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Prepare for rapid changes in regulation

Prepare for rapid changes in regulation

Prepare for rapid changes in regulation


The outlook for financial services regulation

In July’s issue of Horizons – The outlook for financial services regulation, we feature the following articles:

  • Supervision takes the lead: reviews of post-crisis regulation and new areas of rule-making remain priorities for policy-makers, but supervision and monitoring activities have moved into first place.
  • Sustainable Finance - continuing regulatory focus: the European Commission has released new guidelines on how firms should report the impact of economic activities on the climate, as well as the impact of climate change on businesses.

Insurance regulation – a watershed moment: the International Association of Insurance Supervisors (IAIS)’s new strategy shifts the emphasis from policy standards to supervision of an insurer’s “culture”. We explore the potential impact of this shift and how material it could be for firms.

Read July's issue of Horizons here.

Pulse of Fintech

According to KPMG’s Pulse of Fintech H1 2019 report, global fintech investment is off to a slower start in the first half of 2019 with $37.9 billion across 962 deals. Large M&A and buyouts accounted for the biggest deals to date in 2019, seen from a diversity of jurisdictions – Argentina, Canada, China, France, Germany and the US. VC investment also remained strong in the Americas and Europe.

Read The Pulse of Fintech H1 2019.

Bringing bancassurance into the digital era

With consumers’ financial needs growing more complex – the bancassurance model remains relevant to support customers' holistic needs. However, the potential for banks and insurers to combine forces, expand their reach and cross-sell their services is sometimes stunted by siloed operations and cumbersome sales and compliance processes.

Now, with financial service customers embracing digital channels, banks and insurers must refine their partnerships to ensure they can jointly respond to consumer demands, and pool their customer, product and technology expertise, to transform the way they serve their shared client base.

Read Bringing bancassurance into the digital era

Central Bank of Ireland Update

 The CBI issues the Regulatory Service Standards Performance Report H1 2019

The CBI has issued the Regulatory Service Standards Performance Report for the first half of 2019 that sets out the CBI’s performance against Service Standards that it has committed to in respect of (a) authorisation of Financial Services Providers (“FSPs”) and Investment Funds, (b) processing of PCF IQ applications and (c) contact management.

The report indicates that the CBI processed 11 complete applications for insurance/reinsurance authorisations during the January-June 2019 period within 6 months of the applications becoming complete.

Read the Central Bank report. (PDF, 1.1MB)

EIOPA / European Commission updates

EIOPA examines national general good rules

On 22 July EIOPA published a report examining the different ‘general good’ rules that apply across the European Union to insurers and insurance intermediaries who engage in the activity of insurance distribution on a freedom of services and/or freedom of establishment basis. 

The report and its annexes are useful reference documents as they provide a summary of the rules that apply in each Member State relating to the distribution of insurance as well as information on how the Insurance Distribution Directive was transposed in each Member State.  For instance, the report makes reference to the various insurance distribution requirements of the Consumer Protection Code and also to the Fitness and Probity Regime applicable in Ireland.

EIOPA has also invited all interested stakeholders to fill in an online survey by 22 September 2019 answering, among others, the following questions:

1. Taking into account the general good rules cited in the report, please can you specify any examples of general good rules which you consider to be disproportionate with regards to consumer protection?

2. Taking into account the general good rules cited in the report, please can you specify any examples of general good rules that may have an adverse impact on your day-to-day cross-border business activities?

Read the report.

EIOPA publishes ‘Consultation Paper draft Opinion on the supervision of remuneration principles in the insurance and reinsurance sector’

On 25 July EIOPA published its ‘Consultation Paper draft Opinion on the supervision of remuneration principles in the insurance and reinsurance sector’.   The Consultation Paper, which is addressed to national supervisory authorities, aims to harmonise how EU regulators assess compliance with the Solvency II requirements on remuneration.

EIOPA is seeking the views of relevant stakeholders by 30 September 2019.

Read the Consultation Paper. (PDF, 504KB)

EIOPA publishes ‘Discussion Paper on Methodological Principles of Insurance Stress Testing’

On 22 July EIOPA published a discussion paper inviting comments from interested stakeholders on its approach to EU-wide insurance stress testing. 

Stakeholders are invited to submit their feedback by 18 October 2019.

Read the Discussion Paper. (PDF, 23MB)

EIOPA publishes Risk Dashboard based on the first quarter 2019 Solvency II data

On 26 July EIOPA published its Risk Dashboard summarising the main risks and vulnerabilities in the EU insurance sector identified from Q1 2019 prudential and financial stability Solvency II data.

View the Dashboard. (PDF, 1.6MB)

EC sets out its equivalence policy with non-EU countries

EC in July 2019 has issued a communication on its approach to “equivalence” provisions in financial services legislation. These provisions are critical for third-country firms providing services into the EU and impact groups' capital requirements. Equivalence decisions allow the EC to recognise that the financial regulatory or supervisory regime of certain non-EU countries is equivalent to the corresponding EU framework. The Commission may declare a third country equivalent when the third country's regulatory and supervisory framework delivers equivalent outcomes as compared to the relevant EU framework.

The Communication notes that recent legislation (such as the new prudential rules for investment firms) include `improved' equivalence provisions, which emphasise that decisions need to be risk-sensitive, reflect closely the third country's regulatory and supervisory framework, and take into consideration the impact of third-country activities in the EU. They also underline that ongoing compliance with any criteria and conditions must be ensured.

Read the Communication.

PRA related updates

PRA issues Consultation Paper on Solvency II: Group availability of subordinated liabilities and preference shares

In this Consultation Paper published in July, the PRA clarifies its expectations regarding the availability of group entities’ subordinated liabilities and preference shares to cover the group solvency capital requirement. This Consultation Paper is relevant to all insurance firms within the scope of group supervision under the Solvency II and to the Society of Lloyd’s.

This consultation closes on Monday 21 October 2019.

Read the Consultation Paper (PDF, 765KB)

Remuneration requirements – PRA findings and expectations

On 12 July the PRA sent a Letter to Chairs of the Remuneration Committees of PRA-regulated insurers.  In the Letter, the PRA notes that there is a wide range of interpretations of the Solvency II remuneration requirements and highlights the significance of firms’ remuneration policies and practices as they drive underwriting decisions, individuals’ behaviour, and organisational culture.

The letter provides clarification on the PRA’s expectations of firms and Remuneration Chairs in their implementation of the Solvency II Delegated Regulation remuneration requirements.

Key considerations discussed in the letter include identification of Material Risk Takers (MRTs), adoption of balanced and appropriate variable remuneration structures, ex-post risk adjustments and the role of the RemCo.

Read the letter (PDF, 305KB)

25 July: UK withdrawal from EU: Changes following extension of Article 50

The Bank of England and PRA have published a consultation paper in light of the extension of Article 50 to 31 October 2019. These include proposed updates to the Binding technical standards within the PRA’s remit that will be retained or ‘onshored’ into UK law. In particular for insurance firms, these updates include the revisions to the Solvency II Delegated Act which became effective in July and will therefore form part of onshored EU regulations on exit day.

The consultation also provides an update on the transitional direction which the PRA intends to issue before exit day. In the event of the UK leaving the EU without an Implementation Period, the PRA’s proposed transitional direction would come into force on exit day. The impact of this direction would be to provide a ‘standstill’ for firms who will continue to be subject to pre-exit requirements until 31 December 2020, as opposed to 30 June 2020 as set out previously in policy statement PS5/19 earlier this year.

Feedback is requested by 18 September 2019.

Read the consultation paper (PDF, 7.1MB)