European Insurance and Occupational Pensions Authority
Product oversight and governance - EIOPA publishes Supervisory Statement - 30 November 2021
The European Insurance and Occupational Pensions Authority (EIOPA) has published a Supervisory Statement (EIOPA(2021)0045739) which sets out the common principles needed so that unit-linked products can offer value for money, following a consultation paper on this matter published in April 2021.
More specifically, Article 25 of the Insurance Distribution Directive ((EU) 2016/97) (IDD) and the IDD product oversight and governance Delegated Regulation ((EU) 2017/2358) require manufacturers to test whether products are aligned with the target market’s needs, objectives and characteristics. The Supervisory Statement clarifies the main principles that EIOPA expects to see in their risk-based supervisory approach to the implementation of IDD POG rules, and includes guidance on pricing, complexity and testing, among other things.
EIOPA Supervisory Statement on assessment of value for money of unit-linked insurance products under product oversight and governance (EIOPA(2021)004539)
Bank of England
Solvency II Review - Bank of England publishes speech on policyholder protection - 1 December 2021
The Bank of England (the Bank) has published a speech by Governor Andrew Bailey on the topic of delivering policyholder protection in the context of reforms to Solvency II (2009/138/EC), in which he provides an update on the ongoing review of the UK Solvency II regime.
The Government’s Call for Evidence for the review of UK Solvency II launched in October 2020, and set out three objectives: (i) to spur a vibrant, innovative and internationally competitive insurance sector; (ii) to protect policyholders and ensure the safety and soundness of firms; and (iii) to support insurance firms to provide long-term capital to underpin growth.
In the speech, signalling the direction of reform, Mr Bailey highlighted that “a more flexible approach may help to balance the elements of the objectives”, but cautioned that, “it can also lead to apparent tensions, for instance between policyholder protection and insurers playing their important part as investors in the economy, particularly for less liquid longer-term assets such as infrastructure.”
Mr Bailey also made the following points of interest:
- Risk margin: “the current calibration of the Risk Margin is too sensitive to interest rates, and in particular is too high when rates are low”;
- Matching adjustment: “the Fundamental Spread does not include explicit allowance for uncertainty around defaults and downgrades, and appears low compared with ranges implied by academic literature for the credit risk portion of spreads. It is also not sensitive to changes in credit market conditions and changes little as spreads change over time,” and nor is it “sensitive to risk and spread across asset classes”, creating a risk of adverse selection based around the regulatory rules. The PRA and HM Treasury are working on these issues;
More generally, Mr Bailey observed that Solvency II is, “cumbersome and therefore slow moving in practice, combined with the operational costs involved”, and that addressing this should be a common objective.
Speech by Andrew Bailey: Reforming Solvency II: Delivering policyholder protection
Financial Conduct Authority
Pension Wise guidance - FCA publishes Policy Statement (PS21/21) - 1 December 2021
The FCA has published a Policy Statement (PS21/21) on ‘The stronger nudge to pensions guidance’ following its consultation paper on the same topic published in May 2021 (CP21/11). The FCA’s final rules amend the Conduct of Business sourcebook (COBS) such that when a consumer has decided in principle how they wish to access their pension savings, or transfer rights accrued under their existing pension to another pension provider for the purpose of accessing their pension savings, pension providers must:
- refer the consumer to Pension Wise guidance;
- explain the nature and purpose of Pension Wise guidance;
- offer to book a Pension Wise guidance appointment, and where the consumer accepts that offer, book the appointment or provide the consumer with sufficient information to book their own appointment; and
- confirm and record whether the consumer declined the offer to receive the Pension Wise guidance. These rules implement the requirements set out in section 18 of the Financial Guidance and Claims Act 2018, and come into force on 1 June 2022.
The Policy Statement also sets out the FCA’s next phase of work, beginning early-2022, where it will consider the pensions guidance needs of consumers more holistically at different points in their pensions journey, including in the run up to accessing their pensions savings.
FCA Policy Statement: The stronger nudge to pensions guidance: feedback on CP21/11 and final rules and guidance
Conduct of Business Sourcebook (Final Nudge to Pensions Guidance) Instrument 2021 (FCA 2021/54)