The Department of Finance recently published a consultation paper inviting parties to make submissions in relation to the transposition of the Directive (EU) 2025/1 (the "IRRD" or the "Directive") into Irish law, specifically on the exercise of Member State discretions included in the Directive.
The IRRD entered into force on 28 January 2025 and must be transposed into Irish law by 28 January 2027. The Directive applies to, amongst others, all EU established insurance and reinsurance undertakings that fall within the scope of Solvency II and aims to provide a harmonised and effective framework for the recovery and resolution of insurance and re-insurance undertakings.
Member State Discretions
The IRRD provides for several Member State discretions relating to the operation of the national resolution authority, the use of resolution tools and the establishment of financing arrangements. The Minister for Finance's preliminary position is that Ireland will not adopt rules that are stricter or additional to those required by IRRD.
National Resolution Authority
The Central Bank of Ireland ("CBI") will be designated as the national resolution authority under the transposing legislation. It is noted there are ongoing discussions with the CBI in relation to whether any additional tools or powers should be conferred on it as the national resolution authority.
Insurance Guarantee Schemes
The IRRD provides that insurance guarantee schemes may be assigned with the duties and rights of a bridge undertaking. The Minister's preliminary view is that the objectives of the bridge undertaking can be achieved without assigning the Insurance Compensation Fund with the duties and rights of a bridge undertaking and therefore the Minister does not expect to exercise this discretion.
Write Down or Conversion Tool
The IRRD allows a Member State to disapply the write-down or conversion tool in relation to certain liabilities outlined in the IRRD, designed to ensure that an insurer's critical functions can be carried out while managing financial distress in a manner that protects policyholders. There is no clear decision set out on the exercise of this discretion and the Department welcomes observations on this discretion.
Contractual Recognition of Resolution Stay Powers
Member States can require ultimate parent undertakings to ensure that in scope third-country subsidiary undertakings incorporate specific terms into certain financial contracts to ensure that contracts cannot be suspended or terminated solely based on an institution entering resolution. The Minister proposes that this discretion be exercised.
Ex-ante Judicial Approval
Member States may require resolution authorities to obtain judicial approval prior to taking a "crisis prevention" or "crisis management measure". While legal analysis is ongoing, the Minister's initial view is that these measures will require judicial pre-approval.
Financial Arrangements
Member States are required to establish financial arrangements to ensure that the resolution authority has adequate funding. A number of policy options have been considered and are set out at Section 4 of the consultation paper.
Member States have the discretion to decide whether funding utilises ex-ante (prior to any specific resolution action under IRRD) or ex-post (following a specific resolution action under IRRD) contributions, or a combination of them. The Minister's view is that an ex-ante funding mechanism would best support a robust resolution framework and ensure that industry funding is readily available. Where an ex-ante contribution requirement is established, the Minister takes the view that a target level of funding should be set at approximately €150 million, to be collected over 8 years.
The arrangement may also cover other costs associated with the use of resolution tools. The initial view is that the arrangements should cover not only 'no creditor worse off' costs, but also other costs associated with the use of resolution tools.
A stand-alone fund is viewed as preferable over expanding the scope of existing insurance insolvency funds and it is proposed that the majority of (re)insurance firms will pay into the resolution funding mechanism on a proportionate basis. The initial view is that a firm's regulatory Solvency Capital Requirement should be used as the metric on which to calculate contributions.
The consultation will run for an extended period of 8 weeks and the deadline for submissions is 5 September 2025. Parties wishing to respond to the consultation paper may do so electronically or in writing, using the contact information set out in the paper.
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.
