Insurance

Issue 1171 / 4 August 2022

European Insurance and Occupational Pensions Authority

Governance arrangements in third countries - EIOPA consults on draft supervisory statement - 1 August 2022

The European Insurance and Occupational Pensions Authority (EIOPA) has published a consultation paper (EIOPA-22-715) (dated 29 July 2022) containing a draft supervisory statement on the use of governance arrangements in third countries to perform functions or activities. EIOPA has developed the draft supervisory statement on the basis of the Solvency II Directive (2009/138/EC) (in particular, Articles 18, 29, 35 and 41) and the Insurance Distribution Directive ((EU) 2016/97) (IDD) (in particular, Articles 1(6), 3, 10 and 16).

The draft supervisory statement aims to ensure appropriate supervision and monitoring of the compliance of insurance undertakings and intermediaries with the requirements of the relevant EU legislation in relation to their governance arrangements in third countries.  In particular, it notes that EIOPA has previously underlined the need for insurance undertakings not to display the characteristics of an empty shell company and instead demonstrate an appropriate level of corporate substance, including the presence of key decision-makers, function holders and staff to an extent proportionate to the nature, scale and complexity of the firm's business in the EEA. EIOPA is concerned by governance arrangements when they are used to conduct certain regulated functions and activities for undertakings and intermediaries that ultimately serve policyholders in EEA. This has the potential to impair risk management and effective decision making and affect the ability of supervisory authorities to conduct proper supervision.

The deadline for responses is 31 October 2022.

EIOPA Consultation Paper: on Supervisory Statement on the use of governance arrangements in third countries to perform functions or activities (EIOPA-22-715)

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Press release

Climate change risk scenarios - EIOPA publishes Application Guidance and Feedback Statement on Own Risk and Solvency Assessment - 2 August 2022

EIOPA has published Application Guidance (EIOPA-BoS-22/329) on running climate change materiality assessments and using climate change scenarios in the Own Risk and Solvency Assessment (ORSA) (the Guidance). EIOPA has also published a Feedback Statement (EIOPA-22-646) in relation to its December 2021 Consultation Paper on a draft of the Guidance.

The Guidance supports EIOPA’s April 2021 Opinion (EIOPA-BoS-21-127) by giving practical and concrete examples to support the inclusion of climate change in the ORSA, with a particular focus on small and medium sized enterprises with limited resources. It sets out how to implement sustainable finance plans, includes case studies for materiality assessments of climate change scenarios and provides general insights on how firms can address climate change risks in the ORSA based on ‘dummy’ non-life and life company examples. EIOPA highlights that the Guidance is not binding and is not a supervisory tool, rather an initial aid for firms to use when conducting analysis on climate change in the ORSA.

In light of the feedback received to the consultation, EIOPA is proceeding with the Guidance as consulted on. However, EIOPA notes that to reconcile the very long-term dynamics of climate change with the operational ability to assess the impact of related risks based on the firms’ current business models, a new approach in the ORSA may be needed to analyse climate change risks. EIOPA also highlights the importance of flexibility in approaches and models used for climate change reporting, and encourages firms to choose the most appropriate approach for their business and risk profile.

EIOPA Application guidance on running climate change materiality assessment and using climate change scenarios in the ORSA (EIOPA-BoS-22/329)

EIOPA Feedback Statement: “Application guidance on running climate change materiality assessment and using climate change scenarios in the ORSA” (EIOPA-22-646)

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Press release

Financial Conduct Authority

Non-compliant pension transfer advice - FCA publishes Consultation Paper (CP22/15) on calculating redress - 2 August 2022

The FCA has published a Consultation Paper (CP22/15) on calculating redress for consumers who have suffered financial loss because a firm’s non-compliant advice caused them to transfer from a defined benefit pension scheme to a defined contribution pension scheme.

The Consultation Paper follows the FCA’s periodic review of its methodology for calculating redress, which found that, overall, the current methodology remains appropriate.  The methodology aims to put them, so far as possible, back in the position they would have been in if they had been given compliant advice and remained in their DB scheme.  That said, the FCA has identified areas where it could improve or clarify the methodology to ensure it continues to reflect actuarial best practice and is responsive to consumers’ individual circumstances. These include:

  • consolidating the methodology as rules and guidance in the FCA Handbook;
  • changing the approach to determining the consumer’s retirement age;
  • paying as much redress as possible into the consumer’s defined contribution pension and ensuring that calculations are more understandable and transparent for consumers.

The FCA explains that the proposed changes to the methodology should also apply when firms are calculating redress under the proposed British Steel Pension Scheme (BSPS) redress scheme. The FCA has identified two areas not covered in the review, where it considers the scheme should have a BSPS-specific approach rather than simply using the methodology for all cases. These are:

  • where it is necessary because of issues specific to the scheme or the consumers covered by it; and
  • where the focus of the redress scheme on transfers out of a single defined benefit scheme permits a different approach to the general methodology, which must cater for all defined benefit schemes.

The proposed rules and guidance implementing the FCA’s proposed changes to the methodology are set out in a draft version of the Pension Transfer Redress Instrument 2022, which is contained in Appendix 1 to the Consultation Paper.

The deadline for responses is 20 September 2022. If the FCA decides to make changes to the methodology and implement the proposed BSPS consumer redress scheme, it will publish a Policy Statement including final rules during the winter of 2022. The FCA would expect any BSPS redress scheme to come into force in early 2023, with most members who are eligible receiving compensation later in 2023 or in early 2024.

FCA Consultation Paper: Calculating redress for non-compliant pension transfer advice (CP22/15)

Deloitte Technical Report: FCA Periodic Review of Defined Benefit Pension Transfer Redress Guidance

Deloitte Technical Manual: FCA Periodic Review of Defined Benefit Pension Transfer Redress Guidance

Legal Opinion: Michael Furness QC

Press release