovery period and ITS setting out procedures when assessing external credit assessments. In Pillar 3, templates have been produced for the submission of information to supervisory authorities and guidelines on methods to determine the market share for the purpose of exemptions to supervisory reporting etc.
All documentation is available on EIOPA's website (together with the reports on the public consultations). A new Q&A tool is also available which should be used to address queries arising.
A link to the new Q&A tool is here.
A link to the results of the public consultation is here.
EIOPA CALLS FOR HIGH QUALITY PUBLIC DISCLOSURE UNDER SOLVENCY II
On 10 July, EIOPA announced the publication of a note concerning public disclosure under Solvency II (the Note). The Note stresses the importance of high quality public information in relation to Solvency II public disclosures and EIOPA encourages (re)insurers to actively engage in consistent, comparable and high quality communication with their stakeholders on their solvency and financial condition.
EIOPA indicates that it and its members will be very focussed on the Solvency II public disclosures made by (re)insurance undertakings. EIOPA indicated that it will review the implementation of Solvency II public disclosures and if divergent levels of quality of disclosure arise, it may consider taking further regulatory action.
EIOPA believes that external audit can be a powerful tool in ensuring high quality public information in the context of Solvency II. EIOPA is of the view that in the context of a Solvency and Financial Condition Report (SFCR), the individual and group level main elements for (re) insurance undertakings could fall within the scope of an external audit and that external audits are a useful tool in this regard. The Note states that statutory auditors are qualified to carry out an external audit of the SFCR and calls on auditors to issue a public opinion and an audit opinion on whether the disclosed elements of the SFCR have been properly prepared in all material respects, in accordance with the Solvency II regulatory framework.
A link to the Note is here.
PRUDENTIAL REGULATION AUTHORITY ANNOUNCES CHANGES TO DEPOSITOR AND POLICYHOLDER PROTECTION
On 3 July, the Prudential Regulation Authority (PRA) issued Policy Statement PS15/15 entitled "Depositor and Policyholder Protection – Technical Amendments" which provides feedback in respect of CP21/15 (Depositor and policyholder protection - technical amendments) (CP21/15). In CP21/15, the PRA proposed changes to the FEES Sourcebook which are relevant to, inter alia, UK insurers and EEA insurers that establish a UK branch or operate in the UK on a freedom of services basis.
As a result of the feedback, the PRA announced that it has increased the insurance limits for FSCS compensation to 100% for all long term policies, professional indemnity insurance and claims arising from death or incapacity. The increase in compensation highlights the serious impact that a potential disruption of cover in respect of each of these particular areas could have to policyholders/the financial system. The compensation limit for all other areas of insurance remains unchanged.
A link to the press release is here.
A link to PS15/15 is here.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.