EIOPA to focus on enhancing supervisory convergence

The European Insurance and Occupational Pensions Authority (EIOPA) has said that in the next three years, one of its key priorities is to further enhance supervisory convergence, with the aim to move towards a common European supervisory culture. Speaking at EIOPA’s seventh annual conference in Frankfurt, Gabriel Bernardino, chairman of EIOPA, said it would be a risk-based culture that: - Aims to ensure strong but fair supervision - Is based on a forward-looking and proportionate approach to risks - Takes into account that it is always better to prevent than repair - Prioritises the dialogue with market participants in order to better understand their business models, strategies and underlying risks - Applies professional scepticism and a challenging attitude - Promotes early enough awareness and supervisory action in order to protect policyholders and mitigate possible disruptions in the market. “A common supervisory culture cannot be built overnight,” he said. “By working together, step-by-step, focused and challenging each other along the way, we can build a strong and fair supervisory culture that promotes consumer protection and enhances the stability of the financial system for the benefit of Europe's business, economy and citizens.” Mr Bernardino explained that because of the internal market and cross-border activities, “the quality of national supervision is no longer solely a national issue, but a European issue”. He continued: “Day-to-day supervision, including the responsibility for monitoring and ensuring the proper functioning of insurance companies in the European Union, lies with the national supervisory authorities. EIOPA’s supervisory convergence agenda is focused on building common standards and interpretations, on leveraging data for risk assessment and supervisory purposes, on monitoring common standards and on challenging and supporting national competent authorities.” He pointed to the European Commission’s proposal for the review of EIOPA’s regulation, and said this too puts an emphasis on achieving supervisory convergence. “We strongly welcome the proposal and believe that EIOPA’s stronger mandate to ensure convergence in supervisory practices through the development of strategic supervisory plans and the empowerment to undertake independent assessments of internal models, are clearly steps in the right direction.” However, Mr Bernardino said there are still issues that require some fine tuning. Firstly, he said EIOPA’s regulation should be strengthened, “with a mandate to act more intrusively when it detects signals of risks of cross-border failures”, adding: “In order to allow EIOPA to act in a preventive manner, national supervisory authorities should be obliged to notify EIOPA early enough in case insurance companies experience deteriorating financial conditions with possible cross-border effects.” Secondly, EIOPA’s role with regards to supervisory independence and conflict of interests should also be strengthened. “These fundamental supervisory principles have gained even more relevance under Solvency II, due to the degree of supervisory judgement necessary in the application of a risk-based regime. It is fundamental that national supervisors are operationally independent and that they are accountable for the exercise of their functions and powers. The operational independence, transparency, and accountability of national supervisors need to be reinforced, with the establishment of a strong European framework and a clear role for EIOPA in assessing its implementation,” he said. Mr Bernardino concluded by raising some questions that deserve attention and debate: - Is there a need to move towards an activities-based regulation to ensure that all kind of players, be it risk carriers or intermediaries, are captured by the regulatory framework and that the requirements on the provision of information to consumers are technology neutral? - Is it time to start to be concerned with ethical issues surrounding the use of sophisticated algorithms for insurance pricing? - Should we devote more attention to the emergence of new possible sources of systemic risk, like cyber incidents amplified through the exponential interlinkages between big technological providers and the financial sector, as is the case with the usage of the cloud? - Is the future of insurance to be mostly transformed into a service-oriented tool designed to prevent risk more than pay claims? Will we end up with only a small number of true risk carriers with huge balance sheets to cover tail risks?

EIOPA to focus on enhancing supervisory convergence

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