EIOPA launches public consultation on the use of governance arrangements in third countries
The European Insurance and Occupational Pensions Authority (‘EIOPA') has launched a public consultation regarding a draft supervisory statement on the use of governance arrangements in third countries.
EIOPA aims to improve the supervision and monitoring of insurance undertakings' and intermediaries' compliance with relevant EU legislation concerning governance arrangements in third countries.
EIOPA had previously emphasised the need for insurance undertakings to not display the characteristics of an empty shell company, and to instead exhibit an appropriate level of corporate substance. This includes the presence of key decision-makers, function holders and staff to an extent proportionate to the nature, scale and complexity of the entity's business in the European Economic Area (‘EEA').
Governance arrangements often raise concerns when they are used to perform certain regulated functions and activities for undertakings and intermediaries that ultimately serve policyholders the EEA. Potentially this impairs risk management and effective decision making and influences the ability of supervisory authorities to conduct proper supervision.
The concept of substance over form is used to guarantee that similar risks are treated in a similar way, irrespective of the legal form of the governance arrangement and their location, in order to achieve clarity of supervisory expectations.
One may access the online survey and provide their feedback through this link.
EIOPA publishes its Risk Dashboard
EIOPA has published its Risk Dashboard based on Solvency ii data from the first quarter of 2022.
High levels of concern:
- Macro-related risks – Forecasted GDP growth at global level further decreased until Q2 2023, while inflation forecasts for main geographical areas remain high.
- Market risks – Volatility in the bond market increased and remained at high levels in equity markets, while property prices indicated a slight further increase.
- Digitalisation and cyber risks – The materiality of these risks for insurance as assessed by supervisors increased due to the resurge of cyber security issues and concerns of a hybrid geopolitical conflict.
- Profitability and solvency risks – Given the increasing trend of interest rates since the start of the year, the solvency position of life undertakings rose, while the solvency position of groups dropped.
- Insurance risks – The median return on investment for life undertakings decreased.
- Market perceptions – Non-life insurance stocks slightly outperformed the stock market, while life stocks returns were in line.
- Climate risks – Insurers slightly increased the share of green bonds in their assets portfolio, while their ratio of investments in green bonds of the entire green bind universe slightly decreased.
The risk dashboard may be viewed here.
EIOPA publishes application guidance on how to reflect climate change in ORSA
EIOPA has published the final version of the application guidance on climate change materiality assessments and climate change scenarios on the Own Risk and Solvency Assessment (‘ORSA').
The application guidance:
- Provides a detailed and practical basis on how to implement sustainable finance ambitions in practice.
- Gives insights into where insurance undertakings have the possibility to address climate change risks in the ORSA.
- Provides examples using mock non-life and life companies to help undertakings design the steps for the materiality assessment and run climate change scenarios.
EIOPA believes it is important to encourage a forward-looking management of these risks to ensure the solvency and viability of the industry, since the (re)insurance industry will be hit by climate change-related physical and transition risks.
Corporate Governance Code for MFSA authorised entities launched
The Malta Financial Services Authority (the ‘MFSA')
has launched its
Corporate Governance Code for MFSA authorised entities.
The Code provides a list of guiding principles, together with
supporting provisions. Its application is based on the principle of
proportionality. It aims to enhance the legal, institutional and
regulatory framework for good governance in the Maltese financial
The MFSA has issued this code to:
- Set out best practice in corporate governance for entities falling within the MFSA's regulatory remit, by enhancing the legal, institutional, and regulatory framework.
- Enhance governance structures, improve relations, and strengthen trust with stakeholders.
- Ensure effective operation of authorised entities' boards and management.
- Assist directors and senior management to fulfil their duties.
- Ensure that authorised entities have adequate and effective internal controls, and procedures to discharge their responsibilities and monitor outcomes.
- Enhance stakeholder and public confidence in the financial services sector in general.
- Assist entities to put in place improved governance standards to achieve enhanced resilience and sustainable operations going forward.
- Ensure ethical behaviour.
MFSA publishes circular on the Amendments to the Glossary of Terms, Chapter 5 of the Insurance Rules, and to the Insurance Business (Exemptions) Regulations
The MFSA has issued a circular on 5th August 2022 focusing on amendments to certain legislation and MFSA rules. In its circular, the MFSA gives a run down and an explanation of all the changes which are to be introduced, effectively to reflect the:
- Notice regarding the adaptation in line with inflation of the amounts laid down in the Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (the ‘Notice'); and
- EIOPA Revised Guidelines on the Valuation of Technical Provisions and the Revised Guidelines on Contract Boundaries (the ‘Guidelines').
The above Notice and Guidelines will result in amendments to the:
- Insurance Business (Exemptions) Regulations issued under the Insurance Business Act;
- Glossary of Terms of the Insurance Rules; and
- Chapter 5 issued under the Insurance Business Act of the Insurance Rules.
The circular also outlines when such changes will become effective – the effectiveness of such changes varies from 19 October 2022 to 1 January 2023.
MFSA publishes circular on Adopting the Revised Guidelines on the Legal Entity Identifier
The MFSA has published a
circular on adopting the revised guidelines on the Legal
On 20th December 2021, EIOPA issued the “Revised Guidelines on Legal Entity Identifier”, which became applicable on 1st July 2022. The Guidelines aim to continue establishing consistent, efficient and effective supervisory practices by harmonising the identification of legal entities in order to ensure high quality, reliable and comparable data.
In order to adopt the new Revised Guidelines on LEI, the MFSA will be amending the following:
- Chapter 1 of the Insurance Rules: The Application Process.
- Chapter 13 of the Insurance Rules: General Principles of Supervision Rules.
- Chapter 1 of the Insurance Distribution Rules: The Application Process of Insurance Agents, Insurance Managers, and Insurance Brokers.
- Chapter 2 of the Insurance Distribution Rules: The Application Process of Tied Insurance Intermediaries and Ancillary Insurance Intermediaries.
- The Pension Rules for Occupational Retirement Schemes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.