Worldwide: Insurance Regulatory Update, January 2017

Last Updated: 15 February 2017
Article by Elizabeth Bothwell and Jennifer McCarthy
Most Read Contributor in Ireland, December 2017



On 30 January, the Central Bank published guidance and instructions on completion of the annual Pre-approval Controlled Functions (PCF) confirmation return.

The Central Bank has introduced an Annual PCF confirmation return as part of the continuing obligations in relation to fitness and probity. This annual confirmation is required from each regulated financial services provider in respect of each active PCF holder within the firm/funds, confirming that the PCF holder is compliant with the fitness and probity standards.

The requirement for the Board to confirm to the Central Bank of Ireland upon re-election/re-appointment of a PCF holder that his/her circumstances have not changed since pre-approval was granted will be satisfied by the completion of the PCF confirmation return.

A link to the guidance is here.


On 4 January, the Central Bank published the latest version of the Fitness and Probity – Frequently Asked Questions (FAQs) to address commonly asked questions in relation to the operation of the Fitness and Probity Regime. It further addresses certain questions that arise in the context of the amendments made to the Central Bank Reform Act 2010 by the European Union (Single Supervisory Mechanism) Regulations 2014. The December 2016 FAQs (the last version of which was published in July 2015) contain the following updates:

  1. A new section has been added, which addresses FAQs relating to certified persons. Certified persons are not currently within the scope of the Fitness and Probity Regime, however, the section makes clear that the outsourcing exemption does not apply when outsourcing pre-approval controlled functions (PCFs) and controlled functions (CFs) to certified persons.
  2. Additional questions relating to PCFs that were previously published in the Central Bank's Guidance on Fitness and Probity Amendments have been included. The FAQs provide guidance on the following PCFs: Chief Operating Officer (PCF- 42), Head of Claims (PCF-43), Head of Client Asset Oversight (PCF-45) and Head of Actuarial Function as a new PCF introduced under Solvency II. The FAQs also clarify that those persons performing removed PCF roles of Chief Actuary (PCF-20) and Signing Actuary (PCF-44) cannot automatically become Head of Actuarial Function. Such proposed individuals will have to obtain the usual Central Bank pre-approval before being appointed to the role of Head of Actuarial Function.
  3. As part of the IQ process, applicants seeking pre-approval to the roles of Single Director (PCF-01) in a private company limited by shares or Sole Trader (PCF-10) within a regulated financial services provider (RFSP) must now obtain Garda Vetting clearance.
  4. Question 9.13 sets out the procedure for completing the Garda eVetting process that the roles of Single Director (PCF-01) and Sole Trader (PCF-10) are required to undergo. Question 9.1 also clarifies which aspects of the IQ process that are the RFSP's responsibility to complete and which are the responsibility of the proposed individual.

A link to the December 2016 FAQs is here.


Firms using internal or partial internal models approved by the Central Bank to calculate their SCR are required to report their outputs using the relevant SCR template. The relevant reporting template was published by the Central Bank on 11 January. SCR calculations must be made at least once a year and should cover both existing and new business that the firm expects to write over the next twelve months.

The SCR Internal Model Structured Template can be accessed here.


On 18 January, Sylvia Cronin, the Director of Insurance Supervision at the Central Bank, addressed the ACOI on the role of culture in insurance supervision within the Central Bank.

Ms. Cronin emphasised how assessing the culture and behaviours of the firms the Central Bank supervises is an important part of forward looking supervision. She commented that when the Central Bank are performing a review of firms' capital risks, investment risk or operative risks, they will look at how firms make and communicate decisions, the risk management framework and the implementation of action. She commented that Solvency II is a risk based regulatory regime and that a powerful driver in embedding Solvency II will be the risk culture established by insurers. Ms. Cronin stated that the Central Bank will conduct a thematic review of internal audit function in 2017 and culture will be an element of this review.

Ms. Cronin set out in her remarks a non-exhaustive list of factors that the Central Bank have identified and have regard to in identifying what the culture of a firm is like. She stated that regulations such as the Corporate Governance Code, the Fitness and Probity regime and the Consumer Protection Code help to move firms in the right direction in regards to their cultures but that it is ultimately up to each firm to design their own culture around the general principle of "doing the right thing" for all stakeholders. Ms. Cronin also emphasises how imperative it is that companies reflect the principles behind the regulations.

Most large (re)insurers do not have any specific tangible approach towards the culture agenda with very few carrying out specific culture assessments. (Re)insurers often have the right structures in place but the behaviours of the individuals in the firm often do not support this structure. Where the Central Bank sees weakness in a firm's culture the level of supervision may increase. Increased supervision may take the form of an investigation of board effectiveness or an assessment of the embeddedness of risk management in the firm concerned.

Ms. Cronin described what the Central Bank considers to be good practice to develop an effective culture and gave the following six recommendations: (1) ensuring senior figures live the culture; (2) conducting staff surveys to identify the real culture; (3) actively supporting the culture through reward systems; (4) identifying clear roles, responsibilities and accountabilities; (5) measuring and tracking the culture and (6) adhering to the culture in times of pressure and stress.

A link to Sylvia Cronin's remarks is here.


On 23 January, Gerry Cross, the Director of Policy and Risk at the Central Bank, made remarks at the Brexit and Asia: Implications for Financial Services in Ireland event.

The Central Bank has received a substantial number of queries from firms as a result of Brexit. Firms are interested in getting to know the Central Bank as a regulator and the Central Bank is increasing staff numbers to deal with the large numbers of applications it has received.

Mr. Cross expressed that the Central Bank is focused on ensuring that before it authorises a firm in Ireland, it is satisfied that the firm will have a substantial business in Ireland enabling the Central Bank to supervise it effectively.

On the issue of outsourcing, Mr. Cross noted that although an activity may be outsourced, the responsibility for it cannot.

With regard to the Central Bank's opinion on group integrated approaches the Central Bank will want to have a clear understanding of: how risks are accepted, distributed, managed and mitigated within the group; how the local entity fits into this and how group solutions are adapted and suited for local application. The Central Bank will be looking to see that risks are well understood, appropriately tailored, effectively managed and applied locally. The Central Bank will also be solution orientated and their approach will be constructive. They are aware of the practical constrains firms are dealing with regarding logistics and timing and will work with the UK and other authorities to deal with issues efficiently and effectively.

The Central Bank has not ruled out and does not plan to rule out any particular business model on financial stability grounds.

A link to Gerry Cross's remarks can be found here.



On 13 January, Insurance Europe published a position paper in response to EIOPA and the other European Supervisory Authorities' work on non-complex products and comprehension within the frameworks of the Insurance Distribution Directive (IDD) and the packaged retail and insurance-based investment products (PRIIPs) regulation.

The paper points out the difference between insurance-based investment products and other financial instruments under MIFID II. MIFID II financial products often have a high degree of opacity of the connection between the consumer's investment and the possible risks and returns to the customer. They also include elements of gambling. Most insurance-based investment products do not share these traits and the same risks don't apply to consumers. Insurance-based investment products usually reduce risk for customers and can provide a means of protecting them from the volatility of the market.

Insurance Europe advises that insurance-based investment products that reduce risk for customers should be seen as non-complex for the purposes of the IDD and therefore could be sold by means of execution-only transactions. It makes the following comments in regard to insurance-based investment products: whether the product has a guarantee should be taken into account; whether the product is protected by a national insurance compensation scheme should be taken into account; the surrender value of insurance-based investment products is not relevant for complexity; switching clauses should not be put on the same level as converting rights; that beneficiary clauses do not influence the performance or return of the product should be considered; that the relationship between an insurance-based investment product and tax regulations is not relevant should be considered; and it should also be considered the total commitment is fixed and does not vary overtime and that this is something that customers might have difficulty understanding.

The PRIIPs regulation provides for a comprehension alert to be provided to customers when selling a complex PRIIP. The paper sets out criteria which Insurance Europe believes should be taken into account to identify PRIIPs that should be considered as difficult to understand and not simple. These criteria are: the product invests in underlying assets in which retail investors do not commonly invest; it uses a number of different mechanisms to calculate the final return of the investment, creating a greater risk of misunderstanding on the part of the retail investor; and if the investment's pay-off takes advantage of retail investor's behavioural biases, such as a teaser rate followed by a much higher floating conditional rate, or an iterative formula.

A link to the paper is here.


On 13 January, the Commission and the U.S. Department of Treasury released the Covered Agreement (the Agreement) on (re)insurance measures between the EU and the U.S. EIOPA and Insurance Europe welcomed the Agreement.

The Agreement covers three areas of prudential insurance oversight: (re) insurance, group supervision and exchange of information. Insurance Europe believes that the Agreement will help with bilateral trade in (re)insurance, for the benefit of both consumers and economies and hopes all relevant authorities will apply both the provisions and spirit of the Agreement promptly.

A link to the EIOPA press release and the Insurance Europe press statement is here and here.


On 17 January, the European Insurance and Occupational Pensions Authority (EIOPA) and the Bermuda Monetary Authority (BMA) entered into a Memorandum of Understanding (MoU), which aims to formally strengthen cooperation between the two supervisory authorities. The MoU provides for regular exchanges of information on regulatory, supervisory and macro-prudential developments between EIOPA and BMA with a view to enabling optimal supervision for insurance and reinsurance groups with international activities in the EU and Bermuda.

Under the MoU, each authority has committed to support and assist the other when supervising insurance undertakings in their jurisdiction. The MoU may be terminated by either party provided the terminating authority gives ten days' written notice to the other authority.

A link to the MoU is here.

A link to the EIOPA press release is here.


On 17 January, EIOPA met with the US Federal Insurance Office and the European Commission as part of an information exchange initiative known as the EU-U.S. Insurance Project, to discuss the issue of cyber security. Cyber security is a growing and evolving challenge for all sectors, but in particular for insurers who collect and manage large stores of personally identifiable information from consumers, claimants and beneficiaries.

Current initiatives underway in the EU and the US for monitoring the risk of cyber-attacks, protecting critical infrastructure and engaging with insurance sector stakeholders were addressed at the convening. The EU-U.S. Insurance Project aims to conduct further sessions throughout the course of 2017 to obtain further expert and technical input with a view to enhancing international best practices in the field of cyber security.

A link to the EIOPA press release 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.

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