European Insurance and Occupational Pensions Authority
Insurance Distribution Directive - EIOPA publishes consultation paper on draft guidelines on integration of sustainability preferences - 14 April 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper on draft guidelines on integrating the customer’s sustainability preferences in the suitability assessment under the Insurance Distribution Directive ((EU) 2016/97) (IDD).
EIOPA notes that, on 2 August 2022, Commission Delegated Regulation (EU) 2021/1257 will amend the IDD so as to introduce changes in the way customers’ sustainability preferences are taken into account in the suitability assessment by insurance undertakings and intermediaries providing advice on insurance-based investment products.
The changes aim to ensure that retail investors can invest and save sustainably, and facilitate their participation in the transition to a low-carbon, more sustainable, resource-efficient and circular economy, as insurance undertakings and intermediaries have to recommend insurance-based investment products that meet the sustainability preferences of their customers or potential customers, if they have such preferences.
Seeking to reduce the risk of diverging interpretations among member states, EIOPA’s draft guidelines include guidance on:
- how to help customers better understand the concept of “sustainability preferences” and their investment choices;
- the collection of information on sustainability preferences from customers; and
- when to assess sustainability preferences.
The deadline for responses is 13 May 2022. EIOPA expects to publish the final guidelines in July 2022.
EIOPA Consultation Paper: draft guidelines on the integration of the customer’s sustainability preferences in the suitability assessment under the Insurance Distribution Directive (BoS-22-246)
Webpage
Contract boundaries and technical provisions valuations - EIOPA publishes reports on the revision of guidelines - 21 April 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has published final reports on the revision of its guidelines on contract boundaries and on the valuation of technical provisions. The reports follow consultations published in July 2021, which, in turn, followed EIOPA’s 2020 review of Solvency II (2009/138/EC). That review identified divergent practices and the need for additional guidance in both these areas.
The first report on contract boundaries calls for the consistent application of an insurance or reinsurance contract boundary. The new and amended guidelines promote the unbundling of an insurance or reinsurance contract and the assessment of whether a financial guarantee has a discernible effect on the economics of the contract.
The second report on valuation of technical provisions promotes consistency of professional practice for insurers across the EU. The new and amended guidelines are on topics relevant for the valuation of the best estimate. This includes the use of future management actions and expert judgment, expenses modelling and the valuation of options and guarantees by economic scenario generators. The report also clarifies the requirement in relation to the calculation of expected profits from future premiums.
EIOPA requires national competent authorities (NCAs) to confirm whether they comply or intend to comply with the revised guidelines, with reasons for non-compliance, within two months of EIOPA issuing the translated versions. EIOPA will publish the fact that an NCA has not, or does not intend to, comply with the revised guidelines. It will also disclose in its annual report each NCA that has not complied and outline how it intends to ensure that these NCAs follow the guidelines in the future.
Final report: revision of guidelines on contract boundaries
Final report: revision of guidelines on the valuation of technical provisions
EIOPA webpage: final reports on the revision of guidelines on contract boundaries and the valuation of technical provisions
HM Treasury
Pre-paid funeral plans - HM Treasury publishes consultation response - 21 April 2022
HM Treasury has published the response to its July 2021 consultation on its proposed approach to protecting consumers if a regulated funeral plan provider fails. The consultation followed the FCA’s response (PS21/8) to its March 2021 consultation paper (CP21/4), in which the FCA stressed the importance of protecting consumers from potential firm failures, including by introducing Financial Services Compensation Scheme (FSCS) protection for certain funeral plan activities from July 2022. In light of this, the government acknowledges that further legislative changes are required to ensure that the FSCS can operate effectively for consumers of pre-paid funeral plan contracts if a regulated provider fails.
In its consultation, the government proposed to make a statutory instrument enabling the FCA to make rules that will:
- allow the FSCS to secure continuity of cover for funeral plan holders in appropriate circumstances; and
- give the FSCS further rights in relation to the trust assets and insurance policies backing funeral plans.
The response notes that all respondents supported, and some strongly supported, the government’s proposed approach and, therefore, it will proceed with that approach as consulted on.
The response also sets out two additional provisions that the government will introduce in forthcoming legislation, to:
- place an additional statutory duty of cooperation on insolvency practitioners. This will require them to cooperate with the FSCS if a regulated funeral plan provider fails; and
- make it easier for funeral plan providers that seek to exit the market to transfer their existing funeral plan contracts to another funeral plan provider for regulatory purposes.
The government will lay the relevant secondary legislation to amend the regulatory framework when parliamentary time allows. This legislation will enter into force on 29 July 2022, alongside The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2021 (which brings providers of pre-paid financial plan contracts within the FCA’s regulatory remit). This will ensure that consumers are protected by the FSCS against future failure as soon as funeral plan providers become authorised.
HM Treasury: Regulation of pre-paid funeral plans - the role of the Financial Services Compensation Scheme where a regulated funeral plan provider fails: Response to the consultation and additional provisions
Webpage
Please see the Securities and Markets section for an item on ESMA’s response to the European Commission’s consultation on retail investors’ suitability and appropriateness assessments under MiFiD II and IDD.
Recent cases
Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474 - 11 April 2022
Liability of an execution-only SIPP provider to an investor - FCA Conduct of Business sourcebook (COBS) Rule 2.1.1 - FSMA 2000 (Regulated Activities) Order 2001 (SI 2001/554) – FSMA 2000
The UK Supreme Court has denied the STM Group Plc’s (STM’s) application for leave to appeal the Court of Appeal’s judgment in Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474. STM argued that the Court of Appeal “erred in law” in its application of section 27 of FSMA after overturning the High Court’s previous ruling.
The original case was heard in March 2018 and relates to an investment made in 2012, prior to STM’s acquisition of Options UK Personal Pensions LLP (formerly Carey UK Pensions LLP) (Carey) in February 2019. Mr Adams had been advised by an unregulated introducer based in Spain, CLP Brokers Sociedad Limitada (CLP), to invest in storage pods through a self-invested personal pension (SIPP) provided by Carey. Carey and CLP had entered into a ‘Non-regulated Introducer Agreement’. After the storage pods proved to be an unsuccessful investment, Mr Adams sought relief from Carey, which was granted by the Court of Appeal pursuant to section 27 of FSMA, following dismissal from the High Court.
A condition of the acquisition was the indemnity on any claims in the Adams v Carey case, with the benefit of significant existing PI cover held by the vendors. In a press release, STM highlights that this means that the decision does not directly impact STM’s exposure in the case, but will have implications for the financial services industry more broadly.
STM Group Plc press release
